by Lindy Davies
The Lincoln Institute of Land Policy recently issued a glossy, authoritative “Policy Focus Report” on The Property Tax-School Funding Dilemma. The report was authored by Daphne A. Kenyon, Ph.D., a highly-credentialed Visiting Fellow and New Hampshire State Board of Education member. I thought this sounded like a good thing to share with GJ readers, so, with the organizational heft of the Henry George Institute behind me, I asked for a review copy, and Lincoln sent me one. Now, I don’t want to belabor this issue, but: you have to understand that in my role as principal writer, editor, designer, publisher and mail clerk of the modest publication in your hands, I was ready to hate this document, and to pull no punches in telling you so. Here it came, 64 full-color pages in soy-based ink on recycled paper, with five full pages of scholarly references, designed by a real design firm — I’m serious, this thing cost more than five Georgist Journals. But, we all do what we can. I’m almost sorry to admit that I found the report lucid, evenhanded, useful, and only mildly frustrating.
To make a long story short, the school funding controversy has revolved around two competing notions of equity — or, to be more frank, two springs of political outrage. One is the fact that kids in different places get wildly different levels of resources devoted to their public education. This has been a bone of contention at least since Brown v. Board of Education, and has yet to be resolved. The other is the perception that ever-increasing local property taxes are being grabbed to pay for ever-decreasing quality of schooling. The hue and cry for “property tax relief” was heard in California, to that state’s lasting detriment. In Michigan, voters opted for a dramatic increase in state income tax for school funding, leaving schools — particularly in poorer districts — much more vulnerable to economic downturns, such as has resulted from the collapse of the US auto industry.
The report offers a useful overview of trends in court decisions affecting education funding. The 1973 Supreme Court ruling in San Antonio Independent School District v. Rodriguez complicated matters, finding that school funding disparities between districts did not violate the equal protection clause, because education was not a fundamental right. The 5-4 decision in Rodriguez threw the matter back to state courts, which occasioned a complex wave of litigation. The major issues have been taxpayer equity (paying too much), student equity (getting too little) and, more recently, meeting some conception of minimum educational standards regardless of expenditure.
The main focus of this report, however — and the part that’s useful to Georgists — is its defense of the much-hated property tax. It finds — cautiously, yes, but in the end, definitively — that for funding public schools, the property tax is the best entree on the broad-based menu. It offers five “myths” about the property tax, with which Georgist activists would do well to become familiar, because Lincoln dances the mainstream dance, eschewing any hint of esoteric or “classical” terminology. The five myths are:
1. School funding litigation reduces reliance on property taxation. This is what the tax-cappers are after, of course, but the eminent sensibleness of the property tax makes it difficult, at the end of the day, to move away from.
2. Property-poor districts are also low-income districts. The report offers little on this beyond saying that the numbers don’t confirm it. It might have been interesting to consider the effects of suburban sprawl and land-price bubbles on this issue, but we have the Georgist press for that.
3. The property tax is regressive. This is conceptually the most important topic in the report — so, as one might expect, it is the most hesitant, cautious, heavily-documented section. Nevertheless the report concedes that a consensus is slowly building, from various conceptual directions, that the property tax actually doesn’t bear harder on poor people — certainly not more than, say, general sales taxes, cigarette taxes or lotteries. If the economic distinction between land and improvements were not taboo, this point could have been made more sharply.
4. Property tax rate equals property tax burden. That this is a myth is a no-brainer for two-rate reformers, of course, but it demonstrates the political labyrinth that unfortunately characterizes this whole discussion. The report says, basically, “No.” — and offers a very readable explanation of the process of tax capitalization.
5. Reducing reliance on property tax is usually beneficial. The report treads softly here, but ends up answering in the negative, if one is willing to wait for the punchline. The disadvantages of using the property tax to fund schools are preponderantly political; the advantages are essentially economic.
The report goes on to examine the role of state aid to schools.* This is, once again, a politically-loaded issue. State aid is seen by those concerned about “tax equity” as a way of reducing the property tax burden. It is also seen by those interested in per-student equity as a way of balancing educational expenditures. In fact, the report concludes, it really ends up being neither — and this is where the report becomes frustrating.
It concedes, in one telling moment, the essential difference between land and improvements: its sidebar on “tax capitalization” shows how identical houses can have different tax bills, and therefore different prices and mortgage payments. This is a vitally important point — essentially, the key to the whole thing — and yet is passed over in a technical note that many readers will be tempted to skip. If the report had the nerve to go on and explore this point, it would be able to offer a radical way of cutting the gordian knot of school funding.
How might we equalize expenditure per student, via a progressive tax that doesn’t unduly penalize anyone?
Perhaps one could suggest a statewide land value tax? Those interested in tax relief could point to lower taxes on their improvements. You want progressivity? Land ownership, per se, correlates very closely with ability to pay, and exceptions could be easily dealt with via circuit breakers (which the Lincoln report supports). The frustrating thing about this otherwise informative and helpful report is that it affirms the ubiquitousness of the “problem of scarcity.” It uses every opportinuty to complicate matters, to cite contradictory findings (how many readers are going to critically examine the five small-print pages of sources?) and to say to the reader, “This is a complicated issue; learned experts disagree on many of the essentials.”
True, it isn’t a simple issue. There are many factors involved: union politics, identity politics, economic polarization, urban blight, suburban sprawl, globalization, feminism, race — many, many factors. It really is complicated; it involves the future of our children. But the issue of public finance, nevertheless, is much, much simpler than the Lincoln Institute of Land Policy would have you think. It has long been apparent that the folks at Lincoln aren’t going to connect those dots. That’s our job.