Tax to the max.   You may have heard this phrase in regards to your local school district, as every fall there is a flurry of newspaper reporting on school boards setting their property tax levies.  The role Wisconsin school boards play in setting property tax levies is one of the more misunderstood parts of school finance.

You might think school boards first make a budget based on the needs of their district, and then set their levy at an amount that funds that budget.  You’d be wrong.  For the majority of Wisconsin school districts (about 77%), the setting of the property tax levy is a passive process that is relatively straightforward:

1. The state determines how much revenue the school district can raise per-pupil from state and local sources by adding a hard number (set by the legislature) to whatever the district raised per-pupil in the previous year.
2. The district’s membership count (which is the three-year enrollment average) is multiplied by the number determined by the calculation in step one to determine the total revenue the district can raise.
3. The amount of state aid sent to the district is determined by that district’s property wealth.
4. The levy is determined by subtracting the amount of state aid sent to the district from the district’s total allowable revenue.

It sounds more complicated than it is, here is a simplified example of how it works:

1. Say district A has 100 students and a per-pupil revenue limit of $10,000.
2. That district’s total allowable revenue, 100 X $10,000, is $1 million.
3. The state determines the district will receive $600,000 in state aid.
4. District A levies a property tax of $400,000 ($1 million – $600,000).

As I mentioned, all but 98 of Wisconsin’s 424 school districts levied at (or very near) the maximum allowable amount in 2011.  Therefore, for most school boards setting the tax levy was a pretty simple task.  But what about the 98 that turned down over $70,000,000 in tax revenue?  Remember, because the allowable revenue in future years is based off of prior spending, leaving money on the table in any single year has a long-term impact on district budgets.  What possessed these districts to leave so much money on the table?

My first thought was that conservative areas averse to taxation would dominate the list of 98.  However, the district that forwent the most revenue, over $10 million, was Madison.  So much for that thought.  Most of my hunches failed to pan out.  Districts that under-levied and districts that taxed to the max had similar:

• Minority populations;
• Low-income populations;
• Special needs populations;
• Graduation rates;
• Levels of math and reading proficiency;
• Location distribution (i.e. no more likely to be rural, urban, etc); and
• Spending levels.

However, two significant differences did emerge in my analysis.  First, the 98 districts that under-levied were, on average, larger (2,442 students) than those that taxed to the max (1,922 students).  Perhaps larger districts have a greater ability to produce economies of scale that make turning down revenue less consequential than in a smaller district.  Or, maybe larger districts are more likely to be in places with tax-control advocacy groups.

The other less interesting but likely more explanatory difference was that under-levying districts had higher average levels of state support (44%) than districts that taxed to the max (40%).  Logically, it would be easier for a school district to turn down local revenue if a significant chunk of their total revenue comes from other sources.

Of course, there are many potential explanations for why a district under-levies that cannot found in a data set.  The one time the Milwaukee Public Schools under-levied in recent memory, for example, was because of public pressure caused by a perfect storm of malfeasance by a board member and a potential double-digit levy increase.  Likely, the local politics unique to Wisconsin communities matter more than district size or level of state support.