Education Finance and Accountability Program
(EFAP)
 

The centerpiece of STAR is a property tax exemption for homeowners that will eventually equal $30,000 in most school districts. Consider a homeowner with a $100,000 house in a school district with a tax rate of 2 percent. This exemption cuts the homeowner's property taxes from 2 percent of $100,000 to 2 percent of $70,000, cut of $600. STAR also requires the State to compensate school districts for the revenue they lose because of these exemptions. The total cost to the State will eventually reach $3 billion per year, which is more than one-quarter of the State's total education budget.

STAR has three major flaws.

First, STAR creates significant new inequities between taxpayers. These inequities arise because the STAR property tax exemptions are higher in higher-wealth counties. The exemption in Westchester County, for example, will be $72,072 compared to $30,000 in many other places. At a 2 percent tax rate, a homeowner in Westchester County will save $1,441 per year whereas many other homeowners will save only $600. The State has no business subsidizing homeowners who choose to live in wealthier communities. Moreover, STAR provides no tax relief for renters. Because renters pay some share of property taxes through higher rents, this is profoundly unfair.

Second, and more important, the STAR provisions that cause inequity between taxpayers also cause inequity between school districts. Downstate suburban districts will receive an average tax savings of $1,502 per pupil, compared to only $582 in New York City and $600 in the three large upstate cities. This gap is so striking for New York City that STAR includes supplemental income tax relief for City residents. Even with this supplement, the City will receive only two-thirds as much support from STAR as its suburbs, and no such relief is available to other low-wealth, high-renter districts. No fairness principle can justify this design; indeed, it undermines a decades-long search for aid formulas that give more money to lower-wealth districts.

Finally, STAR gives all school districts a powerful incentive to increase tax rates and educational spending, an ironic feature of a tax relief plan. By shifting a share of property tax payments from homeowners to the State, the STAR exemptions lower the effective price of education for local voters. We estimate that the average price cut will be 37 percent. Just as a cut in the price of coffee induces people to buy more coffee, this large cut in the price of education will eventually induce voters to raise educational spending. We estimate that, on average, spending will increase 14 percent and the school tax rate will increase by one-third, thereby boosting taxes for commercial and industrial property and raising the tax burden on renters. Because the price cut varies by district, these changes would also widen the gap between the best and worst schools and increase the cost of STAR by up to one-third above the official $2.2 billion estimate.

We support property tax relief for taxpayers in New York State. The problem with STAR is not with property tax exemptions, which can be a helpful way to promote equity across taxpayers and shift the educational financing burden toward the State, but with the provisions of STAR that promote inequity across taxpayers and school districts.

Thus, we believe that the State's budget surplus should be devoted to reforming STAR, not to implementing the current, flawed STAR more quickly. We propose a reform that would

• eliminate variation in the property tax exemption across counties,

• add tax relief to renters through an expansion of the current homestead exemption for renters in the State income tax,

• provide additional school aid to school districts with a high share of renters, and

• put a limit on STAR reimbursements to fiscally healthy school districts.

These reforms would eliminate STAR's gross inequities across taxpayers and help to close, not expand, the performance disparity between rich and poor school districts.

Although the schools in New York State are excellent on average, the low performance of schools in the state's large cities and other poor districts is a serious problem that should be of concern to all state taxpayers. In this setting, the implementation of STAR in its current form, which disproportionately aids rich districts and magnifies existing performance disparities, would be nothing short of a scandal. The Governor and the State Legislature should reform STAR now before it is too late.
 

* The authors teach at the Maxwell School at Syracuse University and have published several articles on education finance in New York State.