Ed Moscovitch’s proposal for a statewide property tax to fund the costs of a basic education in each community in the Commonwealth has two important policy objectives: to sustain the state’s striking success in bringing underfunded schools up to a more adequate level of spending, and to bring about greater tax equity in the financing of local education.

Over the last seven years, the state has made an enormous investment in its local schools, with $1.4 billion of new state aid–a 110 percent increase–that will allow every school district to meet the education reform law’s “foundation budget” standard of adequate spending in fiscal 2000. Moscovitch’s proposal would reinforce that commitment by transferring to the state responsibility for raising $3 billion through a new statewide property tax, roughly 40 percent of the local property tax levy, and imposing a new $6 billion annual obligation to fund foundation education costs in every district.

In some ways, the proposal is a natural extension of the current reform law, which seeks to correct inequities in local school funding that arise from unequal property wealth among communities. The law defined a statewide standard for local tax effort. This proposal would take us a step further, imposing a uniform school tax rate for property owners across the state, a change that would eliminate differences in local property wealth among communities as a factor in funding the costs of a basic education. The recommended approach is analogous to the income tax, generally considered the fairest state tax; there is a single tax rate and exemptions that take into account ability to pay.

However, Moscovitch’s proposed statewide property tax for education has a serious shortcoming–it would almost certainly cause even further erosion in support for the large numbers of better-funded schools that have lost ground since the education reform law was adopted.

Of 147 districts whose spending in 1993 exceeded the law’s foundation standard, 71 districts spent less as a percent of the foundation goal in 1999 than they did in 1993. This alarming decline is due to the combined effect of rapid enrollment increases, the Proposition 2? tax limits, and the minimal additional aid available to these districts under education reform’s school funding formula. The slippage in support for our better-financed schools was clearly not the intent of the education reform law and is a serious concern for a state that prides itself on the quality of its workforce.

Even with the envisioned $600 million of property tax relief (which would be funded from surplus state income tax revenues), the proposal would result in significant tax increases for local property taxpayers in many of the communities that have already suffered funding declines. Taxpayers in these communities would face a tax increase just to maintain their current levels of school support, never mind trying to regain lost ground. Local voters faced with such choices would be understandably reluctant to approve even higher taxes, setting in motion further deterioration in the quality of schools in these communities. Such an outcome would be a serious threat to the economic future of the state, and sheer folly given the huge investment that the state has made in the past seven years to improve its schools.

Finally, there are a number of other important issues that would have to be worked out in order to implement the proposed new financing scheme. These range from ensuring equitable treatment for renters who would not directly benefit from the homeowner exemption, to mitigating the higher property tax burdens that businesses–who are already contending with the high costs of doing business in the state–would face as a result of that exemption, to reconciling a uniform statewide property tax rate with the realities of the classification law, which allows communities to impose higher tax rates on business taxpayers than on residential taxpayers.

Michael J. Widmer is President of the Massachusetts Taxpayers Foundation.

Redistribution scheme could harm public schools

by Deborah Ecker
Fall 1999

Massachusetts will soon have had seven years to test the effectiveness of the funding formula established by the Massachusetts Education Reform Act of 1993. We in the League of Women Voters applaud the state’s financial commitment to local schools, but we find the present distribution of $2.7 billion far too erratic to be continued into a limitless future. Like Moscovitch, we urge the Legislature to look closely at the current formula and revise it to make it fairer and simpler. At the same time, we disagree with Moscovitch on how to reach these goals.

Moscovitch proposes a shift to an entirely different approach to financing local schools. His plan would follow the example of Vermont and place heavy reliance on property taxes to bring about financial equalization among cities and towns.

Requiring all cities and towns to apply a statewide property tax rate to finance schools is intended to capture the “excess” property tax revenue of property-rich localities for redistribution to the property-poor. The “excess” would be what the tax rate would raise above the amount needed to reach foundation budgets in the wealthier municipalities.

This approach presents numerous problems. The most elementary is that the excess revenue raised from the state’s better-off communities would simply not produce enough revenue to compensate for the disruption that would come in the wake of steeply increased property taxes in these mostly small, residential towns.

A second problem caused by applying a statewide property tax rate is that instead of state equalizing aid, which gives less money to property-rich communities and more to the property-poor, the Moscovitch plan would have the wealthier communities receive their full foundation budget from the state.

But a more serious concern about a plan that redistributes property tax revenues is the harm it could do to public schools. How many localities whose “excess” tax revenue is being spent on others’ schools will choose to tax themselves even higher to spend more on their own? In these communities the foundation budget–defined as being enough to offer an adequate education–will likely become the maximum school budget. What was meant to be the floor may become the ceiling. As in Vermont, this could well lead to a serious deterioration in the quality of many public school systems.

How many localities whose “excess” tax revenue is spent on others’ schools will tax themselves more for their own?

The League has proposed a plan that would retain what Moscovitch aptly describes as “a vision of fairness that says every child should have an education funded at least at the foundation level.” But we sharply differ on his heavy reliance on redistributed property taxes as a major source of compensating revenues.

The League’s correction to the current education aid formula relies entirely on the state’s general tax revenues to equalize local school funding. Unlike the formulas embodied in the Reform Act, the League’s formula is easily explained and is based entirely on up-to-date school enrollment and financial figures. Compare this with the roughly 48 percent of current education aid distributed on pre-1993 data.

