Cutting School Taxes to Fix School Funding?

“[A]n investment in public education is essential to the future economic prosperity of our great state” declare the prime sponsors of a proposal for education funding reform. However, in part because they combine this reform with property tax cuts for businesses, Representatives Jenny Horne and Rita Allison and Senator Paul Campbell acknowledge that the proposal cuts $600 million statewide in school property tax funding. This when South Carolina from FY07-08 cut a larger share of per pupil funding, excluding federal aid, for education than any state in the Union according to an October 2011 study by the Center on Budget & Policy Priorities.

Rep. Horne et al. suggest funding that cut by taking “… sales tax revenues that have been diverted to other purposes and return them to their original purpose of funding education.” There is not $600 million sitting in the spare change drawer. Diverting $600 million in sales tax revenues currently spent elsewhere means dismantling more state programs and cutting the bejabbers out of health care … while still leaving the schools significantly underfunded.

Instead of “our decades-old, antiquated education-funding system, which channels money through 74 categories,” they propose assessing 100 mills ($100 per $1,000 of assessed value) based upon statewide property values. Currently, the value of a mill and the number of mills assessed varies school district to school district.

At the same time they would reduce the taxable value of manufacturing property and business personal property. The appraised value of a property is multiplied by an assessment ratio to arrive at the assessed value on which property taxes are levied. The appraised value of manufacturing property and business personal property is currently multiplied by 10.5 %. This proposal effectively drops that multiplier (the assessment ratio) to 6 %. A manufacturer with a property appraised at $100 million would see her assessed value drop from $10.5 million to $6 million. At the same millage, the property would produce only 57 % of the previous tax revenue.

This is a bipartisan proposal even though the lead sponsors are Republicans. Many Democratic legislators look to a state wide millage to address unequal wealth across the state. That impacts the ability of local taxpayers to support education, but also economic development when companies looking to locate in an Allendale know they will pay higher property taxes than in a wealthier county. Districts lacking significant business investments also look to those with those investments and seek to share the tax proceeds statewide. Fairfield and its nuclear plants especially get attention.

The distributional concerns are valid. Our state’s Education Finance Act (EFA), the base of state funding for schools, is intended to have the state cover, on average, 70 % of the cost of a foundation program. The state EFA funding for a particular school district varies by the wealth of the school district, reflected in assessed values and calculated as the Index of Taxpaying Ability (ITA), and by the cost of educating different kinds of students.

An elementary student with no physical, developmental, emotional or learning challenges is given a weight of 1.0. A hearing challenged child is weighted at 2.57. These produce weighted pupil units which, together with the wealth adjustments, drive the amount each district gets. Within the EFA, there is no weighting for poverty despite ample evidence that poor kids cost more to educate. The proponents of this change suggest that the property tax funds would be distributed to districts based upon tweaked weighted pupil units including a poverty measure.

The EFA has problems, relating to the fairness of the ITA measure of local ability to contribute, the adequacy of the weights assigned different kinds of students and how we should calculate the Base Student Cost to reflect changes since 1977. Those problems and fixes for them are described well by the SC League of Women Voters here. Fixing those so that we better reflect the actual costs of educating different kinds of students and that we more accurately assess district ability to fund education post-Act 388’s would address many of the distributional concerns facing poorer and rural school districts.

The core problem with the EFA, however, is that the General Assembly has not been funding it. In FY11-12, the formula would have produced funding of $2,790 as the Base Student Cost (BSC) rather than the $1,880 actually funded. Although the Governor proposed reducing the BSC, the House has improved the base student cost to $2,012 for the coming year … still nearly $450 million short of the formula. The General Assembly should fix the EFA and fund it.

Trying to fund an already under-funded education system and cut taxes at the same times entails a fundamental contradiction. Thinking that we can make up the $600 million by simply redirecting sales tax revenues not currently going to education is magical thinking. The sponsors of this legislation are supporters of public schools and the proposal is still sketchy. However, as currently outlined, this is a very bad prescription for South Carolina’s public schools and for “the future prosperity of our state.”


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1 Response to Cutting School Taxes to Fix School Funding?

  1. Pingback: Possible solution to fix School Funding? « SC Justice Watch

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