BENEATH THE PROPERTY TAXES FINANCING EDUCATION

INTRODUCTION

The importance of elementary and secondary education to human flourishing, economic opportunity, and effective participation in democratic life has been acknowledged at the highest levels of American government. 1 1 See, e.g., Brown v. Bd. of Educ., 347 U.S. 483, 493 (1954) (“[I]t is doubtful that any child may reasonably be expected to succeed in life if he is denied the opportunity of an education.”); see also Plyler v. Doe, 457 U.S. 202, 222 (1982) (“[E]ducation prepares individuals to be self-reliant and self-sufficient participants in society.” (internal quotation marks omitted) (quoting Wisconsin v. Yoder, 406 U.S. 205, 221 (1972))); San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 30 (1973) (noting the “grave significance of education both to the individual and to our society” (internal quotation marks omitted) (quoting Rodriguez v. San Antonio Indep. Sch. Dist., 337 F. Supp. 280, 283 (W.D. Tex. 1971), rev’d, 411 U.S. 1 (1973))); Robinson v. Cahill, 355 A.2d 129, 132 (N.J. 1976) (describing New Jersey legislation as establishing the goal of “provid[ing] to all children . . . the educational opportunity which will prepare them to function politically, economically and socially in a democratic society” (internal quotation marks omitted) (quoting N.J. Stat. Ann. § 18A:7A-4 (West 1975))); Tyll van Geel, The Courts and American Education Law 18 (1987) (noting that all fifty states have compulsory education laws); Palma Joy Strand & Nicholas A. Mirkay, Racialized Tax Inequity: Wealth, Racism, and the U.S. System of Taxation, 15 Nw. J.L. & Soc. Pol’y 265, 297 (2020) (“In the twentieth century, the United States became a leader among nations as a result of its investment in its most valuable resource: its people. . . . Investing in young people tells them . . . they are valued and valuable, opens the door to opportunity, and brings them into the realm of citizenship.”). ... Close Nevertheless, education has traditionally been classified as a “local good.” 2 2 See Mildred Wigfall Robinson, Financing Adequate Educational Opportunity, 14 J.L. & Pol. 483, 486 (1998). Case in point, the Supreme Court declared a half century ago in San Antonio Independent School District v. Rodriguez that the federal Constitution does little to constrain state and local government discretion in determining the revenue sources from which to fund public education. See 411 U.S. at 58 (“The consideration and initiation of fundamental reforms with respect to state taxation and education are matters reserved for the legislative processes of the various States . . . .”). ... Close While select states support this local good through a heavy reliance on state revenues for which sales and income taxes are the primary sources, 3 3 Derek W. Black, Educational Gerrymandering: Money, Motives, and Constitutional Rights, 94 N.Y.U. L. Rev. 1385, 1406 (2019) [hereinafter Black, Educational Gerrymandering] (noting that “two states finance the primary cost of public education themselves,” while “the rest place substantial school funding burdens on local communities”). ... Close most turn in sizable part to local revenues that are overwhelmingly derived from property taxes. 4 4 EdBuild, Fractured: The Accelerating Breakdown of America’s School Districts 1 (2019), https://edbuild.org/content/fractured/fractured-full-report.pdf [https://perma.cc/GB7Z-K8QY] (“Nearly half of all education funding comes from local sources, primarily property taxes drawn from within school district borders.”); Nat’l Ctr. for Educ. Stat., Public School Revenue Sources, The Condition of Education 2022, https://nces.ed.gov/programs/coe/indicator/cma/public-school-revenue [https://perma.cc/9LF8-28EC] (last updated May 2022). The extent to which individual states turn to local revenue sources—and, thus, the property tax in particular—to fund public education varies. Connecticut, Illinois, Maine, Massachusetts, New Hampshire, and New York derive more than 50% of their total education revenue from the local property tax. Id. Colorado, Missouri, Nebraska, New Jersey, Ohio, Pennsylvania, Rhode Island, South Dakota, and Texas follow closely behind, deriving 40–50% of their total education revenue from local property taxes. Id. Another twenty-eight states fall within the 20–40% range. Id. Often prompted by judicial decisions delegitimizing extant district-based approaches, select states draw on a statewide property tax. See Therese J. McGuire, Leslie E. Papke & Andrew Reschovsky, Local Funding of Schools: The Property Tax and Its Alternatives, in Handbook of Research in Education Finance and Policy 376, 379 (Helen F. Ladd & Margaret E. Goertz eds., 2d ed. 2015) (discussing what amount to statewide property tax schemes in California and Michigan); Laurie Reynolds, Skybox Schools: Public Education As Private Luxury, 82 Wash. U. L.Q. 755, 792–94 (2004) [hereinafter Reynolds, Skybox Schools] (explaining that the Vermont legislature turned to a statewide property tax to finance education after the state’s Supreme Court invalidated a district-based approach on equal protection grounds). ... Close

