A 20-year-old cap on how much property tax revenue Wisconsin public school districts can earn has become a thorn in the sides of local officials as shrinking home values and dwindling state funding have put a squeeze on their budgets. As the provision comes under increased scrutiny in that state in the wake of the Great Recession, larger questions are being raised after whether limiting local public education revenue is a sustainable policy for the future.
In 1993, the Wisconsin General Assembly passed and Gov. Tommy Thompson signed a law that placed a firm cap on how much money per-student a school district could raise. The motivation was to limit school districts’ ability to raise local property taxes. Through a complex formula, based on the previous year’s student population among other factors, the state set the per-student cap (in 2011, it was a little more than $10,000). By subtracting from the cap the amount of money the state would contribute for each student, school districts knew how much they could levy in local property taxes.
It’s never been a popular policy with school boards, as it puts them in the uncomfortable position of having to formally ask residents for a property tax increase if they want to go above the cap. But the economic downturn—which simultaneously reduced the value of taxable property and forced the state government to cut its aid to schools—has made the whole system untenable for school districts, say Dan Rossmiller, director of government relations at the Wisconsin Association of School Boards (WASB).
“For school districts: it's the revenue limits, stupid. That's what really controls what kind of educational program they're going to have, and it creates a lot of uncertainty,” Rossmiller says. On the most basic level, school districts are setting annual budgets while the state legislature passes a budget every two years, so districts often don’t know what their revenue limit will be when they’re drafting a spending plan.
“The fundamental concern of every school board member is that whatever the legislature decides if it's going to be arbitrary and it's not going to be aligned with the costs that school districts have,” he says. “Your control over your own budget is limited. So what school boards find themselves doing is just figuring out what they have to cut.”
There are a number of problems with the policy, opponents say. For starters, the district profiles upon which the caps are based were created in 1993 and haven’t been appropriately altered to account for how school districts across the state have changed in the last 20 years. The law limits increases in the revenue cap by real dollar amounts, rather than adjusting for inflation. The policy also awkwardly disconnects state aid and the revenue limit. So if Gov. Scott Walker proposes a significant increase in state education funding in his upcoming budget, that doesn’t mean school will have more money to spend—it just means they’ll be able to charge less in property taxes.
Then you have the economic complications. As his state coffers dried up after the recession, Walker cut $800 billion in state aid in his FY 2011 budget. Then, worried that school districts would offset those losses with property tax increases and impede an economic recovery, the governor also reduced the revenue cap by 5.5 percent, the largest cut in their history. The result was $1.6 billion lost to Wisconsin schools, according to the Milwaukee Journal-Sentinel.
Walker’s office has argued that the collective bargaining reforms that the state has passed put school districts in a better position to handle those cuts. But the impact has still been felt in classrooms across the state. According to figures from the Wisconsin Taxpayers Association, the number of full-time teachers in the state has fallen by nearly 2,300 from 2010 to 2012, though it’s difficult to separate which losses are linked to the revenue limits, which were caused by the collective bargaining changes and which are unrelated.
So given the economic uncertainty of the last few years and the recognition that the United States as a whole needs to invest in education, some have been wondering if it’s time to reconsider property tax limits, particularly for school funding. Let individual communities determine how much funding to give schools without a mandate from the state, they say.
“We pay a lot of lip service to local control. You would think that core to local control would be the ability of local taxpayers to make decisions about how much to spend,” says Andrew Reschovsky, professor of public affairs and applied economics at the University of Wisconsin, who has studied the issue. “So why are we seeing state governments limiting the ability of local school districts?”
The property tax cap isn’t exclusive to Wisconsin. According to the National Conference of State Legislatures (NCSL), almost every state -- 47 -- places some kind of limit on how property tax revenue localities can raise. As local funding accounts for roughly 45 percent of public education’s income, those limits are felt by schools across the country. Five states (Delaware, Florida, Georgia, Louisiana and Minnesota) place limits on school districts specifically, as Wisconsin does.
So is this sustainable? Analysts like Reschovsky say the last few years suggest it isn’t. Alan Krueger, who chairs the White House Council of Economic Advisers, told NPR last week that the huge losses in property tax revenue can be blamed for the historic teacher job losses of the last few years.
It’s easy to see why. Property taxes specifically make up 29 percent of school revenue, according to an analysis by the Rockefeller Institute on the effect of the Great Recession on property taxes. As housing prices declined by nearly 15 percent from 2007 to 2012, property taxes have followed the same trajectory, shrinking by percentage for the first time in nearly 30 years.
“There are some indications that it's going to take states a lot of time to get back to the path they were on pre-recession,” Reschovsky says. “One way to think about it is in terms of the state's ability to fund larger share of education funding, they're tying their own hands. They're creating in effect a structural deficit for the future.”
In Wisconsin, though, there isn’t a lot of optimism that the revenue limits would be eliminated. It would require an action by the state legislature, and few believe state lawmakers would be willing to consider such a change. Instead, a movement is underway to try and reform the revenue limit system to make it more palatable for school districts. School boards have a laundry list of two dozen reforms they’d like to see, and State Superintendent of Public Instruction Tony Evers has introduced his own recommendations, including aligning revenue limit increases with inflation, rather than a strict dollar amount as it does now.
“I don’t think the legislature is going to relinquish control. They’re pretty rooted in the concept,” says WASB’s Rossmiller, whose group supports the superintendent’s proposal. “So we’re just trying to figure out how to improve it.”