School Finance Disasters

Virginia Postrel wrote a great article on school finance here in Texas. For non-Texans, Robin Hood was a flawed attempt to deal with inequities in the school finance system that some judge decided had to be fixed. It was, for the most part, a complete disaster. All it really managed to do was piss people off. Ever since Robin Hood, the legislature has been trying to find a way out of the mess they managed to create in response to a judicial mandate. The key grafs are reprinted below:

To understand why Robin Hood is so destructive, consider the market price of a given house. The home's value depends not just on how big the house is or whether it has walk-in closets and granite countertops. "It also depends on how many property taxes the homeowner is going to pay and what he or she is going to get in return for those property taxes," Professor Hoxby explains.

Property taxes depress the value of a house. The amenities those taxes buy, including good schools, increase the value. The final price reflects the net value of the taxes the homeowner pays.

Robin Hood essentially raises taxes while reducing benefits, creating a downward spiral in home values and property tax receipts. For each district, the state divides the total assessed value of property in the district by the number of pupils. (Districts get higher per-pupil weightings for such factors as students with learning disabilities or limited English proficiency.)

This is the clearest explanation I've ever seen as to why this system was a disaster. The combination of botched incentives and the eternal assumption that people will not change their behavior in response to tax law changes make up a textbook example of the law of unintended consequences. As a result, property tax rolls are actually declining in the richest school districts. Nice job, guys. This is one of the many reasons property tax reform is such a hot button issue in Texas politics right now. Hopefully, this will be read and understood by the legislature.