Imposing statewide taxation of nonresidential properties and redistributing these pooled property tax revenues aims to reduce the per pupil tax base variation across communities that results in inequitable per pupil expenditures, inequitable educational resource distributions, and unequal educational opportunities. Property tax based inequities enable affluent districts’ to raise property tax revenues above state minimums and above the levels poor districts can raise. Affluent districts have an unfair advantage to provide an educational quality superior to poor districts resulting from their superior property tax base. Students in poor districts attend under resourced schools that lack the means with which to provide an educational quality commensurate with affluent districts.
A policy change that reduces the positive correlation between expenditures and ability to pay or that weakens the negative relationship between expenditures and the fraction of poor families in the community will be judged to be moving in the direction of a more equitable distribution of education services. (Ladd, 1976, p. 145)
Thus, property tax based inequities result in educational inequities and unequal educational opportunities among districts.
However, imposing statewide taxation of nonresidential properties and redistributing the statewide pooled nonresidential property tax revenues creates inequities. Disparities in per pupil property wealth and local property tax revenues causing inequities in per pupil expenditures would remain unless the redistribution of pooled nonresidential property tax revenues equalized per pupil expenditures among TPSs and districts. Total pooled nonresidential property tax revenues may be insufficient to equalize per pupil expenditures without additional state funding.
Commercial and industrial properties may be unequally distributed throughout the state creating inequities. Some districts may have a disproportionately large share of commercial and industrial properties with high assessed values. Replacing these districts’ nonresidential property tax revenues with lower statewide uniform property tax revenue would reduce their ability to provide the resources necessary for a quality education leading to a reduction in per pupil expenditures. Inequities would result to the degree that reductions were not based on a district’s ability to pay for the provision of quality education.
A statewide uniform nonresidential property tax creates inequities because property assessment practices can vary by region or county. Differences in property assessment practices result in different valuations of similar properties that are not a function of market forces among districts, regions, or counties. Nonresidential property tax abatements create inequities for the commercial and industrial businesses enjoying them if canceled by the state, and create problems for the statewide pooled property tax revenues should municipalities award abatements following the imposition of the statewide tax which the state could not cancel.
Inequities would be created depending on the proportions of local school, municipal, county, and nonresidential property taxes before imposition of the statewide tax. Districts relying disproportionately on residential property taxes or without nonresidential property taxes would receive incremental statewide nonresidential property tax revenues. Districts relying disproportionately on nonresidential property taxes most likely would experience a reduction in nonresidential property tax revenues that would shift the property tax burden to residential properties. Districts with disproportionately high shares of non-taxable properties (e.g., houses of worship, governmental facilities, universities, and parks) and nonresidential properties would experience a significant property tax burden shift to residential properties. Increasing the tax burden disproportionately on residential properties would lower housing values causing the relatively more mobile or affluent homeowners to move to districts meeting their preferences.
Imposing statewide taxation of nonresidential properties and redistributing the pooled nonresidential property tax revenue would not eliminate educational inequities stemming from property wealth inequality unless the redistribution equalized the ability to pay for education among districts statewide. Property tax based inequities would remain because affluent districts would retain the ability to raise property tax revenues above poor districts’ maximum levels. Affluent districts would continue their unfair advantage of providing an educational quality superior to poor districts because of their superior tax base. Poor districts may be under resourced because they lack the tax base necessary to provide an educational quality commensurate with affluent districts. Although redistributing statewide uniform property tax revenues would reduce per pupil expenditure disparities, the redistribution is unlikely to achieve educational equity by itself as Ladd (1979) concluded from her study of the Boston SMSA.
Without the assurance of a highly redistributive aid program, however, the equity case for removing business property from the local tax base in the Boston SMSA, where equity is defined in terms of the pattern of education expenditures, is a weak one. (p. 149)
Thus, additional state revenues would be necessary to equalize per pupil expenditures, the ability to fund district education equitably, and equalize educational opportunities.
Ladd, H. F. (1976). State-wide taxation of commercial and industrial property for education. National Tax Journal, 29(2), 143-153.