LIA, LIEC Release Detailed Study on State Education Funding Plan and its Ramifications

For many years, New York State has provided education aid to school districts using a complex multi-factor formula that has not taken into account, among other things, regional differences in the cost of teacher wages, goods, and services. In recent years, as educational costs have risen, the State has attempted to offset a portion of the resulting property tax increases through School Tax Relief (STAR) payments and supplemental STAR payments to residential taxpayers.

Because of the lack of a regional cost adjustment in the state education aid formula, as well as a lack of proportionality in the aid that Long Island receives relative to its share of overall state student enrollment, the amount of education aid that Long Island’s school districts receive relative to their costs has been declining every year. The result has been a constantly rising property tax burden for residential as well as business taxpayers.

Today, Long Island taxpayers use 20% more of their gross household income to pay property taxes than New Yorkers in general. Their per capita tax burden significantly exceeds that of New York City taxpayers, and is likely the highest in New York. Some evidence exists that Long Islanders pay the heaviest property tax burden in the nation. Long Island suffers from the inaccurate perception that the region is wealthy. In fact, 34 percent of Long Island students live in school districts whose wealth is below the statewide average; in eastern Suffolk County that percentage is as high as 67 percent.

For many years, the Long Island Association (LIA) and the Long Island Education Coalition (LIEC) have called for reform in the way education aid is allocated, and for a resolution of the inequities that the State education aid system has visited upon Long Island taxpayers. Our statements on this subject extend back to January 1996, when we released our first edition of “Long Island Education: Data and Facts on Costs and Outcomes.” It continued through the position we took before the New York State Commission on Education Reform in January 2004. And it remains consistent in this study.

Among other things, we have called for an increase in education funding statewide; simplification of the aid formula; the creation of multi-year appropriations to improve planning; and the use of a regional cost adjustment formula in the education aid calculation. In the absence of those changes, which the State Legislature declined to make during the last eleven years, we have called for a simple and easily understood correction: provide Long Island with the same proportion of education aid that we have of students, about 16.8 percent.

In the 2007-2008 Executive Budget, Governor Eliot Spitzer has proposed an overall increase of $1.4 billion in education aid statewide. The Executive Budget also proposes significant fundamental changes in the way education aid is both calculated and allocated throughout the State. It proposes to replace the current complex formula with a simpler “foundation aid” formula that includes a regional cost index, which would provide $982 million in additional aid to school districts in 2007-2008. And it outlines a Four-Year Educational Investment Plan, which projects school aid increases using the proposed new formulas through 2010-2011.

The Executive Budget also proposes an enhanced “middle class” STAR program [hereinafter “enhanced STAR payments”] to supplement the existing “basic and enhanced” STAR payments [hereinafter “regular STAR payments”], and that, in considering each region’s relative share of total aid, both education aid and total STAR payments should be taken into account. The enhanced STAR funds would be allocated to households using a sliding scale means test based upon increasing household income.

The LIA and the LIEC have pointed out that STAR is not state aid to education but rather a property tax subsidy for qualified homeowners. While STAR is a critically important program, STAR funding has a significantly different purpose and impact than educational aid.

This study was undertaken to evaluate the effect that these new approaches to education aid and property tax relief would have on Long Island overall, and representative residential and business taxpayers in particular. Education aid is a complicated subject that cannot be analyzed easily, or briefly. It also has as many practical effects on taxpayers as there are taxpayers themselves. Consequently, this study tries to present the analysis of the Executive Budget’s proposal in as understandable a way as the facts will allow; and it uses real-life examples of residential and commercial/industrial taxpayers to illustrate its effects in a way that real Long Islanders can apply to their own circumstances.

The Executive Budget’s education aid and STAR proposals would begin to address several of the education aid reforms that the LIA and LIEC have been calling for. It would increase State spending on K-12 education, begin to simplify the education aid formula, and begin to recognize regional cost differences.

The proposal would increase education aid to Long Island school districts by about $113 million. It would, however, reduce education aid dollars for Long Island by about $60 million as compared to the amount the Island would have received if the formulas and shares in place last year remained unchanged. The proposal would provide about $208 million in enhanced STAR funds allocated based upon the household income means test. It would not reinstate the STAR “rebate” program enacted for last year’s budget, which brought about $173 million to Long Island taxpayers.

When education aid allocations and enhanced STAR payments are considered jointly, the proposal is likely to provide a net gain to a majority of Long Island residential taxpayers. However, a significant percentage of residential taxpayers, probably in excess of 25 percent, are likely to lose money as a result of the proposal.

Although there may be a net gain to a majority of Long Island residential taxpayers in the first year of the proposal, we are concerned about the long-range impact of the proposal. In addition to the reduced regional share that the proposal produces, several categorical aids that traditionally have recognized the unusual local financial effort of Long Islanders and the high cost of doing business on Long Island, have not been included in the foundation formula. It is unlikely, therefore, that the formula will keep pace with increasing local effort and costs.

Because, under current law, STAR payments are not made to commercial and industrial taxpayers, the proposal would not benefit businesses on Long Island. In fact, because the proposal would decrease education aid dollars coming to Long Island, which would inevitably increase the property tax levy, the proposal would increase the taxes businesses have to pay. We estimate the total property tax increase for businesses at approximately $116 million in 2007-2008.

That additional burden on business taxpayers would come at a time when Long Island’s economy is struggling to grow. It could have the effect of tipping the region’s economy in a negative direction.

Perhaps most important, however, is that the proposal would not rectify the inequities that Long Island taxpayers have suffered with respect to education aid, inequities that have left them with disproportionate and unfair property tax burdens. The reforms in education funding that the Executive Budget rightly seeks to make will be hollow in our region of the State unless they also set things right for Long Island taxpayers.

We recommend that specific adjustments be made in the proposed foundation formula for 2007-2008 to more fairly account for the inequity suffered by Long Island taxpayers. We recommend that the Governor create a commission to review and revise the foundation formula for future years. We also recommend that the enhanced STAR program sliding scale proposed in the Executive Budget be modified to more realistically and more fairly apply to the circumstances in which most Long Islanders live. And we recommend that the STAR program be extended to commercial and industrial taxpayers so that the STAR program does not continue to represent a shift of the property tax burden from residential to business taxpayers.

In the absence of these changes, which would preserve but modify the Executive Budget’s scheme for education aid and enhanced STAR payments, and which are consistent with our prior recommendations, we continue to call for a more simple solution to the inequities that Long Island has suffered: that Long Island receive a share of education aid that is in proportion to its share of the State’s student population, about 16.8 percent.