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Property Tax Limitations, School District Revenues, and Equity: Analyses of Pennsylvania’s Act One Open Access

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Voters’ hatred of the property tax has led to the enactment of tax and expenditure limitations (TEL) in most states (Brunori, Bell, Cordes, and Yuan, 2008; Sokolow, 1998). Past research suggests that TELs have consequences for school districts, such as reductions in revenue and expenditures, and that these effects may be felt disproportionately by districts that are less able to adapt, such as poorer districts (Figlio, 1998; Joyce and Mullins, 1996; Downes and Figlio, 1999; Mullins, 2004; Wallin and Zabel, 2011; Della Sala and Knoeppel, 2014; Arsen, DeLuca, Ni, and Bates, 2016; Steinberg and Quinn, 2015). Such disproportionate impacts may increase revenue inequity across districts, further widening the gap between the “haves” and “have nots.” This dissertation explores the impacts of TELs on school district revenue and equity through analyses of Pennsylvania’s Act 1, a useful case for studying these effects because it was enacted more recently—2006—and is in place in a diverse state with a heavy reliance on property tax revenue that faces ongoing concerns over its allegedly inequitable public education funding system. In the first study, I use multivariate regression analyses with fixed effects to consider the effects of Act 1 on various revenue sources available to school districts and whether districts that may be less able to adjust to changes in revenue streams felt these effects disproportionately. I find that local revenue and property tax revenue were reduced for school districts subject to Act 1’s tax limits compared to those not subject to them, and that state revenue did not offset these reductions, resulting in reductions in total revenue. My findings do not suggest that these effects were disproportionately felt by districts with greater needs.In the second study, I consider the characteristics of districts that are able to avoid Act 1’s tax limits. Using logistic regression with year fixed effects, I find that districts with better fiscal conditions were more likely to receive an exception from the state that allowed them to avoid the tax limit. These results raise concerns of potential inequity, albeit with no intent on the part of the districts or Pennsylvania officials. In the third study, I use both descriptive and multivariate regression analyses to consider the impacts of Act 1’s limits on revenue equity among districts. I find that Act 1’s tax limits appear to have reduced revenue equity among districts, and to have had a differential effect on higher need districts, when using poverty as an indicator of need. Taken together, the findings suggest that Act 1 may have both reduced funding and revenue equity among districts, and had a differential negative effect on revenue for higher poverty districts. These results therefore suggest that the tax limits may have somewhat widened the divide between the “haves” and “have nots,” and raise concerns that revenue equity among districts has been reduced and that districts better able to adjust to tax limits—those in better fiscal health—may also be those most likely to avoid them.

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