Report Asks: Should Super-Rich School Districts Receive State Aid?

Published December 1, 2007

An October report by a respected budgetary watchdog group in New York has shed light on enormous differences in local wealth available to support public education. It raises the question of whether the state government should further subsidize rich districts.

Looking for ways New York State could close a potential budget shortfall of $4.3 billion next year, the nonpartisan Citizens Budget Commission (CBC) listed as one of nine options a phasing-out of state aid to its wealthiest school districts.

New York is one of many states that attempt to “equalize” the tax burden by aiding local districts in inverse proportion to their ability to raise local revenues. The aid sent to the wealthiest districts amounts to about 14 percent of that sent to the poorest. Nevertheless, CBC noted, “the wealthiest districts still get significant state aid that contributes to spending inequities.”

Vast Divide

The differences are stark. The tax bases in the wealthiest 10 percent of school districts have a per-pupil property valuation of $3.1 million. That means their revenue-raising capacity is about 30 times greater than that of the poorest 10 percent, where the per-pupil valuation is $129,694.

Within the wealthy group, the report stated, are “extremely high spenders, with some spending as much as $64,000 per pupil.”

“Wealthy districts are able to raise these revenues at tax rates considerably below the statewide median, while their counterparts in poor communities must tax at higher rates to raise much lower sums,” CBC stated. “Despite their relative wealth and high spending, the wealthiest 10 percent of districts receive a base grant in State aid of about $1,200 per pupil.”

Increasing Disparities

In his first budget, Gov. Eliot Spitzer (D) proposed to reform school funding by placing greater weight on local districts’ ability to pay for their own schools. However, under a compromise reached with the legislature on April 1, the wealthy districts received an increase in state aid. Spitzer signed off on a “hold harmless” provision that bestowed a 3 percent grant increase on districts that otherwise would not have qualified for increases because of their local wealth.

“Base grants and hold-harmless provisions for the wealthiest districts work against equity, exacerbating disparities in per-pupil spending,” CBC reported. “In the 2007-08 enacted budget, aid to the 68 (top 10 percent) wealthiest school districts is $229 million. Eliminating this unnecessary and ineffective aid would allow these funds to be used for other needs.”

Expanding Choice

Free-market experts, however, say the point is moot.

“Public education funding in New York is all smoke and mirrors, with state politicians taking from everyone and giving back to even the richest districts so they can claim all New Yorkers profit from state funding,” said Neal McCluskey, a policy analyst at the Cato Institute’s Center for Educational Freedom in Washington, DC. “In the end, though, everyone loses under this scheme, with higher taxes, out-of-control spending, and incredible inefficiency. But these are the games politicians must play to get support for redistributing district funds.

“To end the reliance on trickery, New York ought to stop funding districts, give money directly to parents in the form of either tax credits or vouchers, and let parents choose whatever schools they want,” McCluskey concluded. “It would be straightforward, efficient, and effective–in other words, everything the current system isn’t.”

Adding Options

Don Soifer, executive vice president of the Lexington Institute, a think tank based in Virginia, said there are other ways of helping children in have-not districts than the ones suggested by CBC.

“The best thing that could happen to those children stuck attending chronically poorly performing or dangerous public schools would be to allow them to take their $10,000-plus of per-pupil spending and use it at a different public or private school of their choice,” Soifer said. “The New York Archdiocese is having to close schools due to shrinking enrollment, while hundreds of thousands of students are attending public schools that don’t seem to be improving on any timeline that will be of much use to them.”

CBC also recommended cost-saving measures such as cutting ineffective economic development programs, restructuring government workers’ fringe benefits that exceed those in the private sector, and reforming Medicaid to target benefits to the neediest New Yorkers.

Founded in 1932 amid severe fiscal crisis, CBC provides independent analyses of city and state finances in New York.

Robert Holland ([email protected]) is a senior fellow for education policy with The Heartland Institute.

For more information …

“Options for Budgetary Savings in New York State,” Citizens Budget Commission, October 17, 2007, is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to and search for document #22262.