Last time I mentioned a book called, Flirting with Disaster: Why Accidents are Rarely Accidental by Marc Gerstein and Michael Ellsberg and specifically the chapter entitled "Butterfly wings and stone heads: How complexity influences catastrophe in policy decisions." Gerstein and Ellsberg discussed two really nice examples of the well-known "Butterfly Effect" which teach us that even the most insignificant choices can sometimes have profound consequences. The first example involved the mysterious Easter Island (Rapa Nui) and its large statues called moai. The second example of the "Butterfly Effect" involves a public school financing plan in the state of Texas, commonly known as the "Robin Hood plan", which cost Texas taxpayers an estimated $81 billion in depreciated real estate values.
Public education in the United States is the responsibility of each state and is mostly (95%) funded by local property taxes. Individuals and families living in wealthier neighborhoods have more expensive homes and therefore pay more in property taxes. As a result, the public schools in these districts can spend more on their schools compared to schools in less affluent neighborhoods. Many states try to balance the amount of funds available to all public schools by shifting money from the rich to the poor through grants and subsidies.
The Mexican American Legal Defense and Educational Fund filed a lawsuit against Texas Commissioner of Education William Kirby on behalf of the Edgewood Independent School District in San Antonio in 1984, citing discrimination against students living in poor school districts. The case eventually made it to the Texas Supreme Court, who ruled in favor of Edgewood, which prompted the Texas legislature to pass a new public school financing plan in 1993. The new plan was commonly known as the "Robin Hood plan", for reasons that will become clear shortly.
Here's how the new plan was supposed to work. The state divided the total assessed property value in each school district by the number of pupils, making certain allowances for children with limited English proficiency, learning disabilities, etc. Each school district would keep all property taxes below a certain confiscation threshold (originally $340,000), and any revenue above that amount would be collected by the state for redistribution to poorer school districts (i.e., taking from the rich to give to the poor). Seems fairly straightforward, right?
Importantly, since property taxes collected above the threshold limit didn't benefit the local school district, over time the property values in these districts fell (property values are significantly influenced by factors such as crime rates and the quality of local schools). Some experts estimated that the property value of homes decreased by $11,000 for each $1,000 per year in taxes paid to another school district (assuming a twenty-year mortgage at 7 percent interest).
Of course, as property values in these wealthier school districts fell, there was less property tax revenue available to redistribute to poorer school districts. As a result, the state government lowered the previous confiscation threshold in order to increase the amount of money available to the poor districts, which had the unintended effect of lowering property taxes in the wealthier districts even further! As housing prices fell in the wealthy districts, local governments had to increase property taxes even further to make up the shortfall to fund their own local schools, which only worsened the spiral downward.
As of just a few days ago (September 23, 2023), there was a local television news story on this issue, and apparently the Texas legislature is actively trying to change the law. The program has not been as straightforward or successful as originally envisioned. Here again, we have a case of both complex and unintended consequences resulting from a relatively straightforward (at least on the surface) decision. The "Butterfly Effect" strikes again!
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