Funding Formula Fallacies, or How Regressive is Rhode Island’s Current Property Tax Structure?

Providence City Councilman Terrence Hassett, quoted in a
Philip Marcelo
Projo article from a week ago Sunday, explained the purpose of an education “funding formula” more directly than most…

“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…





















MunicipalityPopulation
(2007 ACS)
Per-Capita Income
(2007 ACS)
Aggregate
Income
Res. Tax Levy
(2007 RI Muni Afrs)
Res. Levy As
% of Income
Westerly 23,033 $31,968 $736,318,944 $49,194,534 6.7%
South Kingstown 29,149 $30,952 $902,219,848 $52,242,106 5.8%
Chariho (R) 24,214 $31,136 $753,927,104 $43,614,470 5.8%
Newport 23,368 $31,802 $743,149,136 $40,355,194 5.4%
Johnston 28,786 $27,557 $793,255,802 $41,208,491 5.2%
Cranston 82,397 $26,020 $2,143,969,940 $101,633,398 4.7%
North Kingstown 28,030 $38,059 $1,066,793,770 $50,529,940 4.7%
Coventry 35,420 $29,526 $1,045,810,920 $46,659,667 4.5%
Bristol/Warren (R) 33,616 $29,140 $979,570,240 $43,443,793 4.4%
Smithfield 21,314 $29,435 $627,377,590 $27,295,469 4.4%
West Warwick 30,560 $25,535 $780,349,600 $33,119,054 4.2%
Warwick 84,975 $30,163 $2,563,100,925 $105,379,974 4.1%
Cumberland 35,238 $30,150 $1,062,425,700 $40,650,687 3.8%
North Providence 34,022 $27,416 $932,747,152 $34,525,710 3.7%
Providence 170,220 $20,087 $3,419,209,140 $126,320,027 3.7%
East Providence 47,168 $26,295 $1,240,282,560 $44,567,063 3.6%
Lincoln 22,377 $33,527 $750,233,679 $26,341,821 3.5%
Pawtucket 72,335 $20,855 $1,508,546,425 $47,200,154 3.1%
Woonsocket 45,009 $20,397 $918,048,573 $23,083,073 2.5%

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.

CONTINUING DISCUSSION:

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.

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…

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.

John raises a second important point…

Please let’s continue the discussion.

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John
John
11 years ago

I suspect the analysis fails to recognize some of the differences in the make-up of the various cities and towns. Using only the residential levy will distort the result by making suburban taxpayers appear more generous than they are. 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. 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. There may be other special differences, but I have not done that research. I think further research needs to be done before your conclusion can be supported. Maybe later we can discuss the burden caused by the effect of public housing PILOTS that are like pocket change ($150,000 in Woonsocket this year) and the lack of state support for the high number of students residing in that public housing whose income (small as it may be) you count and that produce virtually no property tax support. After that we can consider the fact that only a few communities in the state get to send their Career & Tech students to Davies for free while others have to pay out their budget for the same education. For instance, Pawtucket spent only $350,000 for 480 students to attend… Read more »

Tom W
Tom W
11 years ago

Leaving aside for the moment that increased expenditures are not correlated with education system performance (but are correlated with the teachers unions’ “take”) …
The real (the unannounced) idea is to transform the property tax into a form of progressive tax, modeled on the income tax.
“Wealthy” district will receive less “aid” and so will fund all (or nearly all of their school systems), while “state aid” (largely derived from the income tax and sales taxes) will be redistributed to the “poor” districts.
Standard left-wing collectivism. Consider, for example, some senior on a fixed income in a “wealthy” district, that perhaps bought their home back in the 1960’s will now pay even more punitive property taxes – while another senior in an identical house and in identical circumstances will pay far less via what will amount to state-subsidized property taxes.

Phil
Phil
11 years ago

Standard left-wing collectivism. Consider, for example, some senior on a fixed income in a “wealthy” district, that perhaps bought their home back in the 1960’s will now pay even more punitive property taxes – while another senior in an identical house and in identical circumstances will pay far less via what will amount to state-subsidized property taxes.
Posted by Tom W at July 29, 2009 11:18 AM
Is there a difference in the property values between your two invented identical seniors ?

John
John
11 years ago

Andrew, you prove my point. Woonsocket has the highest commercial rate in the state! Obviously, even with that there is significantly less reource per student in the school system! Plus the lack of support for public housing (not enjoyed by those in suburbia) and the corruption of the Career & Tech school entitlements.

John
John
11 years ago

Now we are beginning to drift towards each other.

Tom W
Tom W
11 years ago

>Is there a difference in the property values between your two invented identical seniors ?
There may well be. But so to will the “per 1,000” rate in each community. Ultimately municipalities jigger their rates over the total value of property in their communities to “make” whatever they spend. So the more they spend, the higher will be property taxes across the board.
On a between municipalities “macro” level communities with less state aid are going to hit their homeowners with relatively higher taxes since they are paying full (or near) full boat for their school systems, while the “poorer” districts are not paying full boat for their school systems.