Under the League’s plan every city and town would receive some school aid; none would be required to send money to the state for redistribution. The state would provide the average-wealth town with 30 percent of its foundation budget and give equalizing financial aid to all of the state’s 351 cities and towns, ranging from 80 percent for the poorest to 1 percent for the most wealthy. Again, compare this with the fiscal year 2000 proposed budget in which 43 percent of increased education funding goes out on a flat, per-pupil basis. Equalizing education plans allocate less aid to the wealthiest and more to their needier neighbors.

Now is the time to reevaluate the state’s aid to education. It would be a shame not to keep what works–heavy reliance on progressive state taxes to help support local schools–and instead to require still greater use of property taxes for close to half the cities and towns in the state. The League’s education aid plan continues the shift embodied in the 1993 Education Reform Act to increased funding for schools from state-collected taxes and distributes all of the state’s multi-billion dollars on an equalizing basis that assures that more aid will go to the neediest communities and less to the better-off.

Deborah Ecker is Fiscal Policy Specialist for the League of Women Voters of Massachusetts.

Where’s the money to make it work?

by James R. St. George
Fall 1999

Ed Moscovitch is on the right path in suggesting that Massachusetts should use state revenue to lower property taxes and increase state support for local schools. Gov. Cellucci’s alternative–a massive $1.4 billion income tax cut primarily benefiting high-income households–is a low priority for most people. But Moscovitch leaves a key question unanswered. Where is the “excess” income tax revenue to fund his proposal?

At its core, Moscovitch’s approach makes sense; we should increase state funding for education. Schools in Massachusetts receive just 36 percent of their revenue from state aid, compared to the national average of 49 percent; as a result, the Commonwealth ranks 45th in the nation in the share of education spending financed by the state.

At the same time, it may not be necessary or even prudent to go as far as Moscovitch suggests by eliminating the local property tax for educational purposes. There are three problems with this idea. First, to the extent that education is more reliant on income tax revenue and state funding, it is also more vulnerable to the ups and downs of economic fluctuations. In tight years, schools will face fierce competition for the funds they need.

The second problem is the golden rule of public finance: She who has the gold, rules. Giving the state total responsibility for funding education would, over the long term, substantially reduce local control over education.

Finally, total state funding for the foundation budget could lead many local officials and taxpayers to believe that there is no need for any local property taxes to fund education. The foundation budget was never intended as a ceiling. But if residents believe the state is picking up all the necessary costs of education, they may be more reluctant than ever to support the resources that many cities and towns now provide to go above and beyond the foundation budget.

Thus we should move cautiously to mitigate the risks involved in swinging too far toward exclusive state funding for education. Simply put, we should reduce the property tax for education, not replace it.

All of this begs the fundamental question, though. Where is the money to finance such a proposal? Moscovitch suggests his proposal would be an alternative to Gov. Cellucci’s proposed income tax cut, but Cellucci has never demonstrated that his tax cut is affordable. A recent 50-state analysis of state budget and revenue trends by Hal Hovey, one of the most respected fiscal analysts in the country, provides good evidence that the proposed income tax cut would generate large budget deficits. Any massive new tax cut–income tax or property tax–is simply irresponsible.

Any massive new tax cut–income tax or property tax–is simply irresponsible.

Still, state officials would be well advised to pay attention. Replacing more of local education costs with state funding would help students, communities, and local governments. As with so many good ideas, the problem is how to pay for it. Unfortunately, relying on phantom budget surpluses won’t do the job.

James R. St. George is Executive Director of the Tax Equity Alliance for Massachusetts and the TEAM Education Fund.


Fairer funding need not harm schools in wealthy, suburban communities

by Ed Moscovitch
Fall 1999

Michael Widmer, Deborah Ecker, and Jim St. George are concerned that wealthier towns might cut their school spending if a statewide property tax were used to fund the foundation portion of the school budget. In Vermont, which has a statewide property tax, almost every district continues to supplement it with local funds. Unlike the Vermont statute, my plan places no surcharge on the funds raised by wealthier towns to fund above-foundation spending.

Because of the additional state income tax funds, average property taxes would fall. Still, owners of high-value homes in wealthier towns would probably find that the combined state and local property taxes would exceed current tax levels. St. George, Ecker, and Widmer worry that this might lead towns like Weston to reduce school spending. Perhaps. But even in wealthy towns, the homestead exemption would mean lower taxes for the elderly and owners of low-value homes–the people who are now most vociferous in opposing school spending. With protection for those least able to pay, it might actually be easier to raise supplemental funds. To move further in this direction, we might emulate Vermont’s idea of letting low and moderate income homeowners pay an income tax in lieu of their statewide property tax.

In effect, the three critics argue that taxpayers in cities like Lowell and Worcester should continue to pay higher school tax rates than homeowners in Wellesley and Chatham, since otherwise these wealthier towns might reduce school spending. They may be right, but there must be a fairer way to maintain school excellence in suburban towns!

Meet the Author
Ecker wants to use additional state revenues to reduce property tax discrepancies; this is what I have proposed. As anyone who has read it or tried to reproduce it on a computer knows full well, the League of Women Voters plan is not simple. It is based only on differences in property wealth and does not take into account differences in student poverty. As a result, it will curtail aid increases to the poorest cities and towns, forcing them to increase further already high tax rates–all in order to increase funds going to wealthier suburbs. How sad that the League now supports a plan that leads to school tax rates in Lowell or Brockton three times those in Weston or Wellesley!

My proposal has the same goal as current state law–supporting foundation-level spending with essentially equal tax rates across the state. But it does so in a way that is simple, clean, and easily explained.