Taxation and Education: Using Educational Research to Inform Coherent Policy for the Public Good.

In 2006, following a 30-year trend among the US states to remove the property tax from the revenue for public schools, the South Carolina General Assembly enacted Act 388 which replaced the property tax with a one-cent sales tax. The law decreased the budget capacity of school districts thus impacting educational equity and adequacy. This paper describes key policy makers’ and stakeholders’ interpretations of the pressure for property tax relief and highlight the importance of policy coherence in education finance, taxation, and accountability. Taxation and Education: Using Educational Research to Inform Coherent Policy for the Public Good Throughout history, the property tax has been the principal source of funding for public education although the percentage of funding for public education that comes from local sources has varied and the reliance on property tax is different in different regions of the country (Kent & Sowards, 2009; McGuire & Papke, 2008). Property taxes have provided a stable revenue source for public schools, yet historically remain vulnerable to challenges on the grounds of equity and adequacy tied to local wealth. Most notably, critics contend that since property wealth is unevenly distributed, the reliance on this source of funding results in uneven tax rates, inconsistent revenues per pupil, and variance in spending across districts (McGuire & Papke, 2008). Nevertheless, California voters approved Proposition 13 over 30 years ago, and since then, other states have removed property taxes from public schools’ revenue streams and replaced such taxes with more dynamic and in some cases less predictable funding (Courant, Gramlich & Loeb, 1995; McGuire & Papke, 2008). South Carolina followed these states in 2006. In the literature on school finance, myriad studies have been conducted to examine the equity and adequacy of revenue allocated in support of public education. Beginning with the seminal work of Berne and Steifel (1984), scholars have both attempted to define and quantify the concepts of horizontal and vertical equity. Due in large part to judicial interpretations of state constitutions regarding the requirement to provide for a system of public education, the debate has evolved from a focus on equity, defined as equal, to one of adequacy, defined as sufficient (Ladd, 2008; Darling-Hammond & Snyder, 2003: Verstegen, 2002; Reschovsky & Imazeki, 2001). Relatively fewer studies exist that examine revenue generation in support of public education. The capacity to budget greatly impacts the ability of educational leaders to deliver an adequate education to children; to do so require both a stable and sufficient source of revenue. Because the competing policy goals of taxpayer equity and the provision of educational services must be balanced, more studies that seek to examine how policy makers deliberate these issues as well as the impact of their decisions must be conducted. In 2006, South Carolina’s General Assembly passed legislation to relieve taxes on owner occupied property valued at more than $100,000 and typically found in attractive locations on waterfronts or in retirement communities. Simultaneously, SC legislators also limited municipalities’ and school boards’ ability to levy higher rates. The General Assembly removed the property tax on owner occupied property and replaced it with a penny addition to the state’s sales tax on specified retail items. With several of Act 388’s provisions rolling into implementation from 2007 through 2008, this study took place in 2010 to obtain key policy makers’ and stakeholders’ perceptions of the consequences of this act on both taxpayers and schools and their political forecast of the next steps in balancing both the tax burden among diverse taxpayers and stabilizing adequate resources for public schools. The research described in this study focused on several questions: What motivated legislators to cut the property tax in South Carolina? ; Did the legislators consider the potential impact on the ability to adequately fund the state system of public education by removing the property tax? ; In what ways did beliefs about tax burden and ability to pay impact the enacted legislation? This paper further developed answers to these questions: How did the shift in tax impact the capacity of school districts to budget? And, what are the implications for practitioners who must now deliver the same educational program with diminished resources? Competing Priorities of Equity According to Dinan (2007) and Guthrie, Springer, Rolle and Houck (2007), scholars have examined the language of the education clause of each state constitution and categorized states according to the duty to provide a system of education. These classifications range from weak clauses that simply establish a school system to clauses mandating a thorough and efficient school system. Furthermore, state education clauses range from containing language regarding the purpose and/or benefit of a quality education to clauses proclaiming education to be a paramount duty or mandating other specific duties. The South Carolina Constitution offers a limited statement (Umpsted, 2007) concerning the operation of schools: . the General Assembly shall provide for the maintenance and support of a system of free public schools open to all children in the State and shall establish, organize, and support other public institutions of learning, as may be desirable. (South Carolina Constitution Article IX, Section 3). The interpretation of the education clause in class action suits heard in 45 of the 50 states has led to recommendations for reform, particularly in the areas of finance and accountability policy (Levine, 1991; Springer, Liu & Guthrie, 2009; Griffith, 2005). At issue in these class action suits are the evolving notions of equity and adequacy. The unit of analysis in these cases is the student with equity being conceptualized as either an input or an output. When measuring equity by the more traditional focus on inputs, an equitable finance system would be measured by what Berne and Steifel (1984) identified as horizontal equity. Under such a system, all students would have access to a similar amount, or “package” or resources (Ladd, 2008 p. 404). Studies that attempt to discern horizontal equity compare expenditures per child. The definition of equity in terms of outputs would, according to Ladd (2008), require that schools be provided sufficient resources to achieve similar outcomes. Because schools are differentially situated, some schools require more or different resources than others. Differential treatment of unequals is termed vertical equity by Berne and Steifel (1984). This concept is especially relevant in the current policy context of schooling that requires equitable outcomes for all children. Some have characterized vertical equity in the ideal as adequacy (King, Swanson, & Sweetland, 2003) while Ladd (2008) made the distinction that adequacy is not just about differential treatment, but rather sufficiency of resources to achieve desired outputs. Equity may also be viewed through the lens of the taxpayer. Ulbrich (2005) noted that a good revenue system is characterized by adequacy, equity, and efficiency. An adequate revenue system is defined as one that contains a mix of revenue sources that provide a stable foundation so that the revenue grows when the economy does. An equitable tax system distributes tax burden in a fair manner among differential levels of income and between households and businesses. Finally, an efficient system does not distort individual behavior in the market. Tax equity considers issues such as who should pay for government services, ability to pay, and burden. Policy Coherence, Budgeting, Taxation and the Public Discourse The seminal work of Smith and O’Day (1991) outlined the need for systemic reform in education policy and advanced the notion that an alignment of policy proposals: standards, testing, teacher licensing, instructional materials, professional development, and sanctions for school performance were required. Recently, finance scholars have advocated the importance of the alignment of funding mechanisms with standards (Adams, 2008; Verstegen, 2002). According to Ryan (2008), the fields of education law and policy have been dominated by the intersection of standards and testing with challenges to school finance distribution systems. Budgeting may be thought of as comprising three elements: (a) decisions on the amount of funds to be raised, (b) requests for funds, and (c) the allocation of funds. Succinctly stated, budgeting is the process of generating, claiming, and rationing resources (Schick, 1990). The capacity to budget is determined by how well a government or agency can claim and allocate resources in order to produce specified outcome (Schick, 1990). “It is no exaggeration to state that the capacity to govern depends on the capacity to budget” (Schick, 1990, p. 1). By extension, the ability of schools and districts to adequately educate children is impacted by the ability to claim sufficient funds and to align those resources in such a way as to maximize student achievement. King, Swanson, and Sweetland (2003) noted that taxes serve many purposes including the redistribution of wealth and power, the creation of an economic climate that supports the growth of business, the discouragement of the use of certain products (i.e., tobacco), and the encouragement of various social and economic policies. These issues influence policy choices among the merits of different types of taxes. Tax yield is the amount of revenue that is raised as a result of a tax. Without adequate yield, the government may not be able to provide specific services, balance the budget, and avoid debt. Finally, tax stability or elasticity is a consideration when adopting a tax. Succinctly stated, elasticity refers to the change in revenue based on a change in mark