Taxation and Spending Caps


	Finance

Education Commission of the States • 700 Broadway, Suite 1200 • Denver, CO 80203-3460 • 303.299.3600 • Fax: 303.296.8332 • www.ecs.org

Taxation and Spending Policies

June 2004

Revenue for K-12 public schools comes primarily from state governments, local school districts and the federal government. In the aggregate, the states provide 48% of all revenue, school districts provide 45%, and the federal government provides 7% of all revenue.[1] The majority of state level education funding is appropriated from state general funds, with other funding from earmarked taxes such as income and sales taxes.

Local Control Over School Budgets and Taxes

School district budget and tax rate procedures vary among the states. Often, local school boards have authority for both developing budgets and levying taxes to support district budgets. If school districts can levy taxes to support public education, they are considered fiscally independent. The nature of this taxing authority varies from state to state. For example, school boards in some states may need voter approval for any tax increase, while others may need only voter approval after a specified tax rate is surpassed.

In some instances, school boards do not have independent tax authority, so another governmental entity – typically a municipal or county governing body – approves the budget and levies taxes. If a school district cannot levy its own taxes, it is considered fiscally dependent.

· 34 states have no fiscally dependent districts

· 9 states have no fiscally independent districts

· 26 states allow local districts to levy taxes other then property taxes.

State Taxation and Spending Caps

Tax caps restrict the amount of taxes that the state, local governments and school districts may levy on taxpayers. These caps are often on property taxes, however, they can be on total taxes raised or even on other individual taxes (for example, income taxes and sales taxes). Another way to control tax levels is to limit how much state and local governments may spend in any given year. Spending caps often are limits on the increase in the amount of spending from one year to the next.

35 states have tax caps
12 states have spending caps

The table below presents a compilation of both taxation and spending caps as reported by the National Center for Education Statistics (NCES). Only those spending/taxation caps that could affect state or local education spending are included in this summary. This information is not meant to be a complete guide to school finance or tax restrictions. For a full description of any of these taxation caps, please contact ECS at 303.299.3625 or ecs@ecs.org or staff from an individual state’s treasury or budget department.

State	Total # of School Districts	# of Fiscally Dependent Districts	# of Fiscally Independent Districts	Local Taxes Used To Fund Education	Taxation Cap	Spending Cap
Alabama	128	128	0	Property, sales, amusement, tobacco, alcohol, gasoline and mineral lease taxes	Maximum tax rate of $10 to $20 per $1000 assessed property valuation, depending on the classification of the property	None
Alaska	53	53	0	Property and Sales taxes	Maximum tax rate of $6 per $1000 of the true value of the property	None
Arizona	228	6	222	Property taxes	None	A maximum per-student spending amount is established each year by the legislature. A district can spend up to 10% beyond this amount with voter approval.
Arkansas	310	0	310	Property, personal property and severance taxes	Districts with property tax rates greater than $25 per $1000 of assessed property must forward one-half of the additional taxes to the state for redistribution.	None
California	988	0	988	Property tax and sales tax (used by the San Francisco district only)	School districts are limited to a property tax levy of $10 per $1000 of assessed property valuation.	None
Colorado	176	0	176	Property and specific ownership (vehicle) taxes	Districts may supplement their spending with additional property taxes. However, this additional property tax can account for only 20% of a district’s total spending or $200,000, whichever is greater.	The "Taxpayers Bill of Rights" (TABOR) caps all governmental expenditure from one year to the next. The impact of this cap on K-12 education was offset by a voter initiative passed in 2002.
Connecticut	166	166	0	Property taxes	None	None
Delaware	19	0	19	Property taxes	None	None
Florida	67	0	67	Property taxes	School districts are limited to a property tax levy of $10 per $1000 of assessed property valuation (there are exceptions to this cap).	None
Georgia	180	0	180	Property and sales taxes	School districts are limited to a property tax levy of $20 per $1,000 of assessed property valuation (there are exceptions to this cap).	None
Hawaii	1	1	0	None	None	None
Idaho	113	0	113	Property taxes	Any local property tax assessment beyond $3 per $1000 of assessed value requires a vote of the local electorate.	None
Illinois	897	0	897	Property taxes	Counties can participate in the state’s Property Tax Extension Limitation Law, which caps property tax increases at 5% or the rate of inflation, whichever is less; 29 of the state's 102 counties participate in this program.	None
Indiana	294	0	294	Property, motor vehicle, financial institutions and income taxes	The General Assembly has controlled general fund property tax rates each year since 1973.	The school funding formula dictates how much instructional revenues per pupil may increase each year.
Iowa	375	0	375	Property and income taxes.	The school funding formula dictates the local tax revenue that may be collected each year.	The school funding formula dictates how much instructional revenues per pupil may increase each year.
Kansas	304	0	304	Property taxes and motor vehicle/ recreational vehicle taxes	School districts are limited to a property tax levy of $20 per $1000 of assessed property valuation (there are exceptions to this cap).	None
Kentucky	176	0	176	Property, motor vehicle, utility, income tax surcharges and occupational license taxes	None	Districts can spend up to 49.5% above the state's adjusted base guarantee with voter approval.
Louisiana	66	0	66	Sales and property taxes	School districts are limited to a property tax levy of $7 per $1000 of assessed property valuation and a local sales tax levy of 3%.	None
Maine	285	199	86	Property taxes	None	None
Maryland	24	24	0	Property and income taxes	None	None
Massachusetts	329	329	0	Property, motor vehicle excise and hotel/accommodations taxes	Property tax levies can only increase by 2.5% each year. Communities can vote to raise the limit permanently through an override referenda.	None
Michigan	555	0	555	Property taxes	Local property taxes are strictly limited to $18 per $1000 of assessed property valuation. This amount may only be increased by a 3/4 vote of the state legislature.	Local per-student spending is determined by the state. Local districts have no option to increase this amount.
Minnesota	350	0	350	Property and mineral taxes	The state determines the maximum amount of taxes that a district may levy. This amount may be over-ridden by a local referendum vote.	None
Mississippi	152	0	152	Property taxes	Maximum property tax rate of $55 per $1000 of the assessed value of the property	None
Missouri	525	0	525	Property taxes	None	None
Montana	456	0	456	Property and "flat taxes" (which include revenue from motor vehicle/ recreational vehicle fees and oil, gas and coal production taxes)	None	Districts may not increase spending by more than 4% over the previous year.
Nebraska	604	0	604	Property taxes, city/county fines and license fees and proceeds from sales tax on public power districts	None	Districts may increase spending by only 2.5% to 4.5% over the previous year.
Nevada	17	0	17	Property, tangible personal property, motor vehicle privilege and franchise taxes	School districts are limited to a mandatory property tax levy of $7.50 per $1000 of assessed property valuation.	None
New Hampshire	177	176