John
John
11 years ago

Tom W…”On a between municipalities “macro” level communities with less state aid are going to hit their homeowners with relatively higher taxes since they are paying full (or near) full boat for their school systems, while the “poorer” districts are not paying full boat for their school systems.”
But the “poorer” districts are paying the full boat for all of the children in public housing. Shall we share them with you. Feel free to build all the family public housing you like in the “wealthier” communities. We”ll pay the bus fare and moving costs.
You’re turning this into class warfare. Do you contend that by virtue of their lack of wealth they deserve less?

John
John
11 years ago

Andrew…”One concern, for example, is that a “funding formula” which fails to separate residential from commercial/industrial could encourage short-sighted politicians to raise rates on the commercial side, making it look like they are increasing their “tax effort”, but creating long-term negative economic consequences.”
You are absolutely correct. The bottom dwellers in your list are the communities with either a classification system, a homestead exemption, or both. These decisions were made by shortsighted politicians in order to pander to the voters (homeowners) and limit residential tax levy growth while shifting the load to businesses (they don’t vote, except with their feet when they leave town).
All of these classification and homestead exemption plans were approved by the General ASSembly. Nobody in that august body had the good sense to simply outlaw such political gamesmanship because it was detrimental to the economic interests of the state. Why you may ask? Because they are pandering idiots that go back to their community to brag about how much they’ve done for their town. They’re too dumb to know they just screwed things up a little more.
Should we expect more?

Tom W
Tom W
11 years ago

>>But the “poorer” districts are paying the full boat for all of the children in public housing.
Oh really? What about all that “federal” and “state” money that is “pumped into those communities” via Section 8 (the LANDLORDS still pay property taxes) and Medicaid and “family independence program” (or whatever the euphemism du jour for welfare is) and food stamps? I seem to recall that the folks from the Poverty Pimp Institute were pushing increasing enrollment in food stamps as “economic development.”
Since with our “progressive” income tax system the “rich” (who reside in the “wealthier” communities are footing the bill for that “economic development” – I don’t think that you want to go down that path.
Finally, why should it be a taxpayer problem if certain irresponsible people decide to produce children that they can’t afford? If we stopped subsidizing this behavior by insulating the practitioners of it from the consequences, we’d have far less of it.
Government programs don’t lift people out of poverty, they perpetuate it. The parasites at the Poverty Pimp Institute know this, which is why they and their ilk have been around for over 40 years, and fully intend to be around for 40 more, and 40 more after that …

Patrick
Patrick
11 years ago

“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.”
Still feel bad for the athletes in Woonsocket to lose their sports? Wasn’t the amount that they had to cut somewhere around $6.1M? So by adjusting from the current rate, to Pawtucket’s, they could fill the great majority of what they now need to cut.
Who’s fault is this again? Not Sue Menard’s? Them Woonsocket voters sure love her. Keep showing up at the high rises with the dog and bean dinners and not raising taxes and get re-elected. Sweet deal!

John
John
11 years ago

Tom W.
Those of us governing locally have to deal with the effects of the Federal programs that promote baby mommas, multi-generational government dependence and the like. I hate the system, but I am obligated to work with what we have while trying to fight the system. You seem not to have such a burden. I guess I could just quit and be like you.
The food stamps, medical care and others go to the person, not to reduce the property tax burden placed on the community by these people. The rent subsidies help the landlord pay the tax bill, so those houses do contribute to the tax revenue and help offset the budens that the subsidized family bring.
We raised our taxes this year to the cap (4.75%) and left another $2.4 million unbudgeted that we should have spent because two members said no. Even with all that (and the remaining $2.4 million) we still would be level funding education and would still be $6 million short of their budget. So now Woonsocket has a residential tax rate in the middle of the pack and still has the highest commercial tax rate in the state. I’m really feeling suburban now!
I feel so good for you that you could escape such a fate and feel comfortable in your belief that those who choose to live in the community in which they were born deserve to suffer at the hands of the liberals in Congress. I envy the horror of the burden you bear of being better than us. It must be terrible. I might lose sleep tonight worrying about you.

Tom W
Tom W
11 years ago

>>Those of us governing locally have to deal with the effects of the Federal programs that promote baby mommas, multi-generational government dependence and the like. I hate the system, but I am obligated to work with what we have while trying to fight the system. You seem not to have such a burden. I guess I could just quit and be like you.
I don’t have the burden of being an elected official – just of being a citizen and taxpayer.
Perhaps in your elected capacity it’s time for you and others (strength in numbers / not being the one nail sticking up, etc.) to commence some “civil disobedience” – e.g., if the state don’t fund it start eliminating the “unfunded mandates” instead of school sports.
Then publicly challenge Bill Murphy and Teresa Paiva-Weed to come and do a Donald Trump to your group and tell you that “you’re fired.” Invite Jack and Sheldon and Patrick and Jim for good measure.
This state is collapsing, and judging by the General Assembly’s (again) passing the buck to the localities it’s going to take taxpayer revolt and local officials’ resistance.

doughboys
doughboys
11 years ago

The current funding ‘formula’ puts a burden on the elderly who haven’t had kids for some time. School funding can be 75% of the property tax there should be some credit for the elderly on this imo.

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