Want to keep taxes down? Increase state aid
On Board Online • January 22, 2018
By Paul Heiser
Senior Research Analyst
If Gov. Cuomo and state lawmakers want to keep property taxes low, there is one surefire way to help do that: increase state aid.
A new NYSSBA analysis finds a relatively strong correlation between overall state aid allocations to school districts and the size of their property tax levies. In general, when districts get higher levels of state aid than the year before, the less they need to raise their property taxes.
That correlation doesn't hold true in every school district, but it does for more than half of them. The analysis found that 54 percent of school districts exhibited at least a small association between higher yearly state aid increases and slower growth in their tax levies.
Property taxes comprise about half of school spending, while state aid comprises about 40 percent, according to data from the State Comptroller's office. Both funding sources are fundamental to the fiscal health of school districts as they cope with double-digit percentage pension contributions, rising health insurance premiums, and the costs associated with raising student achievement.
As important as both funding sources are to school districts, NYSSBA's analysis suggests that the amount of financial support New York State gives its local school districts is an important factor in the magnitude of property tax levy increases.
NYSSBA's analysis included all 669 districts in the state that are required to put their budgets up for a public vote in May (which excludes the Big 5 City School Districts of Buffalo, New York City, Rochester, Syracuse and Yonkers, as well as special act school districts). It compared increases in the level of foundation aid - the largest unrestricted aid category supporting public school district expenditures - provided by the state to school districts with the increase in their local property tax levies from 2012 through 2017 - the years in which the state's mandatory tax cap has been in effect.
Over that six-year period, NYSSBA found a relatively strong association statewide between higher levels of foundation aid and slower growth in the property tax levy. A statistical measure called a correlation coefficient determined there was a negative correlation of about -0.5 statewide, indicating that as foundation aid increased, the change in the property tax levy was less than the prior year).
Each of the 669 districts studied fell into one of five groups:
- More than one in five districts (21 percent) exhibited a strong association (between -0.5 and -1.0) between higher state aid levels and a slowdown in tax levy growth.
- About 15 percent had a medium association (between -0.3 and -0.5).
- About 18 percent had a small association (between -0.1 and -0.3)
- About 10 percent had no measurable association.
- The remainder had a positive correlation; state aid and property taxes moved in the same direction (up, invariably).
"Of course, correlation doesn't necessarily mean causation," said NYSSBA Executive Director Timothy Kremer. "And many school districts' financial needs are so great that even large increases in state aid can't mitigate property tax increases. But these data suggesting there is an association between higher foundation aid and lower property taxes bolsters the call by both NYSSBA and the Educational Conference Board for a $2 billion increase in state aid for the 2018-19 state budget."
The analysis also showed that lower property tax increases were not merely a function of bumping up against the tax cap. A total of 152 of 669 districts - about one-quarter - stayed below the maximum cap amount all six years the tax cap has been in place. In those districts, there was a particularly strong correlation (-0.7) between higher foundation aid levels and a drop in the rate of increase in property tax levy. Another 111 of 669 districts (17 percent) stayed below the maximum tax cap five of the six years the tax cap has been in place.
The correlation between state aid increases and lower property taxes was most pronounced for the least wealthy school districts. NYSSBA assessed that based on the combined wealth ratio - a state measure of relative wealth that compares each school district against the statewide average on a combination of two factors: property wealth per pupil and income wealth per pupil. Average wealth is given a ratio of 1.0; poorer districts have ratios of less than 1.0, and wealthier districts have ratios of more than 1.0.
NYSSBA found that districts with combined wealth ratios of 0.5 or less had a very high correlation (-0.9) between higher foundation aid increases and lower yearly growth in property tax levies. Districts with combined wealth ratios of greater than 0.5 but less than 0.75 also had a strong correlation (-0.6) between higher state aid and lower property taxes.
"These findings are consistent with what I would expect," said Judi Kehoe, business manager in the Bethlehem Central School District. "When state aid goes up, the pressure to increase taxes goes down. We don't typically see a decrease in the levy amounts; however, when state aid is strong, we don't always require a levy increase at the maximum allowed amount because of controlled expenditures."
In some communities, the property tax assessment base is affected by a high number of tax-exempt properties or a decline in assessment values. When taxable assessed values decline, tax rates will increase even if the district keeps the tax levy flat.
In any given community, multiple factors affect the tax levy. "I would agree that (our school district) is heavily reliant on state aid, however that is not why or how we keep property tax levies down," said Lori Caplan, superintendent of the Watervliet City School District in Albany County, which is home to a U.S. Army facility called the Watervliet Arsenal. "We do not have the ability to raise revenue based solely on property taxes because approximately 56 percent of the property within the district is exempt from taxes, leaving the other 44 percent to pay 100 percent of the taxes. PILOTs [payments in lieu of taxes] also negatively impact the amount of taxes we can levy."
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