Some high-taxing school districts would get ‘tax equity’ under Gov. Shapiro’s budget plan. Who will benefit?

Despite mounting costs for special education, pensions and charter schools, the Souderton Area School District has tried to keep taxes low, with increases below the rate of inflation in several recent years.

But had it raised taxes a little higher, it might have been eligible for a share of a new $137 million funding stream included in Gov. Josh Shapiro’s budget proposal intended to reimburse high-taxing school districts.

“It almost feels like the district is being penalized for keeping taxes low,” said Michael Taylor, business director in Souderton, which has dipped into its fund balance to avoid higher tax increases.

Close to half of Montgomery County districts are slated to receive the “tax equity supplements,” along with others in the Philadelphia area. In total, 169 of Pennsylvania’s 500 districts would get the funding if lawmakers approve the budget.

How high do taxes have to be for districts to qualify for the money? Here’s what to know about the plan, and how it fits into the broader school funding picture:

The supplements are part of a larger plan meant to ensure that districts have the money they need to educate students, following a court ruling last year that found Pennsylvania’s school funding system unconstitutional.

The bulk of Shapiro’s proposal — which originated with a legislative commission — is devoted to providing adequate school funding, with poor school districts slated to receive big boosts next year. Lawmakers on the Basic Education Funding Commission determined that schools need $5.1 billion in additional money from Pennsylvania in order to meet that adequacy threshold, and recommended that the state phase in the added spending over seven years. Shapiro’s proposed budget includes $735 million for adequacy.

The commission also recommended that Pennsylvania give districts $955 million more over seven years for “tax equity,” resulting in the $137 million proposed by Shapiro in next year’s budget.

The idea, said Rep. Mike Sturla (D., Lancaster), was to not penalize districts that had reached their adequate spending levels through high local property taxes.

“If you are overtaxing your constituents, we recognize that. We will help you make up some of that difference,” said Sturla, cochair of the education funding commission.

To decide which districts would be eligible for tax equity, lawmakers compared the “tax effort” between districts statewide, using a measure that takes into account how much revenue a district brings in from local taxes, compared to its market values and personal incomes.

Those districts taxing at the 66th percentile or above were eligible for the money. The state then calculated each district’s supplement based on its “excess local effort” — how much tax revenue the district brought in, compared to how much it would have netted had it taxed at the 66th percentile — with adjustments downward for wealthier districts using a factor that also considers property values.

Hannah Barrick, executive director of the Pennsylvania Association of School Business Officials, said it wasn’t clear why the 66th percentile was selected. She also noted that the methodology doesn’t consider how much available fund balance a district has, or its long-term fiscal planning.

“We’re certainly aware of confusion and questions as districts are trying to explain to their communities why their amount is zero here,” Barrick said.

Most of the tax equity money is designated for districts that are also deemed by the legislative commission to have “adequacy gaps” — meaning they’re spending less than school districts that meet state performance targets.

In Pennsylvania, which relies heavily on local property taxes to fund education, poorer districts often tax at high rates, yet still can’t raise enough money to adequately fund schools because of their weak tax bases.

While districts like Pottstown and William Penn have large adequacy gaps, those shortfalls would be even deeper if they taxed themselves at lower, average rates. Both Pottstown and William Penn tax at some of the highest rates in the state.

» READ MORE: See how much money your school district has for students

If the state only gave districts enough money to reach adequacy, and didn’t account for the disparate taxation levels, “you are taking advantage of the efforts some communities have made,” said Dan Urevick-Ackelsberg, a senior attorney with the Public Interest Law Center who represented plaintiffs in the school funding case.

But some awards would go to districts that are already deemed to be spending adequately — like Wallingford-Swarthmore and Jenkintown. That’s because the tax equity calculation isn’t tied to whether a district has adequate funding or not.

Urevick-Ackelsberg called that an “imperfection” in the proposal, but a “pretty small” one; by his calculation, $14 million in Shapiro’s plan is devoted to tax equity for high-taxing districts that don’t need the relief to achieve adequate funding. That’s out of $1 billion the governor is proposing to add to the state’s basic education funding.

For districts slated to get the awards, there’s still a big question: What are they allowed to do with it?

“We haven’t gotten any clear answer,” Barrick said. “Is it actually money for the district? Is it a pass-through for taxpayers?”

Sturla said lawmakers are developing parameters for spending the money, including whether it has to go toward tax relief, as part of budget negotiations.

In the Cheltenham School District, which is slated to receive a $2.2 million tax equity supplement, Josh Sweigard, the director of business services, said the district would look to use the money to offset operating costs instead of raising taxes — which would also free up funding to address deferred maintenance issues in facilities.

“This incredibly impactful tax allotment would go a long way toward providing taxpayer relief and helping improve equitable learning environments in our classrooms districtwide, which will hopefully lead to better outcomes for all of our students,” Sweigard said.

Souderton, meanwhile, is facing a $5 million deficit even if it raises taxes to the state cap — a 5.3% increase next year.

“The last thing we want to do is increase class sizes or cut programs,” Taylor said.

Supporters of the governor’s proposal note that districts like Souderton could benefit in other ways — including cuts to the tuition rates school districts have to pay cyber charter schools.

That cyber charter funding change, like the broader budget plan, will depend on whether lawmakers from both the Democratic-controlled House and Republican-controlled Senate agree on it. The legislative commission tasked with revising Pennsylvania’s school funding divided along partisan lines in issuing its recommendations; Shapiro, a Democrat, adopted the Democratic majority’s plan.

Sturla — who said the tax equity proposal started with a push by Republicans to address local taxes — said the commission had to tackle Pennsylvania’s school funding problem, and no proposal would be perfect.

Pennsylvania “was the most inequitable funding system in the nation,” Sturla said. “If your concern is it’s inequitable by a couple hundred thousand dollars, that’s a rounding error in my mind.”