Political and academic discourse on the extent to which property taxes should serve in this role regularly centers on three overarching issues: the vices and virtues of local control, the availability of mechanisms to redistribute property tax revenues from more affluent school districts to less affluent ones, and the overall stability of those revenues. 5 5 The education finance literature is extensive, and it would be a fool’s errand to attempt to craft a list of all the most prominent works in the field. Part I, however, surveys a selection of the key recent works specifically related to the thesis advanced here. ... Close This discourse is critical in helping evaluate the consequences of taxing property values to finance education vis-à-vis the consequences of the various alternative approaches to structuring taxing and spending policy in the education space. As critical as they are, though, these issues are second order in the sense that their resolution is inextricably tied to first-order choices about property law and policy that impact the property values against which property taxes are levied. 6 6 Property taxes are administered against a baseline valuation of both land and the structures thereon that is determined via a government appraisal. Joan M. Youngman, Defining and Valuing the Base of the Property Tax, 58 Wash. L. Rev. 713, 715–17 (1983). Such appraisals rest on a jurisdictionally defined measure of value. Id. at 718–20. In most states, the going statutory measure is “fair market value,” that is, an appraisal of what a property would sell for in an arm’s length transaction on the open market. J. Lyn Entrikin, The Property Tax Netherworld, 89 Chi.-Kent L. Rev. 289, 294 (2014). There is considerable debate surrounding the fairness of the appraisal process, particularly given its highly subjective nature. Laura S. Underkuffler, Takings and the Problem of Value: Grappling With the Truth in Land-Restriction Cases, 11 Vt. J. Env’t L. 465, 469 (2010) [hereinafter Underkuffler, Takings and the Problem of Value] (“Because of the highly subjective and location-specific nature of amenities effects—including visual amenities, recreational opportunities, wildlife enjoyment, and psychological satisfaction from land preservation efforts—the finding of a comparable piece of land for any newly restricted parcel will be difficult.” (emphasis omitted) (footnote omitted)); Edward A. Zelinksy, The Once and Future Property Tax: A Dialogue With My Future Self, 23 Cardozo L. Rev. 2199, 2203 (2001) (“The determination of the fair market value of property subject to taxation is one of the most difficult, and most controversial, aspects of the administration of the real property tax.”). Empirical evidence indicates that the burdens of failings in appraisal regimes fall disproportionately on racial minorities and the poor. See, e.g., Bernadette Atuahene & Christopher Berry, Taxed Out: Illegal Property Tax Assessments and the Epidemic of Tax Foreclosures in Detroit, 9 U.C. Irvine L. Rev. 847, 886 (2019) (deeming it likely, upon review of a large data set on assessment ratios and subsequent foreclosures, that “thousands of Detroit home owners—mostly African-Americans” lost their property in the wake of the Great Recession due to tax assessment procedures that were unjust and likely violated the Michigan Constitution); Christopher Berry, Reassessing the Property Tax 9 (Feb. 7, 2021) (unpublished manuscript), https://cpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/6/2330/files/2019/04/Berry-Reassessing-the-Property-Tax-2_7_21.pdf [https://perma.cc/76R8-6YRM] (highlighting empirical evidence revealing that, in and around Chicago, more expensive properties regularly are undervalued while less expensive properties regularly are overvalued).
This Essay does not focus on these important procedural questions surrounding the various approaches to appraisal. Rather, it contends that, on the appraisal process implemented in any jurisdiction, the value of a given parcel of land is driven in nontrivial part by state choices about the meaning of ownership that are reflected in the relevant jurisdiction’s background laws of property. This contention is consistent with Justice Thurgood Marshall’s brief nod in San Antonio Independent School District v. Rodriguez toward the role of land use regulation in creating wealth disparities across school districts. See 411 U.S. at 123-24 (Marshall, J., dissenting) (“[G]overnmentally imposed land use controls have undoubtedly encouraged and rigidified natural trends in the allocation of particular areas for residential or commercial use, and thus determined each district’s amount of taxable property wealth.”); see also Wayne Batchis, Urban Sprawl and the Constitution: Educational Inequality as an Impetus to Low Density Living, 42 Urb. Law. 95, 104 (2010) (interpreting Justice Marshall’s dissent as declaring that “[i]f a state . . . intentionally draws its internal political boundaries, and then regulates the use . . . of the land within such boundaries effectively predetermining the tax wealth . . . , a state’s ability to . . . subject . . . each district to vastly different treatment should be subject to . . . [strict] scrutiny”). ... Close This Essay contends, therefore, that such discourse would benefit from directing greater attention to the first-order question of how land that is taxed in any property tax scheme gains its value at the outset. 7 7 In this sense, the Essay does not assess property taxes as a source of education financing against the backdrop of local disparities in property wealth and the local disparities in spending that can ensue therefrom. Rather, it looks to the laws—property laws—that help create those local disparities in the first place. It therefore focuses on reforming unjust property laws rather than redistributing the revenues gained from taxing property values that are influenced by unjust property laws. ... Close

