The Importance of Property Taxes for Schools

In federal policy debates, the role of housing as a source of funding for education and other public services is often neglected. According to Census data and NAHB calculations, the average homeowner pays annual property taxes of 1.04% of the value of their home or $1,917. A significant portion of these tax payments goes to finance education.

Using data from the Census Bureau’s 2009 Annual Survey of Local Government Finances (School Systems), we are able to track the importance of property tax revenues for education funding. For 2009, $591 billion of revenue was collected in the United States for elementary and secondary education (pre-kindergarden through high school). Of that total, 44% originated from local taxation and fees, 47% from states sources, and the remaining 9% from the federal government.

The following map plots the share of total elementary and secondary funding that is due to property taxes that are directly collected for schools.

On a national basis, these directly targeted property taxes are responsible for 65% of local school revenue and 29% of all school funding. As the map above indicates, five states rely on such direct property taxes for more than 45% of total school revenue: Illinois, Florida, New Hampshire, Nebraska, and New Jersey.

However, many states rely on property tax revenues that are collected by local governments and appropriated for education purposes (‘parent government contributions,” mostly from property tax collections). Adding these taxes into the analysis produces total shares of education funding provided by local property taxes, as mapped below.

As seen above, a few additional states are added into top states for which property tax revenue finances elementary and secondary education. The list is now New Hampshire. Rhode Island, Illinois, Connecticut, New Jersey, Virgina, Maryland, Florida, and Nebraska for states with more than 45% of total education revenues due to property tax collections.

States with less importance placed on local property tax collections typically received a greater share of financing from the federal government. For example, Alaska, California, Hawaii, Louisiana, Mississippi, New Mexico, North Dakota, and South Dakota all receive more than 14% of all education financing from the federal government. A number of states also received substantial shares of funding from state tax revenues, with Arkansas, Hawaii, and Vermont all receiving more than 75% of elementary and secondary education revenues from state sources.

Finally, it is useful to note the relationship between direct property tax revenues for education and the size of the school system. As the graph above demonstrates, in general such property tax collections are relatively more important for small school districts.

Overall, these data demonstrate how important property tax revenues are for the financing of schools in the United States. However, as housing prices continue to fall, raising the effective property tax rate on homeowners, and policy debates continue that have the potential to weaken housing further, it is important to keep in mind the larger benefits of a healthy housing market on communities, including education.



Tags: , ,

0 replies

  1. I don’t see the collation in property values to tax income for schools. Vacant houses hurt schools if the tax’s aren’t paid. Income tax levys will be down due to low employment. But if the school has a millage tax as the values go down the tax rate goes up to collect the millage for that tax levy. In turn the school is still getting the same amount of money on a millage tax.

  2. Thanks for the comment Jim. While I agree that local governments can increase statutory tax rates on property owners as a legal matter, doing so increases the “effective tax rate” (taxes paid divided property value). As a matter of economics, there is a limit of how much burden, as measured by the effective rate, can be placed on assets without further reducing demand. This could result in a vicious cycle. Thus, as property values fall for non-tax reasons, the property tax base (for education) erodes.

Trackbacks

  1. The Importance of Property Taxes for Schools | Wood on Fire – Topics of Lumber Industry
  2. The Importance of Property Taxes for Schools ? Eye on Housing « addisonkatee
  3. The Importance of Property Taxes for Schools ? Eye on Housing | loreenhhvo
  4. Property Tax Receipts Decline as Housing Weakness Continues « Eye on Housing
  5. Property Tax Receipts Stabilize in the Third Quarter of 2011 « Eye on Housing
  6. Property Tax Receipts Stabilize in the Third Quarter of 2011 | Wood on Fire – Topics of Lumber Industry
  7. Property Taxes Remain Historically High « Eye on Housing
  8. Property Taxes Remain Historically High | Wood on Fire – Topics of Lumber Industry
  9. Property Tax Receipts Remain Constant Despite Housing Price Declines « Eye on Housing
  10. The Drop in Property Taxes that Never Happened « Eye on Housing
  11. Property Tax Collections on the Rise Again « Eye on Housing
  12. Maupin Development » Property Tax Collections on the Rise Again
  13. Property Tax Share Falls as Total Tax Receipts Increase | Eye on Housing
  14. Property Tax Share Falls as Total Tax Receipts Increase - Helping Hands Custom Builders
  15. Maupin Development » Property Tax Share Falls as Total Tax Receipts Increase
  16. Property Tax Collections Reach Nominal High | Eye on Housing
  17. Maupin Development » Property Tax Collections Reach Nominal High
  18. Property Tax Collections Reach Nominal High - Helping Hands Custom Builders
  19. The Importance of Housing and Property Taxes to State Budgets | WORLD WIDE NEWS WATCH

Leave a Reply

Your email address will not be published. Required fields are marked *