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Funding PennsylvaniaPublic Schools

IntroductionA recent study by the PennsylvaniaSchool Boards Association deter-mined that many citizens do notunderstand how Pennsylvania’spublic schools are funded, particu-larly the state and federal lawsthat govern the funding decisionsmade by school boards. The studyfound that 53% of Pennsylvaniaresidents strongly or somewhatbelieve that public school fundingis not fair. And though 61% of those surveyed strongly or somewhat agree that local publicschools need more funding, a sub-stantial portion of respondentsalso indicated dissatisfaction withschool district spending.

This school financing guide isdesigned to briefly and easilyexplain how public schools arefunded, the need for school property taxes and the cost ofoperating school districts. The

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goal is to give citizens a betterunderstanding of how their localschools are paid for and onwhat that money is spent.

How Public SchoolsAre FundedPennsylvania public schools arefunded primarily by real estatetaxes* and state and federalfunds. For the 2005-06 academicyear, Pennsylvania’s public schoolsreceived most of their revenuefrom local property taxes (45%).The remaining money came fromstate funds (35%), other local

sources (14%), federal funds(4%) and other miscellaneousrevenue (1%). In the early 1970s,state support for public schoolsequaled 50% of school budgets.However, the reduction in statesubsidy to now only one-third ofschool budgets has required

school districts to raise propertytaxes to make up the difference.

Pennsylvania school districtsalways had the authority to usea mix of local taxes to fundschools. By far, the primary localrevenue source is propertytaxes. Property taxes accountedfor 76% of total local school dis-trict revenue in 2005-06 andprovided 45% of all revenuescollected by school districts.

Recently, the state legislatureand the governor have tried toreduce the property tax burdenon homeowners; however, the

burden actually hasincreased. The legisla-ture has repealed orlimited the authorityfor school districts tolevy non-real proper-ty taxes over the last15 years. As these various taxes wererepealed or limited, theresult was an increase

in property taxes to provide morelocal school funding.

What Are Property Taxes?Property taxes are based on thevalue of all real property within

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45%

50%

40%

30%

20%

10%

0%

14%

35%

4% 1%

RE Tax OtherLocal

State Federal Other Misc.

*Words in bold are defined in the glossary.

the borders of a school district.Property value is the total of thevalue of the land and the value ofany buildings on the land. TheCounty Board of Property Assess-ment and Appeals has the legalresponsibility for determining thevalue of land for taxing purposes.Taxes are based on assessedvalue. In some cases, theassessed value is equal to theestimated market value, and inother cases, it is a portion of theestimated market value. In eithercase, a school district must usethe official recorded assessedvalue of a property. While land maybe listed as residential, commer-cial, industrial, agricultural or anynumber of other classes, all prop-erty values are combined, and themillage rate is applied uniformlyto the total value of land within theschool district boundaries.

Property taxes in a school dis-trict increase for several specificreasons:

• a change in the base valueof all property;

• a decrease in the actual col-lection of revenues; or

• an increased need for revenue.

A change in the base orassessed value occurs whenproperties are added to the tax

rolls as the result of new con-struction. Changes also occurwhen property is removed fromthe tax rolls. Additionally, proper-ty values decrease when abuilding is demolished for anyreason or the use of the proper-ty is for a tax-exempt, charitablepurpose such as schools, hospi-tals or churches. When propertyowners feel that the assessedvalue of the property is too high,they may appeal the assessedvalue to the County Board ofProperty Assessment andAppeal. When a property ownerproves that the value recorded ishigher than it should be, theCounty Board of PropertyAssessment and Appeal has theauthority to decrease the value.

The Cost of Operatinga School DistrictA school district uses its revenueto purchase a variety of goodsand services that produce theeducational programs for theirstudents. In some cases, a districtalso provides a variety of servicesfor nonpublic school students.Spending will vary between dis-tricts because each district is dif-ferent. This uniqueness is definedby community preferences andstudent needs within the district.

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Two different methods can beused to describe what a districtpurchases. One way is to reviewthe specific areas of spendingsuch as salaries, benefits, booksand supplies. Another way is toexamine the function spendingof the district. By doing this, youcan look at the district’s spend-ing in a summary and programstructure. The functions definedby the school accounting systemare instruction, support, non-instruction, facilities, debt and allother. Within each of the func-tions are a number of other cat-egories that provide details ofthe types of services each dis-trict provides, depending uponthe needs of the students.Based on a review of 459 of501 school districts’ annualfinancial reports for the 1999-2000 school year, more than90% of all district spending is forinstruction and support functions.

