FORT WAYNE – When it comes to schools, property tax payers in some of the poorest districts pay rates up to four times higher than those in some of the wealthiest districts, a new analysis of state data shows. And property tax experts say recent changes in state law may make that disparity even worse.
Its a very important element of any tax system that you try to have people feel theyre paying a fair share, said state Sen. Luke Kenley, R-Noblesville, the architect of most of the recent changes in Indiana property tax law. You want people to feel theyre being treated equivalently.
That need was one of the drivers behind changing school districts general funds from being supplied by local property taxes to being supplied by state sales taxes, Kenley said. That move was approved in 2008 and began to take effect in 2009.
The situation the General Assembly was trying to fix had long been the subject of state attempts at equity: The state formula for school aid was constantly adjusted to bring more state aid to poorer districts and give less to wealthier ones.
Still, The Journal Gazette found, even after years of tinkering, almost a quarter of the states school districts could be classified as having high incomes and low tax rates or low incomes and high tax rates – with two thirds of them being in the latter category.
If youre going to build a $20 million school, it costs the same $20 million in a rich district as it does in a poor district, but the taxpayers in a rich district will each have to pay a smaller share of that cost and taxpayers in a poor district will have to pay a greater share, said Purdue University professor Larry DeBoer, one of the states foremost experts on property taxes. There really are tremendous differences in assessed values.
Those differences in assessed property values are what lead to the disparities inherent in any property tax system: A wealthy area, with expensive homes, upscale businesses, large factories and other valuable land, can have a huge assessed value; while a poor area with rundown housing and few businesses may have a relatively small taxable value.
That leaves the poor area paying more per dollar of property value to create the same revenue as the wealthy area.
For example, taxpayers in the district with the highest local tax rate in the state, Logansport Community School Corp., paid 4.17 cents per dollar of assessed value in local taxes for schools in 2008; those in Carmel Clay Schools paid 1.03 cents, less than a quarter of the Logansport rate.
Per-capita incomes, meanwhile, were $18,467 in Logansport school district, but $41,359 in Carmel Clay – more than double Logansports and easily the highest in the state.
The disparity is so pronounced, the newspaper found, that in 2008 – the last year under the old system and the last year for which comparable district data was available – if taxpayers in Carmel Clay had paid the Logansport rate, they could not only turn down the $18.6 million in state aid the district received that year, but also give an additional $341 million to the state to help finance other schools.
That could cover the entire amount of state aid given that year to Fort Wayne Community Schools, plus Northwest Allen, Southwest Allen and East Allen County Schools, with almost $140 million left over.
Locally, the rate for school taxes paid by local taxpayers in Fort Wayne Community Schools was 62 percent higher in 2008 than the rate paid in Northwest Allen County Schools. That means a $500 property tax bill for schools in FWCS would be only $309 in NACS.
Will it get worse?
In some ways, everything changed after 2008 when property taxes stopped supplying school districts general funds, and in some ways, almost nothing changed.
Purdues DeBoer said that for years, the state had adjusted the formula so that poorer districts got more state aid than wealthier ones. But that applied only to the general fund, the schools operating checkbook.
While the general fund is substantial, that left a lot of other funds – such as for transportation, bus replacement, debt service and racial equity – where no attempt was ever made to compensate for wealth differences.
That does leave a significant amount of property taxes funding school operations, DeBoer said. The disparities exist for those, and its never been attempted to offset those.
Kenley said that problem was foreseen, but only time will tell whether the attempt to compensate for it worked.
Kenley said that when the revenue source for schools general funds was switched from property taxes to state sales taxes, the state took responsibility as well for child welfare, city police and fire pensions and some hospital taxes. Those moves give much more tax relief to poorer areas than wealthier ones, he said, which may offset some of the disparity in school taxes.
There are also fears that another provision enacted in 2008 will increase the disparity between have- and have-not school districts.
Previously, when school districts wanted to borrow money for large, expensive projects such as new buildings, they could do so with a vote of the school board. The only recourse for taxpayers was a remonstrance, in which petitions for and against the proposal were gathered.
Now, those moves will be subject to the decision of voters at the ballot box.
DeBoer said the fear is that wealthier districts will be able to pass referendums while poorer districts will not. He said that is because wealthy districts enjoy lower tax rates and the increase in taxes would be spread over more assessed value, meaning the tax hike would be smaller than it would be in a poor district, where rates are already higher.
How school referendums fare with voters is being studied by Indiana Universitys Center for Evaluation & Education Policy, and DeBoer said it appears those fears are being realized.
Theres already evidence that, as you might expect, when tax rates are higher, (a referendum) is less likely to pass, and when rates are lower and the increase is smaller, its more likely to pass, he said.
But Terry Spradlin, associate director of education policy at the center, said the picture is more complicated.
Initially, there was some of that, he said, but the 2010 elections, in which two wealthy districts rejected referendums, changed that conclusion.
At one point, we alluded to some trends, (but they) havent held true in the last two elections, Spradlin said. We cant say theres a consistent pattern.
He said there is a host of factors that affect whether voters will approve a tax hike, including not only wealth but also the political climate; whether its a primary or general election; what else is on the ballot; the state of the economy; and the work the school district has done to communicate its needs.
Regardless, its a hard sell right now, especially in todays climate, he said.
Some warn that if only wealthier districts can pass referendums, it could eventually result in wealthier districts getting more resources and poorer districts getting less.
Wally Bourke, superintendent of Franklin County Community School Corp., recently wrote that the situation could eventually affect more than just whether a district can build a new school.
He warns that recent legislation will make it easier for good teachers to change districts and go where they are better paid. Franklin Township schools, in Marion County, recently failed to pass a referendum.
Resource-poor school districts will have a difficult time retaining high-quality classroom teachers and providing expected services, which will lead families to choose resource-rich districts, Bourke wrote.
Enrollments in financially strapped districts will subsequently decline and will result in even fewer resources.
An opportunity gap
That could exacerbate yet another problem that already exists – the lack of educational opportunities for students in poorer areas.
A study by the non-profit public interest journalism group ProPublica found that in many states, students in wealthy areas have access to Advanced Placement classes while those in poorer areas do not.
Studies repeatedly have shown that students who take advanced classes have greater chances of attending and succeeding in college, ProPublica reported, but many states, including Indiana, dont do well in making sure all students have access to those classes.
The opportunity to learn – the necessary resources, the curriculum opportunities, the quality teachers – that affluent students have, is what determines what people can do in life, Linda Darling-Hammond, a professor of education at Stanford University, told ProPublica for its story.
Kenley said that with all the changes that have been made, it is now time to sit back a little and see what the effects will ultimately be before further tinkering.
Thats the conclusion Ive drawn. Weve made a lot of changes; were just starting to see how it works, he said. Those changes are all part of the equation, and we dont know yet what all the answers are.