Eliminating the Personal Property Tax: Part 4 – What’s at Stake for Schools

(Continued from Part 3 – published 12/19/12).

Nearly $1.5 billion in property tax revenue was raised in West Virginia during FY 2012, and West Virginia’s schools were by far the largest recipients of the revenue. County school districts collected a total of $967 million in property taxes, nearly two-thirds of the total. Overall, property taxes account for roughly 30 percent of school district funding.

Of the $967 million in property tax revenue raised by school districts in West Virginia, an estimated $299 million was raised through taxes on personal property. But, if personal property taxes were eliminated, school districts would not lose the whole $299 million, because of the way school financing works in West Virginia.

While property taxes are an important source of revenue for schools in West Virginia, they actually receive most of their funding from the state, through the school aid formula. The school aid formula determines the amount of funding each school district needs to operate, called the total basic allowance. Each school district then raises whatever revenue it can through its current property tax levy, the rate of which is set by the legislature and uniform throughout the state. A percentage of the revenue from each school district raised through the current levy, known as the local share, is deducted from the total basic allowance, and the state provides the remainder to each school district, which is known as the total state aid.

Last year, the total basic allowance was $1,579,583,138, while the local share was $380,935,932, meaning that the state sent $1,198,647,206 to the local school districts.

School districts can also raise additional revenue through excess levies, if approved by the voters. Revenue from excess levies, bond levies, and other levies are do not affect the school aid formula.

So if taxes on personal property were eliminated, the revenue lost from school current levies would be partially replaced by the school aid formula, but the revenue lost from excess and other levies would not. The table below shows the potential revenue lost for each school district, after adjusting for the school aid formula.

 Source: WVCBP analysis of State Tax Dept  and WV School Finance Data

Eliminating personal property taxes would cost the school districts $145 million in current levy revenue, but the school aid formula would replace about  $117 million, resulting in a total loss of about $27 million. However, the school districts would lose an additional $154 million from their excess and other levies, resulting in a total loss of $182 million.

According to the Office of School Finance, there were approximately 282,000 students enrolled in WV school in the 2011-12 school year. The table below shows the per student cost of eliminating personal property taxes for each school district. As the table shows, on average school funding would decrease by $644 per student. But in several counties, the loss is even more dramatic, with school districts losing well over $1,000 per student. The Doddridge county school district would stand to lose a devastating $2,143 per student.

Schools in West Virginia have by far the most to lose from the potential elimination of the personal property tax.

Source: WVCBP analysis of State Tax Dept  and WV School Finance Data