Ø    This report identifies as a policy concern those school districts that are low taxing,   low spending and low performing.

Ø  Thirty-nine districts were found to have a local effort problem, being below the median on measures of tax effort, spending, and student performance.   This reflects a decrease from the prior year.

Ø     As district need relative to fiscal capacity worsens, the probability of being identified as a low tax effort, low spending, and low performing district increases.

Ø    One Big Five district, Syracuse, was found to be low effort, low spending, and low performing.   

Ø      New York City, although low taxing and low performing, was not low spending.

Ø   The total levy loss attributed to low tax effort, low spending, and low performing districts for 2002-03 was $23 million; two-thirds of this levy loss is attributed to Rural and Upstate Suburban districts.    

Ø      This result is $582 million less than 2001-02.

Ø     Average or median spending per pupil increased 3.2 percent while median tax       effort declined by 0.3 percent from 2001-02. 

Ø    In total, State financing for K-12 education, including STAR, only increased by 0.6 percent, relative to last year. 

Ø  Therefore, the increased ability to spend for education was largely the result of increased tax revenues from growing property values.  Preliminary 2002 data suggest a 12.5 percent increase in actual values over 2001. 

Ø   Since local effort tends to be a greater problem for school districts with high pupil need and limited fiscal capacity, every effort must continue to be made to ensure that State Aid to school districts accurately reflects school district needs and costs.

Ø     Maintenance of local effort can be a formidable challenge for some school districts.  SED should develop its capacity to provide technical assistance to school districts regarding the most cost-effective ways to use State Aid and leverage local resources.

Background

This analysis uses a three-tiered framework for analyzing school district tax effort consistent with that which the State Education Department has presented annually for the past seven years.  It provides an update on school district local tax effort using 2002-03 data.   In New York State, a district’s capacity to achieve a given spending level involves a state and local partnership. Thus, even among low wealth districts, which benefit from highly wealth equalized aid formulas, the willingness and ability to raise funds locally to support education is essential in assuring that all children have the resources needed to achieve high academic standards.  A clear understanding of school district local tax effort has become an issue to New York State policymakers.  Any diminution of local tax effort in high need school districts, particularly if local tax effort is “inadequate” to begin with, poses a significant policy concern. 

Discussion

This analysis was conducted to provide a picture of the tax effort problem.  Tax effort was examined using a modified version of the three-tiered approach described in an October 1999 Regents report[1].  Three measures of tax effort were used to describe the problem: 1) “lost levy” – which refers to the amount of local tax revenue that districts lost in 2002-03 by taxing themselves below the statewide median tax rate of $18.21 per $1,000 actual value; 2) “effective lost levy” – which refers to that portion of the lost levy that would have to be raised in order to bring a district up to the median statewide spending level of $12,556 per pupil; [2] and 3) effective lost levy of low-performing school districts.  This second criterion was necessary to address the fact that many districts with high property wealth can still generate substantial local levies per pupil at relatively low tax rates. Because of their high spending levels, the authors did not consider low tax rates to represent an effort problem for such districts and so they were eliminated from the effective lost levy category.  It is important to note that the spending level referred to in this analysis is the sum of a district’s General Fund, Debt Service Fund, and Special Aid Fund.

The third criterion used to define the local effort problem was student performance.  Some school districts may tax themselves below a statewide median tax rate, and fall below the median spending level, but still have students that achieve high standards.  For these high performing districts, the authors did not view their low taxing and spending behavior as problematic, given the level of performance obtained by their students.  Therefore, in order to identify low taxing, low spending, and low performing school districts, the same notion of effective lost levy was applied in conjunction with average student performance on the New York State 4^th and 8^th grade English Language Arts and Math examinations.  For the purpose of this study, any district with an average score below the level three cut-point on any two or more of these four exams was considered to be in need of improvement.

In Figure 1 below, Districts 1 and 2 are those districts for which SED policy concerns are the greatest.

A Note on STAR

For the purpose of this analysis, tax rates were calculated using a local levy that includes the STAR payment.  This approach is consistent with the way tax rates are calculated for State Aid purposes.  When STAR is included in the local levy, the median tax rate is $18.21 per $1,000 actual value.  Another option would have been to remove the STAR payment from the local levy.  If STAR were not included in the local levy, the median tax rate would be $14.60 per $1,000 actual value.  This change would result in the identification of 49 districts with poor performance (versus 39 districts when STAR is included) having an effective lost levy of $24.2 million (versus $23.7 million with the inclusion of STAR).

