Virginia Postrel of Dallas, who runs the smart Dynamist.com blog, does an excellent job of explaining in this NY Times article the public policy failure that is the current Texas Robin Hood public school finance system.
As Ms. Postrel notes, the problem is not with equalizing benefits between rich and poor school districts, but rather the structure under which such equalization was to be achieved:
Robin Hood does not just move money from rich school districts to poor school districts. It does so in a way that destroys far more wealth than it transfers, and that erodes the tax base on which school funding depends.
To understand why Robin Hood is so destructive, consider the market price of a given house. The home’s value depends not just on how big the house is or whether it has walk-in closets and granite countertops.
Property taxes depress the value of a house. The amenities those taxes buy, including good schools, increase the value. The final price reflects the net value of the taxes the homeowner pays.
Robin Hood essentially raises taxes while reducing benefits, creating a downward spiral in home values and property tax receipts. For each district, the state divides the total assessed value of property in the district by the number of pupils. (Districts get higher per-pupil weightings for such factors as students with learning disabilities or limited English proficiency.)
The state then compares this number with a confiscation threshold. The district keeps the taxes on the property base below the threshold. But every single penny collected on the property value above the threshold goes to the state.
Not surprisingly, Ms. Postrel notes that, when homebuyers no longer get as much education for their taxes, buyers will not pay as much for houses:
During the 1990’s, “a period of unusually rapid income growth for the wealthy,” the economists note, the property value per pupil actually fell in the state’s wealthiest 5 percent of school districts, even without accounting for inflation.
That drop was bad news for everyone. Robin Hood assumed that house prices would stay pretty much the same, so that property-rich districts would continue to provide ample tax dollars to the rest of the state. Instead, every year the tax base became smaller in the rich districts.
To meet its commitments to poor districts, the state effectively lowered the real value of the confiscation threshold. Corrected for inflation, the threshold was $340,000 per weighted pupil in 1994, when the system was established. By 2002, it had fallen to $305,000.
But lowering the threshold further depresses home values. A death spiral sets in.
As homebuyers switch from the once-rich districts into moderately priced districts, property values hit the threshold in those districts, setting yet another spiral in motion.
And while the state is pushing down the confiscation threshold, districts try to keep up by raising their property tax rates, pushing down home values even more.
Ms. Postrel notes that correcting the system is certainly not impossible:
[The solution is to bring] well-established principles of efficient taxation to bear on school finance. Transfers . . . should be funded through a statewide tax, while local taxes pay for local amenities.
But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, . . . the state could take a much smaller percentage of the whole tax base.
“One of the principles of public finance is that having a high tax rate on a small base is very inefficient, whereas having a lower tax rate on a larger base is less distortionary, ” observes Ilyana Kuziemko, a Havard University economist who co-wrote with Caroline M. Hoxby a new working paper for the National Bureau of Economic Research entitled Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas’ School Finance Equalization Plan.
As noted in this earlier post, the handling of public school finance by the Republican-dominated Texas Legislature has been so inept that it gives rise to reasonable questions regarding whether a Republican-controlled state government is capable of addressing such public policy issues in a responsible and effective manner. However, Professors Hoxby and Kuziemko note that the primary reason for the public policy failure of the Robin Hood public school finance system is much simpler than poor political leadership:
“Lawyers, not economists, designed the system.”
Education news
Here’s a brief roundup of some education news:
The results of Texas’ assessment ratings continue to be absorbed by local schools and districts. Some schools that were previously rated as exempl…
I’m confused here.
The mirror image of Ms. Postrel’s argument is that if you live in a tax-base poor district (as I do), your school district receives excess funding relative to property values. Since the amenities provided by the school district have increased, home values should increase. Because home values have increased, my district and other tax base poor districts (if the logic follows) should be less reliant on Robin Hood equalization. If poor districts are less reliant on rich districts, the spiral stops.
No. Ms. Postrel’s argument unravels. There is something else going on here. It is a malevolent spiral downward as Ms. Postrel suggests.
It is *not* a malevolent spiral downward as Mr. Postrel suggests.
Although I have only skimmed the Harvard profs paper and do not know whether your observation is addressed, my sense is that they would conclude that the increaes in home value attributable to poor districts receiving excess funds from the rich districts is not as large as the decrease in value of properties in the rich districts. Thus, property tax rates have to be increased in rich districts to generate the revenue necessary to cover the shortfall in the poor districts, which further contributes to the spiral.