The
politically popular School Tax Relief program, or STAR is, in fact, the
most significant change in New York State's educational finance system
in decades, and it will greatly magnify New York State's most serious
education problem: the large performance disparity between rich and poor
school districts. Both Governor Pataki and Senate Majority Leader Bruno
have proposed to use some of the State's projected budget surplus to
accelerate the implementation of some provisions of STAR. This would be
a serious mistake; STAR urgently needs reform before it is implemented.
The
centerpiece of STAR is a property tax exemption for homeowners that will
eventually equal $30,000 in most school districts. Consider a homeowner
with a $100,000 house in a school district with a tax rate of 2 percent.
This exemption cuts the homeowner's property taxes from 2 percent of
$100,000 to 2 percent of $70,000Ca
cut of $600. STAR also requires the State to compensate school districts
for the revenue they lose because of these exemptions. The total cost to
the State will eventually reach $3 billion per year, which is more than
one-quarter of the State's total education budget.
STAR
has three major flaws.
First, STAR creates significant new inequities between taxpayers. These
inequities arise because the STAR property tax exemptions are higher in
higher-wealth counties. The exemption in Westchester County, for
example, will be $72,072 compared to $30,000 in many other places. At a
2 percent tax rate, a homeowner in Westchester County will save $1,441
per year whereas many other homeowners will save only $600. The State
has no business subsidizing homeowners who choose to live in wealthier
communities. Moreover, STAR provides no tax relief for renters. Because
renters pay some share of property taxes through higher rents, this is
profoundly unfair.
Second, and more important, the STAR provisions that cause inequity
between taxpayers also cause inequity between school districts.
Downstate suburban districts will receive an average tax savings of
$1,502 per pupil, compared to only $582 in New York City and $600 in the
three large upstate cities. This gap is so striking for New York City
that STAR includes supplemental income tax relief for City residents.
Even with this supplement, the City will receive only two-thirds as much
support from STAR as its suburbs, and no such relief is available to
other low-wealth, high-renter districts. No fairness principle can
justify this design; indeed, it undermines a decades-long search for aid
formulas that give more money to lower-wealth districts.
Finally, STAR gives all school districts a powerful incentive to
increase tax rates and educational spending-an ironic feature of a "tax
relief" plan. By shifting a share of property tax payments from
homeowners to the State, the STAR exemptions lower the effective price
of education for local voters. We estimate that the average price cut
will be 37 percent. Just as a cut in the price of coffee induces people
to buy more coffee, this large cut in the price of education will
eventually induce voters to raise educational spending. We estimate
that, on average, spending will increase 14 percent and the school tax
rate will increase by one-third, thereby boosting taxes for commercial
and industrial property and raising the tax burden on renters. Because
the price cut varies by district, these changes would also widen the gap
between the best and worst schools and increase the cost of STAR by up
to one-third above the official $2.2 billion estimate.
We
support property tax relief for taxpayers in New York State. The problem
with STAR is not with property tax exemptions, which can be a helpful
way to promote equity across taxpayers and shift the educational
financing burden toward the State, but with the provisions of STAR that
promote inequity across taxpayers and school districts.
Thus,
we believe that the State's budget surplus should be devoted to
reforming STAR, not to implementing the current, flawed STAR more
quickly. We propose a reform that would
These
reforms would eliminate STAR's gross inequities across taxpayers and
help to close-not-expand-the performance disparity between rich and poor
school districts.
Although the schools in New York state are excellent on average, the low
performance of schools in the state's large cities and other poor
districts is a serious problem that should be of concern to all state
taxpayers. In this setting, the implementation of STAR in its current
form, which disproportionately aids rich districts and magnifies
existing performance disparities, would be nothing short of a scandal.
The Governor and the State Legislature should reform STAR now before it
is too late.
*The
authors teach at The Maxwell School at Syracuse University and have
published several articles on
education finance in New York State.