Land values, this Essay asserts, are not the mere product of individual choices and initiatives; they do not simply arise via naked operation of the free market. Rather, they are influenced in important respects by myriad societal choices made by federal, state, and local governments that are reflected in the background laws of property. These laws, both past and present, include structural choices (such as building highways, zoning land, and drawing district boundaries), financial choices (such as allowing mortgage-interest deductions, offering homestead exemptions, and subsidizing flood insurance), and protective choices (such as shielding nonconforming uses, constructing erosion-control devices, and providing disaster relief). Such choices set the terms on which private parties can develop social and economic relationships. Making these choices unavoidably requires normative assertions about the types of relationships to allow and the types of relationships to curtail. In endorsing certain relationships, the government is conferring its power on certain persons at the expense of others; in turn, these persons’ exercise of such power in the marketplace dictates property values. It follows that evaluating the justness of the government’s taxing property values to fund public education in a given jurisdiction must be informed by evaluating the justness of that jurisdiction’s background property laws. 8 8 Different jurisdictions adopt different laws surrounding property, and judges in these jurisdictions follow different approaches in interpreting and applying these laws. It follows that the property rules that impact a particular piece of land in one jurisdiction may well be distinct—in some cases, markedly so—from the rules that impact a particular piece of land in another jurisdiction. The evaluation called for here naturally includes an assessment of not only those background property laws adopted in the jurisdiction subject to evaluation but also those background property laws adopted elsewhere that influence values in that jurisdiction. Consider, for instance, the well-known matter of Southern Burlington County NAACP v. Township of Mount Laurel, in which the residents of Mount Laurel claimed that they held the authority to preclude construction of affordable housing and thereby price out families on the lower rungs of the income scale. 336 A.2d 713 (N.J. 1975). These residents were of the mind that they owned the value of “their” municipality’s property tax base; in turn, they saw themselves as the justified recipients of the services—including a high-quality public education—financed via “their” property tax revenues. On this general theme, see Lee Anne Fennell, Homes Rule, 112 Yale L.J. 617, 625 (2002) (reviewing William A. Fischel, The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies (2001)); Gerald E. Frug, City Services, 73 N.Y.U. L. Rev. 23, 29–31 (1998) [hereinafter Frug, City Services]; Laurie Reynolds, Taxes, Fees, Assessments, Dues, and the “Get What You Pay For” Model of Local Government, 56 Fla. L. Rev. 373, 430–31 (2004); Richard Schragger, Consuming Government, 101 Mich. L. Rev. 1824, 1827–29, 1847–48 (2004) (reviewing William A. Fischel, The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies (2001)). Yet it was the state that drew the lines that delineated Mount Laurel from neighboring Camden in the first place. The choice to draw those lines where the state drew them is in and of itself a distributional choice that has marked effects on values. The same can be said for the very tool that the residents of Mount Laurel sought to deploy: Adopting a zoning scheme that effectively excludes the poor from living in Mount Laurel would, of course, heavily influence property values in Mount Laurel. It also, though, would have derivative impacts on property values in Camden. As one scholar described it, “To treat Mount Laurel as an autonomous owner of ‘its’ property tax base is to ignore its necessarily parasitic relationship with neighboring jurisdictions.” Schragger, supra, at 1850; see also Rachel Alterman, Land-Use Regulations and Property Values: The “Windfalls Capture” Idea Revisited, in The Oxford Handbook of Urban Economics and Planning 755, 761 (Nancy Brooks, Kieran Donaghy & Gerrit-Jan Knaap eds., 2012) (referring to “shifting values” across localities). ... Close

