Taking a Wrecking Ball to Property Taxes Comes at a High Price for States

Across nearly every state, public K-12 budgets rely on a mix of state and local revenue sources. This mix provides some protection against economic fluctuations. Local property taxes, in particular, provide fairly stable revenue for schools, yet several states are at risk of undermining that foundation.

According to EdWeek, more than a dozen states are trying to reform or eliminate property taxes. Many of these proposals aim to address voter concerns about rising property taxes and housing affordability amid rising property values, but they often lack a clear plan to replace lost revenue for schools.

Tennessee and Ohio could both have constitutional amendments on the ballot this fall that would eliminate property taxes. Kansas is considering a bill that would replace property taxes with a higher state sales tax. Other states are chipping away at property tax revenue with various exemptions and freezes.

This push to cut property taxes comes on the heels of a decade-long trend to flatten or eliminate state income taxes: Eight states have no individual state income tax, and since 2021, most states have cut their individual income tax rates, usually focusing on lowering rates for top earners. These past cuts are contributing to a slowdown in state revenue growth across the country.

Eliminating or significantly reducing a major tax category might be a political winner in the short term, which could explain why tax cut proposals are multiplying ahead of the midterm elections. But, unless new, equivalent sources of stable funding fill the gaps, states will face a reckoning when they don’t have the revenue to fund essential public services, including schools. Gov. Mike DeWine warned that Ohio’s sales tax would need to rise from a base rate of 5.75% to 20% to replace lost revenue for schools if its ballot initiative passes.

A mix of revenue sources makes school funding more resilient in moments of crisis or economic upheaval. In isolation, each type of tax has strengths and weaknesses. Combined, those strengths and weaknesses can offset one another and create more stability:

• State sales and income taxes tend to be more volatile and vulnerable to economic recessions, but states can distribute that funding across district lines via school funding formulas, potentially offsetting uneven access to local revenue for schools in communities with greater needs and lower wealth.
• Sales taxes tend to be regressive — hitting lower-income buyers harder, but states can keep rates lower or exempt essential expenditures such as groceries and medications if they have other revenue sources, like income taxes.
• Property taxes are more stable and locally controlled, which tends to increase voter support, but the taxable value of property varies substantially district to district, leading to deep inequities in access to local funding for schools across communities. States can offset these inequities by deploying their resources from income or sales tax strategically.

There are plenty of promising ideas for tax policy and school funding that could make funding more fair for taxpayers and support robust, equitable K-12 funding. For example, the Lincoln Institute of Land Policy outlines how property tax “circuit breakers” — targeted tax relief programs for low- and middle-income households — can be structured to provide tax assistance and preserve local revenue capacity. Or, revenue power equalization — where the state matches a portion of the property tax revenue yield for lower-wealth areas — can give communities greater school funding reward for their tax efforts.

If state policymakers ignore these options and instead take a shortsighted wrecking-ball approach to revenue in an uncertain economy, it could bring the entire infrastructure of school funding tumbling down.

—Bonnie O’Keefe and Jennifer O’Neal Schiess 

The Big Picture: Trends We’re Watching

After years of revenue growth, state education finance is in flux, forcing difficult fiscal trade-offs. Schools face mounting pressure from escalating costs, tight state budgets, and shifts in federal policy.

Inspired by Under Pressure, Bellwether’s recent report on the factors squeezing K-12 budgets, we hosted a LinkedIn Live discussion in partnership with Curriculum Associates and facilitated by Bonnie O’Keefe, featuring Kathryn Vesey White of the National Association of State Budget Officers, Rebecca Sibilia of EdFund, and Qubilah Huddleston of EdTrust. Watch the video on LinkedIn to learn more about trends in governors’ budget proposals, the emerging effects of Medicaid and Supplemental Nutrition Assistance Program cuts, and the strategies advocates are employing in response.

State Spotlight: Notable News From Statehouses

• Connecticut: Two bills under consideration by the legislature would both increase the state’s base amount to keep pace with inflation. One of those bills would also fully include various school choice programs, such as magnet and charter schools, in the state’s funding formula.
• Delaware: The state’s Public Education Funding Commission presented a draft framework for funding reform to legislative committees that would increase funding for students from low-income households and English learner students, and streamline the state’s current formula, which is based on a complex system of staffing units.
• Michigan: Gretchen Whitmer’s budget proposal recommends a 4% increase in base funding and major add-on funding streams for English learners and at-risk students, as well as for special education and rural schools. The budget proposal also endorses a shift to a student-based, weighted funding system, including some structural changes to special education funding recommended in the recent Michigan Special Education Finance Reform Blueprint.
• Missouri: The state’s school funding task force is grappling with budget limitations that could hold back its recommendations, and discussed a multibillion dollar fix for a decade-old freeze in how the state considers property valuations when calculating local effort.
• New Hampshire: The state attorney general plans to ask the state supreme court to overturn a series of influential school funding rulings from the 1990s establishing the state’s responsibility to provide adequate school funding. Several active lawsuits argue that New Hampshire is failing to meet that obligation, but the state’s appeal could overturn that standard. Simultaneously, the state’s House of Representatives voted down four school funding proposals, including two focused on special education aid.
• Oregon: Two legislators’ proposal to reshape the state’s school funding formula and create a new method to estimate and allocate needed funding faces steep odds amid opposition from the PTA and other stakeholder groups.
• Pennsylvania: Gov. Josh Shapiro proposed a budget that includes an additional $565 million for a subset of higher-need and lower-wealth school districts via the state’s adequacy formula and tax equity supplements. This proposal for fiscal year (FY) 2027 comes fairly soon after the state legislature finally reached an agreement on its FY26 budget last November (four months past the deadline).
• Tennessee: A pair of bills in the state House and Senate would expand the state’s definition of “economically disadvantaged” students for funding purposes to include students whose families receive Medicaid or SNAP assistance. This aligns with recommendations in a recent report by EdTrust Tennessee.

Follow the Money: What We’re Reading

• In a new working paper, researchers from the University of Arkansas and Brown University found that recent teacher salary boosts in Arkansas benefitted rural and high-poverty districts, and that teachers who received the largest salary increases ($6,000+) were more likely to stay in their jobs.
• The Center on Reinventing Public Education published the results of its Unlocking Potential Data Sprint, focused on special education identification rates. Bellwether Associate Partner Krista Kaput’s winning submission finds that high-spending states don’t reliably identify more students for special education compared with low-spending states.
• ESSA Waiver Watch, a new website from All4Ed, EdTrust, and the National Parents Union, compiles information, analysis, and advocacy recommendations about waivers currently submitted by states for consideration by the U.S. Department of Education. Several waivers include requests for funding flexibility.