As home values have surged over the last five years in parts of Kentucky, property tax assessments have spiked too. That has strained the budgets of residents whose incomes are not growing alongside their property tax bills.
But these higher costs aren’t only due to rising home values. The quiet and gradual shift to reliance on local property taxes for funding K-12 education is also a cause. That shift is the result of the General Assembly’s decades-long cuts to state taxes, especially on high-income people and corporations, that have left localities picking up the tab.
To fix the problem, we should halt and reverse this trend. And we should make careful reforms to the property tax that target help for those who need it while protecting funding for schools and local services.
K-12 education in Kentucky is paid for primarily through a mix of state and local dollars, with the state constitutionally mandated to ensure the system is adequately and equitably funded.
But the General Assembly has gradually backed away from its responsibility. In 2002, 62% of core school funding came from the state with 38% contributed locally. This year, however, only 40% is coming from the state while 60% is generated locally. In inflation-adjusted dollars, the state is contributing $1.2 billion less to the core funding formula than it was in 2008.
Most of that decline has happened since 2018, when the legislature began to cut its largest revenue source, the individual income tax. And in prior years, the legislature also eroded revenue by enacting numerous cuts and tax breaks for corporations and wealthy people.
As the state contributed much less, school boards were forced to raise property taxes. Since 2002, the median school property tax rate has increased by 28% as districts have strained to keep up. Many still fall behind because they lack adequate local property wealth, leading to the funding gap between rich and poor school districts reaching levels once declared unconstitutional.
These state income and corporate tax cuts have provided little if any help to many Kentuckians now paying more in property taxes. Seniors on fixed incomes have gained almost nothing, in part because Kentucky already exempts the first $31,110 of retirement income and does not tax Social Security checks. Working families with children benefit little as well, since two-thirds of the individual income tax cuts go to the wealthiest 20% of people.
The first step to correcting this problem is to stop the state tax cuts that are forcing higher property taxes. Instead, the General Assembly should better meet its constitutional responsibility for public education by asking the wealthy and corporations to pay their fair share of taxes. That would ease the pressure on localities.
The second step is to make commonsense reforms to the property tax. Kentucky is one of a few states that lacks measures to protect those struggling to pay these bills. A circuit breaker law, for example, would provide a state rebate for property taxes that exceed a reasonable share of a resident’s income, Such policies exist in some form in 45 states. A deferral program would allow seniors whose home values have risen to defer paying that increase until the home is sold or transferred. Deferral programs, which exist in 12 states, charge a modest but breakeven interest rate to keep it from costing anything to the state.
These measures, which do not require changing the state constitution, are far superior to alternatives that do. Several legislative proposals would freeze property tax assessments when people turn 65 or cap how much assessments can grow each year. Ideas like these overwhelmingly benefit wealthier people with larger homes in fast-growing neighborhoods. They also decrease the overall tax base, resulting in a shift in taxes to families with children and working-class communities and harm to funding for schools and public safety.
The rise in property taxes is a legitimate concern. But responses shouldn’t make matters worse. We can ease the pressure on local property taxes by reversing state tax cuts for the powerful few. And we can reform property taxes in targeted ways that help seniors and others who are struggling. Together, these steps would protect residents as well as the schools, roads, and first responders that we all depend upon.