Proposing such an evaluative exercise is not to suggest that undertaking it will produce a universalizable decree as to how education should be financed across the country. 9 9 The Essay does, though, operate on the assumption that the local taxation of property is a constitutionally viable option to fund education. It does not, therefore, address the charge, advanced by some scholars and endorsed in select states, that state constitutions should be interpreted to require states to provide education through state revenues rather than local revenues. See, e.g., Laurie Reynolds, Uniformity of Taxation and the Preservation of Local Control in School Finance Reform, 40 U.C. Davis L. Rev. 1835, 1871 (2007) [hereinafter Reynolds, Uniformity of Taxation] (“[S]tate constitutional requirements of uniform taxation should apply to invalidate state reliance on the local property tax for fulfillment of a state constitutional obligation . . . .”). Still, at least to the extent that such a charge is grounded in the view that disparities in property wealth make the linkage between property wealth and school revenues problematic, see, e.g., Maurice Dyson, The Death of Robin Hood? Proposals for Overhauling Public School Finance, 11 Geo. J. on Poverty L. & Pol’y 1, 17 (2004) (explaining claimants’ position that, for the 1998-1999 academic year, Highland Park Independent School District in Dallas County had an average per pupil property wealth of $643,000, while the Boles Home Independent School District in another part of the same county had an average per pupil property wealth of less than $6,000), there are connections between that charge and the thesis advanced here in the sense that more just property laws would make that linkage more just. In other words, a more just property system would mitigate some of the inequalities or inadequacies in educational support that litigants challenging locally funded approaches have emphasized. Reynolds, Uniformity of Taxation, supra, at 1851–52 (describing how litigation initially “sought to neutralize the fiscal disparity that came from heavy reliance on the local property tax” by reformulating funding formulae before later “accept[ing] the inequality inherent in a system that relies on local property tax funding” to focus on the “absolute gauge of inadequacy”). ... Close It is true that if the property laws applicable in a given jurisdiction operate in concert with one another to create an unjust property system, any model for financing education (or, for that matter, any other public service) that is based on that system will lead to unjust outcomes. But this revelation alone is not reason enough to determine that public schools should be financed via an alternative revenue source, such as income taxes, sales taxes, or so-called “sin” taxes. 10 10 Professor Laurie Reynolds has explained that there is “little consensus” among critics of financing education through local property taxes in terms of what revenue source should replace the property tax and noted that “overall school funding levels frequently drop when the state assumes greater responsibility for education.” See Reynolds, Skybox Schools, supra note 4, at 811. ... Close Reaching that conclusion would require a critical assessment of the justice of the laws that influence the values of the objects against which these non-property taxes are levied, as well as an evaluation of the second-order consequences of taxing those values. Those comparative assessments are well beyond the scope of this Essay. The goal here is a much narrower one: to deepen the discourse on the property tax option by encouraging analysts to direct more attention than they have to date on the influences that property laws have on the values against which property taxes are levied. 11 11 It may be that, in the end, alternative models of education finance emerge in every jurisdiction that are more just than the property tax option. However, in a given jurisdiction, the type of justice-inspired evaluation advanced here may reveal that, when all is said and done, property taxes are a superior source of education financing than the alternatives. And it is the case that, when evaluating two jurisdictions under this framework, it is more appropriate to rely on property taxes in the jurisdiction with the more just property laws than it is in the other. ... Close

To advance the thesis that evaluating the justness of the government’s reliance on property taxes to fund public education in a given jurisdiction must be informed by evaluating the justness of the background property laws in that jurisdiction, the Essay proceeds in three Parts. Part I suggests that a discourse that concentrates exclusively on the consequences of the government’s choice to tax property values for the purpose of financing education runs the risk of underappreciating the extent to which government choices impact how those values came to be in the first place. Such a course, in turn, leaves space for proliferation of the view that land values are simply the product of individual exchange in a self-regulating market when, in actuality, property also serves a communal function: The rules and standards reflected in property laws set the terms by which individuals can engage in market exchanges by predetermining which social and economic relationships are and are not legitimate in a modern democracy that respects freedom, equality, and human dignity. In fulfilling this term-setting function, the government influences property values quite extensively.

Part II depicts how government choices that determine the contours of property rights come in a variety of forms—some structural, others financial, and still others protective—and influence property values in different ways. This depiction is not meant to be all-inclusive, but rather to illustrate via a range of examples just how sizable the government’s footprint is in determining the property values at which property taxes take aim.

Part III sets out a series of norms to help guide the evaluation of these various value-influencing property laws, on the view that reforms consistent with these norms will, given these laws’ inevitable connection to property taxes, have derivative effects on educational opportunity and delivery. These norms—the first of which is process-oriented, the second of which is substantive, and the third of which offers a conceptual bridge between the first two—include a sensitivity to the circumstances of how property law operates in a given community rather than leaning on assumptions about “typical” communities; acknowledgment of the current effects of both prior and present-day discriminatory practices surrounding property; and attention to the ways that property laws do not exist in isolation but are instead intricately integrated with each other.