Adequacy Targets and Adequacy Payments
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Tax Equity Payments

A key component of Gov. Josh Shapiro’s proposed $1.1 billion public school funding increase is a tax equity supplement that would provide additional state funds to school districts that have high local tax effort when compared with the rest of Pennsylvania’s school districts. Under Gov. Shapiro’s proposal, a school district with high local tax effort has local tax effort in the top 34 percent of all school districts. The governor’s proposal, which is based on the Basic Education Funding Commission’s Jan. 11 report, would phase this funding in over seven years.

How are tax equity payments calculated in the governor’s plan?

  • A school district qualifies for the tax effort supplement if, when putting the local tax effort of all 500 school districts in rank order, the school district’s tax effort is higher than 66 percent of all school districts. (Local tax effort is higher than 1.55 percent.)
  • A school district’s local tax effort is a percentage, calculated by dividing a school district’s total local tax revenues by the sum of the market value of all property and the total personal income earned by people living in the school district.
  • The first step in the calculation of the tax equity payment an eligible school district would receive is to determine the difference between the total dollar amount of the local taxes it currently collects and the dollar amount of local taxes the school district would collect if its local tax revenues equaled 1.55 percent of the total market value and personal income in the school district.
  • In the second step of the calculation, approximately two-thirds of school districts that would qualify for tax equity payments would have their payments reduced because they have higher property values and personal incomes than the typical school district. No tax equity payment would be reduced to zero by this adjustment process.   
  • For example, if the hypothetical Anytown School District currently collects local taxes equal to 1.8 percent of its total market value and personal income, it would qualify for the tax equity supplement because its local tax effort is higher than 1.55 percent.
  • If Anytown School District currently collects $48,960,000 in local taxes (1.8 percent of its total market value and personal income) and if it would collect $42,160,000 in local taxes if its tax effort was 1.55 percent (1.55 percent of its total market value and personal income), then its payment would equal $6,800,000 ($48,960,000 - $42,160,000).
  • This payment would be phased in over seven years, with the school district receiving $971,429 a year in new funding on top of any new formula-driven funds it might be eligible for each year as the state increases its basic education subsidy.

Hypothetical Tax Equity Payment Calculation: "Anytown" School District

Anytown SD Total Market Value and Personal Income: $2,720,000,000

Anytown SD Total Local Tax Revenues: $48,960,000

Anytown SD Local Tax Effort: 48,960,000/$2,720,000,000 = 1.8 percent (total local tax revenues/total market value and personal income)

Local Tax Revenues If Anytown SD’s Local Tax Effort Was 1.55 Percent: $42,160,000

Anytown SD Tax Equity Supplement: $6,800,000 over seven years (total local tax revenues - local tax revenues if tax effort was 1.55 percent)

Anytown SD Annual Tax Equity Payment: $971,429 each year for seven years

How many school districts qualify for tax equity funding?

In total under the governor’s proposal, 169 school districts would qualify for a tax equity payment.

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