School Finance in New York State


In New York State, funding for public education comes from three sources: approximately four percent from federal sources, 40 percent from State formula aids and grants, and 56 percent from revenues raised locally.(1) Local property taxes constitute close to 90 percent of local revenues. State aid for the public schools comes primarily from the State General Fund (approximately 90 percent) wherein the major revenue source is state taxes (e.g. income and sales); the balance (approximately ten percent) comes from a Special Revenue Fund account supported by lottery receipts. All net revenues from the state lottery are statutorily earmarked for school aid. In addition, the General Fund guarantees the level of lottery funds appropriated for education, making up any shortfall in lottery revenues.(2)

In 1999-00, approximately 58 percent of State aid to school districts will be unrestricted general aid. An estimated 15 percent will support the education of students with disabilities. Categorical aids that make up the remaining 27 percent include aid for limited English proficient students, transportation, capital projects, BOCES services, computer hardware and software, textbooks, gifted and talented programs, support services for certain students not identified as needing special education, efforts to meet higher learning standards, and conversion to full-day Kindergarten.(3)

The major source of local revenue for education in all communities is the tax levied by boards of education on residential and commercial properties within the boundaries of each school district. Only the Big 5 cities have constitutional tax limits, and the limits apply to the total municipal budget. Small city school districts (those with a population of less than 125,000 inhabitants) had their constitutional tax limit repealed in 1985. The small city school districts have adopted their budgets without voter approval. 1997 was the first year that small city residents voted on their school budgets.

The State's sales tax laws reserve four percent for the state and permit localities to levy an additional three percent (four percent in the case of New York City and certain other municipalities). Eight counties share a portion of their sales tax with school districts, and are legally permitted to share certain other taxes. The non-property tax revenues derived from distribution of some portion of the local county sales tax are prorated based on the number of public school pupils residing in the county and enrolled in the various school districts partly or wholly located within the county.

Small city school districts can impose a utility tax, about one quarter of the 57 small city districts do so. In addition, recent legislation requires that payments in lieu of taxes (PILOTS) be distributed proportionally among the taxing jurisdictions (including school districts) affected by tax exemptions granted by Industrial Development Agencies (IDAs) (4) In 1997-98, $191.1 million in non-property tax revenues helped support approximately 172 school districts. Though not direct sources of education revenue due to the school system's fiscal dependence, it should be noted that New York City imposes a modified local income tax on residents, an income tax on non-State residents working in the city, a business and financial tax and a tax on commercial rent.(5) The City of Yonkers also imposes an income tax on non-resident commuters.

As mentioned above, the Big 5 city school districts are fiscally dependent; that is, the school system does not levy taxes, but is dependent upon citywide taxes for support. State aid for education enters the city treasury, not the school district treasury. The fiscal dependence of these school districts is fraught with problems related to level and stability of funding and the effective use of education dollars.

In past years, the Board of Regents has recommended fiscal independence for the Big 5 city school districts and alternatively for city districts in a fiscally dependent status, maintenance of local tax effort in relation to the prior spending. Categorical funding programs with prescriptive funding requirements have been used to ensure funds were spent for specific purposes, although this is a somewhat fragmented approach with a tendency to be administratively burdensome. Additional ways in which the State's school finance system should be structured to address the unique circumstances of large city, fiscally dependent school districts have not been fully explored. These alternatives are well worth exploring, due to the poor performance of many Big 5 students and the fact that the Big 5 school districts educate approximately 42 percent of New York State's public school students.

Disparities in Fiscal Resources

Despite New York’s highly equalizing State aid system, there remains tremendous disparity among New York State school districts in the fiscal resources available to support education. In 1996-97, operating expense per pupil (6) ranged from $4,875 for the district at the 10th percentile to $9,443 for the district at the 90th percentile, a difference of almost 94 percent.(7)

Since over half of the funds available for school districts to spend comes from local property taxes, it follows that disparities in spending are closely associated with disparities in property wealth. In fact, higher expenditures per pupil are associated with higher actual property value per pupil. In 1996-97, the average actual value per pupil among the lowest spending ten percent of districts was $119,164, while the average actual value per pupil among the highest spending ten percent of districts was $724,895.

Because the highest spending districts are the property wealthiest districts, they exert the least tax effort: the table shows that the average tax rate per $1,000 of actual value for the highest spending, wealthiest districts was only $14.78, yet the average tax revenue per pupil for those districts was $10,696. The average tax rate in the lowest spending, property poorest districts was nearly the same ($14.38), but the tax revenue per pupil was only $1,701 per pupil. Communities which desire a high level of educational services, but do not have a large tax base, must bear a disproportionately heavy tax burden in order to provide those services.

The table shows that the wealthiest group of districts received an average of only $1,193 per pupil in State aid, while the poorest districts received $4,086 – an apparently equitable distribution. However, the heavy reliance on property taxes to support education has created a situation in which, even with State aid per pupil exceeding that of the wealthiest group of districts by 242 percent, the poorest group of districts cannot begin to approach the spending level of the wealthiest districts.

The disparities in fiscal resources are due primarily to the varying ability and willingness of school districts to generate local property tax revenue. As in most states, property values of residences and businesses vary dramatically from school district to school district, as do local assessment practices, and the level of education services desired by the community. In short, a student’s access to educational resources depends in large part on where he or she lives, raising serious concerns about the equity of student opportunities.

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  1. Estimated data for 1997-98 from "Analysis of School Finances "1996-97. New York State Education Department. December 1998.
  2. Public School Finance Programs in the United States and Canada: 1993-94. American Education Finance Association and the Center for the Study of the States at the Nelson A. Rockefeller Institute of Government, State University of New York. Albany, New York, 1992, p. 391.
  3. 1999-00 computerized State aid estimates as of August 1999. New York State Education Department.
  4. "An Industrial Development Agency is an independent public benefit corporation created through state legislation at the request of one or more sponsoring municipalities…IDAs serve as financing conduits for local government to attract businesses to New York State, retain existing firms and enhance the state's competitive position…All property titled to an IDA is exempt from real property, sales and mortgage taxes, however, an IDA often negotiates payments in lieu of taxes (PILOTS) with the private developers participating in IDA projects."; (School Law 1994), New York State School Boards Association, Albany, New York, p. 433).
  5. Local Government Handbook, p. 171.
  6. Approved operating expenditures per weighted pupil are the operating expenditures for the day-to-day operation of the school as defined in Education Law. Not included are expenditures for building construction, transportation of pupils and some other expenditures. Money received as Federal aid revenue, proceeds of borrowing and State aid for special programs are first deducted from total annual expenditures when approved operating expenditures are computed.
  7. "Analysis of School Finances in New York State School Districts: 1996-97." New York State Education Department, Albany, New York, December 1998, p. 16.


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