A Job for True Political Leaders

• By Paul Abramson
• 08/01/10

Last month, I wrote in this column about the problems of trying to run a 21st century educational system on a 19th century tax base. To reiterate, 43.7 percent of school funding comes from “local sources,” which in almost all cases means real estate taxes — taxes based on the 19th century concept that there is a direct correlation between the land a person owns and his or her wealth.

There are many good reasons why people object to real estate taxes. An easy example is the family that bought a modest home 40 years ago on the outskirts of town. Over the years, the town has spread, the modest house is now on an expensive piece of property and the taxes are high. The people living there no longer can afford the property taxes, so they feel they are being driven out of their home by local taxes.

The political answer to this problem is to pass legislation to limit local taxes. That’s what just happened in New Jersey, where the governor has signed legislation to cap the amount by which New Jersey localities can raise real estate taxes to a maximum of two percent per year. (There are exceptions that give the new law some flexibility.) In New York, the outgoing governor is seeking legislation limiting local tax increases to four percent per year with none of the flexibility allowed in New Jersey.

Passing laws restricting local tax increases is a very popular political position. It may be unpopular to actually cut the services those taxes buy (like school programs, garbage pickup and police and fire protection) and the jobs of neighbors (teachers, firemen, sanitation workers, etc.), but that’s not the job of the governors and legislators who pass the restrictive laws. That’s left to the local people who have lost their ability to finance what they feel their communities need.

A Case History
As it happened, on the very day that New Jersey passed its law capping local tax increases, a story was carried on the Internet concerning the effect a similar law had on the San Bernardino School District in California.

California enacted Proposition 13 in 1978 to cap increases in local property taxes. (Proposition 13, officially, the People's Initiative to Limit Property Taxation, was an amendment to the California constitution, not a legislative action.) Beyond capping tax increases, Proposition 13 restricted annual increases in assessed value to an inflation factor, not to exceed two percent per year. It also required a two-thirds vote majority for local governments to raise special taxes. In other words, it effectively capped real estate tax rates and made it difficult, if not impossible, for local constituencies, including school districts, to raise additional money even if a majority of the residents wanted to do so.

The Local Effect
According to an article in the San Bernardino Sun, San Bernardino had a population of 104,000 in 1970. By 2000, it had grown 78 percent to 185,000, but they had the same number of schools as three decades earlier. Danny Tillman, the school board president, says the district’s troubles started with Proposition 13, the measure that created a climate in which schools couldn’t be built because the district could not get financing and district voters would not approve school construction bonds.

It took nearly 30 years for the district to overcome the fiscal and psychological effects of the cap placed on local taxes by Proposition 13. In 2008, three of the city’s high schools were around 3,000 students apiece, the district was using more than 500 portable classrooms, and half the district’s schools were operating on year-round schedules in order to squeeze more students into existing classrooms.

San Bernardino’s school housing problems apparently are about to ease thanks to a state school facilities bond issue that is providing the district with $190 million to build eight schools. But, as a result of the property tax cap, the cost of building those schools has more than tripled, and the state had to step in to right the wrong it caused in the first place. Meanwhile at least two generations of children were adversely effected.

Capping local taxes is politically popular. Everyone wants to pay less, and since 75 percent of taxpayers have no children in school, many may not care if teachers get laid off or buildings are run down or crowded. But the real problem is not raising money to pay for local services — most of which all of us want. The real problem is the source of the money — the 19th century way we pay for 21st century services. Don’t cap the ability of local people to pay for the services they want; change the basis on which the money is raised. That’s what true political leaders would be doing.