Our school district budgets depend on property taxes, often accounting for more than half their revenue. Limited deductibility under the new federal tax law will cause property owners to seek savings on local spending to offset this lost income.
Other impacts are still unknown because the interplay of federal, state and local tax provisions is complex, compounded by individual circumstances. The uncertainty is giving rise to greater taxpayer skittishness over local school spending, as voters have the most direct control through voting on school boards and budgets.
The wheels are turning in Albany to revise state taxation to better align with the new federal code. School finance should be on the list for overhaul, leading to a fairer system of education for all students.
The antiquated system of dependence on property taxes strains localities in two ways. First, the tax falls on nonliquid assets — homes — so that we struggle to come up with money that is sunk in the ground. Second, the system produces tremendous inequities in school quality, with property-rich districts outdistancing their neighbors in competition for teachers, facilities and instructional resources. This system is broken, and it’s time to change. Schools are a state responsibility and reforming our school finance system to better reflect that duty is key to preserving, even enhancing, statewide educational quality.
The state can respond to the new tax law through redesigned funding provisions, unburdening taxpayers and promoting more equitable distribution of resources. The state is considering various tax-avoidance devices, including a payroll tax to preserve income deductibility and unlinking the state’s system from conformity with federal returns. This augurs well for breaking the legislative logjam when it comes to school finance.
Property tax relief adapted to new deductibility limits should accompany other tax reform strategies, shifting the bulk of school finance from localities to the state. This would provide cash relief for homeowners and place school funding where it belongs, as a statewide duty.
Under our constitution, the State Legislature must “provide for the maintenance and support of a system of free common schools wherein all the children of this state may be educated.” That requires, says our Court of Appeals, a provision for “a meaningful high school education.”
This legislative obligation has remained unfulfilled by offloading state responsibility to local taxpayers, now on the hook more than ever because of the new tax law. The Board of Regents recently called for an increase in state school aid by $1.5 billion, mostly to meet obligations arising from constitutionally based lawsuits by high poverty districts. While Gov. Andrew M. Cuomo proposed spending increases of less than half that amount, he acknowledged that poorer districts require increased assistance.
It will take imagination and political courage to fix the dual problems of tax-stressed Long Island voters and inequitable school funding. The Educational Conference Board, a statewide coalition of district administrators and parents, recommends reweighting categories of “foundation aid,” the state’s major school-funding formula. This would use state aid more efficiently, basing assistance on student poverty, disability, enrollment growth, English proficiency and population density. The current 12 percent of state aid from the state’s special revenue fund that supplements district revenues through lottery receipts, video lottery terminals, and commercial gaming should be increased. Expanding revenues beyond these limited sources and increasing the state’s share would limit the need for other revenue subject to the federal $10,000 limit on deductibility of state and local taxes.
Wealthy districts, those most affected by the deduction cap, would find relief in this plan and could come up with new ideas, such as charitable contributions in lieu of taxes, to maintain levels of achievement. And, property-poor districts would find increased revenue through a system that justly transfers school finance burdens statewide.
David C. Bloomfield is a professor of education leadership, law and policy at Brooklyn College and The CUNY Graduate Center.