Other Sources of Local Funding

mill A unit of the local tax rate representing one-thousandth of a dollar.

user fees Special fees charged specifically to those who use a facility or service (for example, recreational facilities, bus service, or after-school centers).

exclusive product rights Special

privileges whereby commercial enterprises pay a fee for the exclusive right to market their product (for example, Pepsi) in the school district. New Jersey, and Rhode Island are most reliant on property taxes to generate local revenue.5

Property taxes are determined by first arriving at the market value of a property— the probable selling price for the property. In most states, the market value is converted to an assessed value using a predetermined index or ratio, such as one-fourth or onethird; for example, a property with a market value of $200,000 might have an assessed value of only $50,000. The assessed value is generally less than the market value. Finally, the local tax rate, often expressed in mills, is applied to the assessed value. A mill represents one-thousandth of a dollar; thus, a tax rate of 25 mills amounts to $25 for each $1,000 of assessed value (or $25 3 50 5 $1,250 tax). Levying of property taxes is often dependent upon approval of the local voters; passage of such tax levies can be difficult during tough economic times.

Property tax is not considered to be an equitable tax and is difficult and costly to administer. Differing assessment practices and lack of uniform valuation may lead people owning equivalent properties to pay different taxes. Also, the property tax may fail to distribute the tax burden according to ability to pay. A retired couple may have a home whose market value has increased substantially over the years, along with their taxes, but because they live on a relatively low fixed income, they cannot afford the increasing taxes. In this respect, the property tax is regressive.6

In addition, the property tax is not immediately responsive to changing economic conditions. Some states reassess properties every one to two years, but others reassess only every three to four years. Thus a property’s assessed value and actual tax are often based on outdated market conditions.

8-1c other Sources of local Funding

In addition to the property tax, local school districts can gather revenues through special income taxes and other taxes or fees. Some municipalities, especially small villages and towns, depend on such sources as traffic fines and building permits to help raise revenues for the local coffers.

User fees are a type of special assessment charged for select services and materials in public schools. User fees can be levied on bus service, textbooks, laptops, extracurricular activities, and after-school centers. School districts are more often charging students to participate in sports, which is a form of a user fee. User fees tend to be utilized more frequently when school districts face budget shortfalls. Because they are not based on ability to pay, user fees are considered a regressive tax.7

A growing number of school boards have signed lucrative contracts with corporations for exclusive product rights and exclusive naming rights. Exclusive rights contracts allow districts or their schools to receive payments for the right to be a sole provider of a service or product. For example, schools will sign an exclusive product contract with a soft drink company to allow only that particular brand to be sold on school property in exchange for a set fee. School districts have also developed fund-raising campaigns

5“Revenues for Public Elementary and Secondary Schools, by Source of Funds and State or Jurisdiction: 2010–11,” Digest of Education Statistics 2013 at http://nces.ed.gov/programs /digest/d13/tables/dt13_235.20.asp?current=yes; and Jeffrey L. Barnett, Cindy L. Sheckells, Scott Peterson, and Elizabeth M. Tydings, 2012 Census of Governments: Finance: State and Local Government Finance Summary Report (Washington, DC: US Census Bureau, December 17, 2014); and “Local Property Taxes as a Percentage of Local Tax Revenue: Selected Years 1977–2012,” Tax Policy Center (January 12, 2015) at www.taxpolicycenter.org/taxfacts /displayafact.cfm?Docid=518. 6“Property Taxes,” The Institute on Taxation & Economic Policy (ITEP) at www.itep.org/tax _topics/property_taxes.php (January 30, 2015). 7Fred C. Lunenburg, “The Practice of Charging User Fees in Public Schools,” Schooling (January 2010); Stephanie Simon, “Public Schools Charge Kids for Basics, Frills,” Wall Street Journal— Eastern Edition (May 25, 2011), pp. A1–A14; and Scott Laffee, “The Affordability Question,” School Administrator (February 2012), pp. 27–34.