Limiting Learning: How Caps on School Funding Erode the Quality of Education

Howard Wial
Publication Date: 
May 1, 2004

The Pennsylvania legislature is considering a school finance proposal, exemplified by House Bill 113 of the 2003 legislative session, that would shift some school funding away from local property taxes and toward state funds and local income taxes. The proposal would give greater proportional benefits to homeowners with lower property values.

A shift toward broader-based and less regressive tax funding of the public schools would be admirable, as would the progressive nature of the proposed property tax relief. However, the proposal has two harmful features:

  • It would do virtually nothing to change the total revenue available to any school district in the state, but would simply replace some revenue that each district currently raises from local property taxes with revenue from local income taxes and additional state funds. In so doing, it would perpetuate Pennsylvania’s current, highly inequitable pattern of school funding.
  • It would impose a limit on increases in school tax rates in each district and prevent districts from obtaining additional revenue from new taxes. A district would be able to override these limits through voter approval in a referendum.

Limits on school funding would represent a major shift in public policy, especially in an era in which school quality is pivotal to the state’s economic performance and to the future opportunities of Pennsylvania’s schoolchildren. Such a proposed shift calls for careful consideration of all the available evidence about its likely impact.

One source of evidence is the research literature on outcomes in other states that have imposed limits on school taxes and funding. Although the details of limits imposed vary from state to state and no separate research analyzes proposals exactly like the Pennsylvania proposal, the literature on other states that have imposed limits is the best available gauge of the impact of a similar Pennsylvania proposal.

This briefing paper reviews this research literature. It finds that limits in other states have reduced the quality of schooling in the following ways:

  • Increasing class sizes. One study compared states that imposed property tax limits in the 1970s and 1980s with states that did not. It found statistically significant evidence that schools subject to tax limits had 6.4 percent higher student-teacher ratios than schools in other states.
  • Lowering student performance. The same study found that tax limits caused a 3.6 percent decline in 10th grade math scores, a 6.3 percent decline in science scores, and a 4.3 percent decline in social studies scores. All of these declines were statistically significant. In social studies, a tax limit resulted in the same percentage drop in achievement as a reduction in family income of $28,000.
  • Discouraging students with strong academic performance from teaching in states with tax limits. The available research on this topic found that tax limits led to a 10 percent decline in the test scores of education majors (many of them future teachers).
  • Spending cutbacks in a wide range of areas. In Wisconsin, caps on increases in spending per student:
    • led to cuts in curricular and extracurricular programs, computer purchases, staffing, staff development, and supplies
    • forced districts to make do with outdated textbooks and inadequate technology
    • induced districts to defer maintenance of school buildings
    • made districts choose between spending money on instruction and paying for heat and transportation

These reductions in the quality of schooling could partially or completely reverse the quality-enhancing effects of the Pennsylvania Accountability Grants recently approved by the legislature. School districts are to begin receiving grants in the 2004-2005 school year for the purpose of making specific quality improvements, such as reducing class size or improving the academic performance of specific groups of students.

The research literature also suggests that reductions in educational quality are likely to be:

  • cumulative, becoming more severe the longer the tax limits are in effect, and
  • most severe in poor districts, districts with increasing needs for special education, and districts with declining enrollments.

The Pennsylvania proposal has very limited provisions for mitigating the negative effects on districts that experience large declines in property values or large increases in special education enrollments. The proposal has no provisions to counteract the declines in quality that are likely to occur throughout the Commonwealth or the even greater declines that are likely to occur in poor districts.

Additional flaws in the proposal include the following:

  • Tax limits and referendums can lower spending that is essential to quality schooling even in districts that vote to override the limits. The need to obtain voter approval to override a tax limit can lead school boards to propose budgets that skimp on necessary expenditures because those budgets will have a greater chance of being approved in referendum.
  • School tax referendums may create a bias against school spending relative to other forms of government spending. Because school tax increases are the only tax increases on which voters would be allowed to vote directly, those who want lower taxes overall may vote against overriding the school tax limit even if they would prefer higher spending on schools.
  • By giving districts no “credit” for keeping tax increases below the limit, the proposal gives them an incentive to raise taxes by the amount of the limit each year regardless of whether such increases are educationally necessary.

Instead of tax limits and referendums, a more sensible route to school budget accountability would be to condition some or all of a district’s property tax reduction assistance on the district’s adopting specific “best practices” or on the district’s adopting and successfully carrying out a process designed to improve student achievement.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site © 2001 Keystone Research Center