NY school funding should be revamped

When Gov. Kathy Hochul announced a $1 billion property tax rebate during her State of the State speech last month, the response must have pleased her: Presenting her budget blueprint, two weeks later, she increased it to $2 billion.

On Long Island, with the median residential property tax bill five times the national average, it’s not surprising that such rebates receive warm welcomes. Taxpayers get cash while politicians claim credit for sending checks — funded by taxpayers.

But this haphazard ploy of the state softening exorbitant local property taxes makes little sense, and it's just one of the flaws in New York's education funding. The system needs a redesign that replaces gimmicks with rational tax policy by re-imagining how education funding is collected, and allotted.

And now, with the state and its school districts awash in federal funding, spiking income and sales tax inflows from a booming economy, with sports gambling contributing and legal marijuana on deck, there’s a unique opportunity to remake the system that shouldn’t be sacrificed for another gift-check gimmick.

Election-year givebacks like Hochul’s reduce property taxes on most homeowners but not the wealthiest, adding welcome progressivity to local levies. The STAR rebate, distributed toward that goal since 1999, applies only to households earning less than $500,000 annually. Hochul’s plan adopts the same $500,000 income limit that STAR uses to shift the burden of about $3 billion in residential school property taxes from the homeowners to the state each year.

CHECK HISTORY

Under former Gov. Andrew M. Cuomo, similar additional checks were distributed from 2014 through 2019 to middle-class homeowners via two different programs granting rebates to residents whose school districts stayed under the 2% tax cap. That program expired, but Hochul has devised her own version, sending checks to 2 million households, averaging $970 each. That would deplete about 40% of the state’s $5 billion budget surplus.

These various STAR-style rebates, at their core, indicate a consensus that school taxes on non-wealthy homeowners are too high, and state money should ameliorate that.

So why not skip the acrobatics and let the state fund schools entirely, ending school property taxes to swap them for boosted state tax rates? Because if the state collected all the education funding via income and sales taxes statewide, and then disbursed it based on need statewide, districts would have no way to keep any local money local, undermining Long Island schools.

Communities should be able to make an outsized commitment to better schools if they choose. What’s more, funding schools via property taxes has the advantage of stability. In an economic downturn, property tax collections decline very little, while sales tax and income tax collections plummet.

But there are better ways.

NEW SYSTEM NEEDED

An ideal system would:

• Derive a far larger portion of school funding from the state and less from local property taxes than it currently does. The change would tie more school funding to income and less to the value of homes whose owners are struggling to keep them, be they elderly, disabled or temporarily without income.
• Maintain a property tax component in funding, to retain some economic stability while allowing communities that choose to fund schools extra generously a chance to do that. Now, the percentage of the total spent on public education in New York, other than federal dollars, is about 40% from the state and 60% from districts. Flipping those percentages isn’t a bad place to start the conversation.
• Make the change gradually, enacting property tax cuts statewide while increasing income taxes.
• Rework commercial property tax collections so that districts that do not have significant commercial property, featuring boundaries often drawn to be purposely exclusionary, do receive commercial property tax income. State Sen. John Brooks (D-Seaford) has drawn up a strong plan to achieve this goal that should be part of the conversation. Such a big change would not be without bumps but it would put homeowners on a smoother financial path.

State officials say they have modeled a variety of such tax shifts, and do see the potential of moving more of the load of paying for schools to the state as a way to tackle stubborn inequities in funding and opportunity. But they also bring up valid worries, like the possibility that an increase in state income tax rates could send even more New Yorkers to the exits.

That's a valid concern, but most people's income and real estate are at least a rough match in luxuriousness, meaning many who lose with higher income taxes would break even or come out ahead from the property tax cut, particularly outside of New York City.

Right now New York has finally come to terms with a multi-decade legal battle over what level of funding is required for each district and for the state to meet its constitutional obligation to deliver a "sound and basic education." It seems clear that the state, not school districts, is the logical entity to collect and disburse the bulk of school dollars.

There’s nothing unusual about the governor's proposed preelection rebate checks. What is special, and what Hochul should seize in this budget cycle, is the sudden opportunity to do more.