Property Tax Caps and the Opportunity Gap Between Low- and High-Wealth School Districts

Abstract

Since the late 1970s, many states have instituted laws to limit the collection of property taxes, with downstream implications for local finances and the provision of public services. The current study examines the impacts of a property tax cap introduced in New York State in 2011 on public education revenues and student achievement. It uses an instrumental variables approach with a panel dataset of 663 school districts from 2006 to 2016. Our findings show that for each $1,000 of per-pupil predicted levies above the allowed amount under the cap, districts lost $235 per pupil in total revenues. For each $1,000 loss in per-pupil revenues from the cap, student performance subsequently dropped by approximately 0.04 standard deviations in both reading and math. These financial and educational costs accrued primarily to high-wealth districts, as low-wealth districts were buffered from adverse effects by their low reliance on property taxes.