Education
Finance
and Accountability
Program
(EFAP)
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John Yinger Director |
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William Duncombe Associate Director |
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Jerry Miner Senior Associate |
Ross Rubenstein Senior Associate |
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An Analysis of Two Educational Policy Changes
in New York State: Performance Standards
and Property Tax Relief
Abstract - This paper examines two educational policy changes in New York state:
performance standards, which are designed to boost performance,
particularly in troubled districts; and school property tax relief, which
is designed to offset the state’s
high property tax burden. Our analysis pays particular attention to
variation in educational costs across districts and to school districts’
responses to policy change.
A school
district's
performance can be moved toward a standard by improving the district’s
efficiency, increasing the district’s
property tax rate, or increasing the district's
state aid. We find that raising efficiency up to the current
"best-practice"
level would not be sufficient to bring many districts up to even
minimal performance standards. Moreover, without increases in aid or
efficiency, many districts could not reach performance standards without a
dramatic increase in their tax rate. In principle, a performance-based
foundation aid system could help low-performing districts reach a
standard. However, New York City currently receives so little aid, despite
its relatively high costs and low wealth, that such an aid system would
require a major shift of funds to the City and, without a significant
increase in the state aid budget, would result in a significant decline in
aid in all but the neediest districts. Moreover, even with
performance-based foundation aid, significant performance improvements in
large cities would require large increases in local property tax rates.
The School
Tax Relief program, STAR, passed in 1997, provides a significant school
tax reduction for homeowners through a new property tax exemption that is
funded by the state. The initial STAR property tax savings create
significant inequity across taxpayers. Moreover, they are skewed toward
higher-wealth school districts, and therefore undermine the decades-long
effort in New York state to make the school finance system more equitable.
STAR also will have some unintended consequences. Because the homestead
exemption results in a large drop in local voters share of any school
property tax increase, it will result in higher school tax rates, and
hence in higher taxes on commercial and industrial property, including
rental housing. Some of these tax increases may be passed on to workers,
consumers, and renters. The tax-freeze aid provision in STAR involves far
too little funding to prevent this from happening. Moreover, the
STAR-induced property tax increases will boost the cost of the program to
the state to about $2.8 billion per year, which is 25 percent above the
official estimate. The paper concludes with a set of recommendations to
eliminate these problems with STAR.
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