Instruction costs are expendituresfor educating all students. Withinthe costs are several specific edu-cational programs, including regu-lar education, special education,career-technical education, othereducation, adult education andsupport of community colleges.Regular education includes allclassroom activity for kindergarten

through grade 12. Special educa-tion includes costs associatedwith providing educational oppor-tunities, other than regular class-room, for any child with specialneeds. Special education costsinclude both gifted and impairedstudents under the PennsylvaniaSchool Accounting System.Career-technical education equalscosts for both district career-tech-nical instruction and tuition pay-ments to area career-technicalschools. Other education costsinclude the required educationalservices of homebound instruc-tion, alternative education for dis-ruptive students, summer schooland driver education.

Support costs are for activitiesand programs directly related tohelping both the teacher and thestudent but are not for class-room activity. Support spendingincludes guidance, attendance,psychology services and othersupport services designed toassist students, such as speechand audiology services, pupilhealth services (school nurse)and school libraries.

School districts also haveexpenditures for administrativecosts. That spending includessuperintendent, principals and

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related central office support;legal costs; business office andtax collection activities. Buildingscosts, such as utilities andcleaning services, as well astransportation costs, are part ofadministrative costs.

The remaining school districtspending would be for maintain-ing buildings, paying debt, buyingand fixing buildings and purchas-ing and repairing equipment.

Salaries typically represent thelargest single item of expenditurein a school district. Teachersalaries are subject to collectivebargaining at the school districtlevel. Created by state legislationand court cases, salary schedulesfor professional staff are basedon educational level and numberof years of service of the individ-ual. Also included in collectivebargaining requirements areemployee benefits.

In many cases, when a districtexperiences an increase in student enrollment, it means the school district must hiremore teachers or add classroomaides. However, when enroll-ment drops, the number ofteachers employed by the district can be reduced onlythrough arbitration and by

showing evidence that enroll-ment has declined significantly.Sometimes, school districtsreach a point where havingfewer students means they have to change the educationprogram. While local schoolboards may increase the numberof teachers at will, reducing thenumber of teachers is subject topossible lawsuits. And, the Penn-sylvania School Code prohibitsreducing the number of teachersfor purely financial reasons.

Other instruction spending byschool districts includes costsfor substitutes, materials andsupplies, as well as textbooksfor classroom use.

As mentioned earlier, a secondway to look at school districtspending is to review the specificareas of spending such as salariesand benefits, books and supplies.

Spending by school districts canbe examined by area (such assalaries) or by function (such asinstruction or special education).Looking at only one source forspending can be misleading aboutthe specific purpose or the antici-pated benefit of such spending.

A school district’s main purposeis to provide public education.

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This means that the districtmust provide for classes suchas math, reading, physical edu-cation and social studies. All ofthe specific course require-ments are established by theState Board of Education,although a school district canmake additional locally deter-mined requirements.

Other sources of requiredspending come from federaland state laws. These arecalled mandates. Unfundedmandates are costs that mustbe paid by school districtsbecause the federal and statelaws do not include funding orprovide inadequate funding tocover additional expenses, suchas special education programsand cyber-charter schools. Alsooutside of the control of thedistrict is the expense of law-suits against not only the dis-trict itself, but against other dis-tricts that may result in require-ments and spending for allschool districts.

For Further Information

There are many resources avail-able to further explain schoolfunding in Pennsylvania. If you

want additional information, youcan start with the PennsylvaniaSchool Boards Association Website at psba.org/pride-and-prom-ise, where you will find many out-standing resources to help you.

If you have a specific questionregarding school funding, youcan e-mail us at prideandpromise@psba.org.

GlossaryAssessed value: The officialvaluation of property for the pur-pose of taxation. The value isdetermined by the County Boardof Assessment Appeals andReview as a percent of the esti-mated market value.

Collective bargaining: Thelegal requirement for a schooldistrict to negotiate a labor con-tract with the union(s) repre-senting the district employees,such as teachers, support per-sonnel and others.

Estimated market value: Thevalue of taxable real property withina school district as determined bythe State Tax Equalization Board.

Millage rate: The rate of taxlevied on the assessed value of

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real property. One mill equals$1 per $1,000 of assessedvalue.

Non-real property taxes: Anytax levied, assessed or collectedthat is based on something otherthan the value of real estate.Includes taxes such as earnedincome tax, per capita tax andemergency and municipal servicestaxes (local services tax).

Real estate taxes: Any taxlevied on real property based onthe value of the property.

Real property: Land and build-ings or other structures perma-nently fixed to the land.

State funds or subsidy: Moneyprovided to school districts by thestate as determined by the stateduring the budget process.

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