Findings

The magnitude of the lost levy problem statewide was $3.49 billion in 2002-03.  New York City had a lost levy of $1.05 billion, accounting for 30 percent of the State total.  Downstate suburban districts had a lost levy of $1.875 billion, which represents 53 percent of the total (Chart 1).  

When considering only those low taxing districts that are also spending below the median expenditure per pupil of $12,556, the total effective lost levy is $161 million.  There were 134 districts found to be low taxing and low spending, thus placing them into the effective lost levy category.  New York City had no effective lost levy, as their expenditure per pupil of $13,043 exceeded the statewide median.  Rather, the district types making the greatest contribution to this problem are the Upstate suburbs and rural districts: these two categories are responsible for three-fourths of the State total effective lost levy.  These categories are followed by the downstate suburban districts, which represent 15 percent of the statewide total. 

If we further narrow the effective lost levy districts to include only those whose performance was below a standard performance level, 39 districts were found to be in this category.  For these 39 districts, the total effective lost levy amounted to $23.7 million, of which the greatest shares derive from the following categories: rural, Upstate suburban and Upstate Small Cities, with 36, 32 and 25 percent of the total, respectively.       

Rural districts were disproportionately represented in the effective lost levy, low-performing category as seen in the District Type table located in Appendix A.  That is, while rural districts account for 29.1 percent of all districts in the State, they comprise 43.6 percent of the 39 districts with effective lost levy and poor performance. 

As shown in the decile table above, there is a strong relationship between a district’s need relative to fiscal capacity and the low taxing and low spending phenomenon. As district need/fiscal capacity status worsened, the likelihood of falling into the effective lost levy category increased.[3]  In the five lowest need/fiscal capacity deciles, i.e., the wealthiest, only 11.8 percent of districts were found to be low taxing and low spending, whereas in the five highest need/fiscal capacity deciles, 28 percent of the districts were identified as effective lost levy districts. 

As need/fiscal capacity status worsened, districts that were low taxing and low spending also experienced substantial drops in academic performance.  Of the 39 districts that were identified as low taxing, low spending and low performing (column J of Table 2), 92.3 percent fell into the five highest need/fiscal capacity deciles.

In addition to the decile analysis, Table 1 displays the lost levy and the effective lost levy for New York City and the Big Four cities.  While New York City, Buffalo, Syracuse and Yonkers all had tax rates below the median, only Syracuse had below average spending, thus falling into the effective lost levy category.  Moreover, Syracuse was found to have performance below the standard level.  Appendix A contains similar tables representing districts by district type and by need/resource category.

It is important to note that this framework identifies only those districts that are low taxing, low spending and low performing as districts of greatest local effort concern.  Districts that are low taxing and low performing, but are spending above the median could also be considered to have a local effort problem, particularly if they rely heavily on state revenues to achieve their spending levels, but fail to make adequate local effort.  A total of 51 districts fall into the category of low taxing and low performing, but spending above the median expense.  Included within this group are New York City, Buffalo and Yonkers whose tax rates were below the State median; they had a lost levy of $1,001, $683 and $3,931 per pupil respectively.

As noted previously, when need/fiscal capacity status increases, districts are more likely to exhibit low taxing and spending behavior.  This can be attributed, in part, to the fact that, as wealth increases, districts enjoy a greater local levy at a standard level of tax effort.  As seen in Chart 2, as the Combined Wealth Ratio (CWR) of a district increases, so does the levy per pupil at a standard level of effort (one mill).  Therefore, low wealth districts have less of an incentive to increase their tax effort when compared to high wealth ones.

As shown in Chart 2, when the levy associated with a standard level of tax effort is low, such as in the low wealth deciles, a greater percentage of districts were found to be low taxing.  As the property value per pupil increases, and therefore the associated levy per pupil increases, the likelihood that a district will be found to be low taxing decreases.  This relationship holds up until the ninth and tenth deciles in which the percentage of districts found to be low taxing begins to increase due to the substantial resources generated at low tax effort levels in high wealth districts.   Therefore, we find that there is a nonlinear relationship between wealth and local effort with very wealthy districts and very poor districts having a greater propensity toward low tax effort.