PROVIDENCE – A new analysis of municipal finances from the Rhode Island Public Expenditure Council found that despite a state funding formula designed to aid communities with lower levels of family income and property values, some of the state’s municipalities with the highest proportion of low-income students relatively underspend on a per-pupil basis.
The report is the first in a series of reports designed to establish a “foundational overview of the structures of municipal finance,” RIPEC said.
The report found significant wealth and income disparity across the state’s municipalities, including a “staggering difference in property wealth among municipalities,” which affects local tax rates. The gap, the report said, “manifests itself most critically in elementary and secondary education” spending.
“Our analysis reveals stark differences among Rhode Island municipalities in terms of family income, property wealth, spending priorities, and debt,” said RIPEC CEO and President Michael DiBiase. “Notably, some communities do not have sufficient property wealth to fund their K-12 education systems and so have a greater reliance on state aid than on local revenue collections,” he said.
The report found that in the three cities with the state’s lowest assessed property value per capita – Central Falls, Pawtucket and Woonsocket – state, federal and other education aid make up a larger component of overall revenue than property taxes, which is typically the dominant revenue stream for the state’s municipalities.
Despite this, RIPEC found that Pawtucket and Woonsocket ranked third lowest and first lowest in per-pupil expenditures at $15,372 and $15,646, respectively. The state total per-pupil spending was $18,079.
Central Falls spends $19,188 per pupil, but the R.I. Department of Education has had financial responsibility for that school system for nearly three decades, the report noted.
The report also noted that due to relatively low assessed property values and a statewide 4% cap on year-over-year levy growth, it may not be practical for municipalities to significantly alter their reliance on state aid, meaning that those municipalities may not be able to remedy the situation on their own.
“To guarantee equitable education funding, policymakers will need to further reform the funding formula to ensure that the communities obligated to educate large proportions of low-income students receive sufficient state funding and are required to dedicate appropriate local resources to education,” DiBiase said. “Alternatively, for these communities, policymakers should consider having the state assume full financial responsibility for education, with appropriate enhanced state oversight.”
The varying income levels of different communities could also lead to other issues, the report said.
“The differences in wealth and income among Rhode Island’s municipalities also significantly affect property tax rates – those communities that have among the lowest median family incomes and lowest net assessed property values also have among the highest average tax rates,” the report said.
Such high tax rates create equity issues when levied on residents of lower means, RIPEC noted, and could also serve to discourage commercial investment in an area, leading to the inhibition of assessed property value growth in a city or town, further exacerbating revenue issues.
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