June 1 2004

What would they mean for school finance and educational performance? What are possible outcomes?

(June 2004) State policymakers are considering proposals to provide property tax relief for homestead and farmstead property owners through expanded legalized gambling or other mechanisms.

The proposals are complex, and the potential long-term impact on education finance is considerable. An important aspect of all the proposals now before the state legislature, one that continues to gain attention, is the voter referendum requirement for local school tax increases.

Several of the current property tax relief proposals now before the legislature include requirements for referenda. Governor Ed Rendell has accepted the fact that some form of referenda requirement likely will be part of a final package.

Nearly three-quarters of the states currently have some mechanism allowing voter approval of school spending. They range from requiring voter approval for school district budgets to approval for tax increases only, and approval for special purpose funds such as capital projects. The rules and degree of control vary from state to state and, to date, there is no comprehensive analysis of the different processes. IssuesPA examined how local referenda could impact school finance and educational performance in Pennsylvania's public schools.

What do the proponents say?

Proponents of referenda contend they provide local voters with a greater degree of control and, therefore, limit increases in tax rates. In their proposals, voter approval of tax increases passed by a school board would be required, with a few exceptions. For example, current proposals would not require voter approval to raise school tax revenues within various measures of inflation. Other exceptions include raising funds to deal with emergencies such as natural disasters.

The referenda requirement tied to the recent proposal to fund property tax relief using new gambling proceeds takes the referenda concept a step further. It would allow voters to initiate property tax relief by overriding action - or inaction - of their elected school board. For more on qualifying for gambling revenue, click here. (7118)

And the opponents?

Opponents of school tax referenda make several counter arguments. They contend:

  • Imposing referenda ultimately may have a negative impact on the equity of funding in Pennsylvania's schools. Voters in wealthier communities would be more likely to approve revenue increases for education, compared to those in communities with less wealth, because the impact as a percentage of income is less for wealthier taxpayers. Wealthier districts already have shown their willingness to impose higher levels of taxation as exhibited by the current disparity in local tax levels. Therefore, Pennsylvania's gap in resources between rich and poor districts likely would become even greater.
  • Even without referenda, school districts with an expanding commercial and industrial base would be able to increase spending per student faster than no or low growth districts, simply through growth in their tax base.
  • Anecdotal evidence suggests that referenda could result in lower educational performance as school boards avoid referenda by raising the student-teacher ratio, cutting new program spending, and more.
  • The referenda would establish a different set of rules for school districts compared to other government bodies. City councils or county commissioners are not required to seek voter approval for tax increases, nor is the state legislature. But this proposal would set apart elected school directors from other elected government officials.
  • In essence, required referenda would take much of the revenue-raising authority away from school boards and give it to voters. In many other states, voters have similar responsibilities. But because Pennsylvania now depends on local revenues for a greater portion of total education funding than most other states, the impact of local referenda will be greater for Pennsylvania's public schools.

So what does all this mean?

While the primary focus has been on gambling revenue and property tax relief - and the numbers - equal attention should focus on the issue of referenda. State policymakers, take note. Pennsylvanians, too.