Funding Formula Fallacies, or How Regressive is Rhode Island’s Current Property Tax Structure?
“There is an ocean of money available for some communities that is not there for poorer urban communities,” says Providence City Councilman Terrence M. Hassett, a Smith Hill Democrat.In other words, there’s money for the taking all over Rhode Island, and Councilman Hassett wants it for Providence!
Of course, it’s not just about Providence. The Projo’s almost-always excellent Julia Steiny, who alas has gone over to the darkside on the issue of the “funding formula”, was a little more precise this past Sunday, explaining its purpose as transferring money away from “property-rich” districts…
One big problem with [current funding formula proposals] is that they commit the state to pay 25 percent of every district’s funding, at a minimum. Whoa. This effectively means shifting money from the low-income districts, which get more state help, to the property-rich ones, that currently get as little as 3, 4, 6 percent from the state. This is certainly not in the spirit of equity for the low-income kids. So strip out this and any other provision blocking the way to an equitable target formula.However, for the great majority of Rhode Islanders, tax-payments don’t come out of property wealth; they come out of income, the more meaningful baseline for analyzing government taxation and expenditure policies.
For every Rhode Island school district of 20,000 residents or more, a 2007 estimate of community income is available from the United States Census Bureau‘s American Community Survey. The Rhode Island Department of Administration’s Municipal Affairs Office compiles data on residential tax-levies collected by each city and town in the state (presented in an earlier post here). Combining these sources, residential tax-levies as a percentage of community income for the year 2007 can be calculated, for RI school districts with 20,000 or more people…
|Res. Tax Levy|
(2007 RI Muni Afrs)
|Res. Levy As|
% of Income
The supposed “regressiveness” of the property tax doesn’t appear in the community-level data. Rhode Island’s lower-income communities, the communities that are taxed-to-the-max according to the conventional wisdom, actually pay some of the smallest percentages of income in residential property taxes. (And these figures don’t include the separate fire-district levies that are present in some communities).
Woonsocket and Pawtucket, in particular, combine large per-pupil state education aid totals with small residential tax levies into the smallest amount of per-pupil spending in Rhode Island, suggesting that they have been using state education aid money not as a supplements to local revenue sources for building stronger education systems, but as replacements for local revenue. For example, if Woonsocket’s residential tax-levy per dollar of community income was at the level of Pawtucket’s, i.e. second lowest on the list above, instead of the lowest, about $5.5 million additional dollars each year would be available to the Woonsocket school system.
Now, communities have every right to make decisions about the taxing and spending levels they would like to set. What they don’t have is a right to raise taxes on the rest of the state to pay for the choices they’ve made, when their fiscal policies hit a wall.
To truly make education work, Rhode Island needs a “funding formula” that guarantees that money intended for education actually goes to improving education and not to clutching and grabbing politicians who may be more interested in replacing revenue over improving the quality of services. Instead of shifting money between district-level bureaucracies, where it likely to vanish into Rhode Island’s arcane budgeting processes, a “funding formula” should be based on the idea of money following the student to the school chosen by the student and his or her family, through open districting, charters, and/or vouchers, so there’s a greater likelihood of it being applied towards its intended purpose of improving education.
And Rhode Island cannot afford – in a very literal sense — to give its elected leaders any excuse through a “funding formula” to say: sorry, high-taxes are written into law whether the revenue is used to improve student performance or not, and there’s nothing we can do about it.
Commenter “John” raises an important point regarding Rhode Island’s tax classification system…
Urban communities have a significantly higher number of apartment developments (both rent subsidized and not) that are privately owned, yet classified and taxed as “commercial” property. The folks who live in these apartments are having their income counted in your analysis, but the levy on their “residence” isn’t being counted.However, I will point out that Woonsocket’s entire commercial/industrial levy for 2007 was $11,098,260; if apartments accounted for half of that levy in Woonsocket (about $5.5 million), and no part of the levies anywhere else, it would still only move Woonsocket up one spot on the list.
The disproportionate amount of such residential high density living creates an appearance of low taxation where it may not truly exist.
Adding to the problem in doing such an analysis, the various special laws regarding classification may have the break for classification as residential or commercial at different points. Generally, state law forces classification of every building with six or more apartments as commercial property. In Woonsocket, that threshold is for ten units or more…
John raises a second important point…
Please let’s continue the discussion.