The Connection Between School Funding and Property Taxes

4 December 2025

When you buy a home, you’re not just paying for the house itself—you’re also buying into the local community, including its schools. Ever wonder why some school districts seem to have everything—state-of-the-art facilities, top-tier teachers, and extensive extracurricular activities—while others struggle with outdated books and overcrowded classrooms? One major reason is property taxes.

Yep, the amount you pay in property taxes plays a huge role in determining school funding. But how exactly does that work? And is it a fair system? Let’s break it down in simple terms.

How Do Property Taxes Fund Schools?

Most public schools in the U.S. are largely funded by three sources:

1. Local Property Taxes
2. State Funding
3. Federal Funding

Of these, local property taxes often make up the biggest slice of the pie. Here’s how it works:

- Every homeowner pays property taxes based on the assessed value of their home.
- A portion of that tax revenue is allocated to local public schools.
- The higher the home values (and tax rates), the more money the schools receive.

This means that school districts in wealthier areas with higher property values tend to have more funding than those in lower-income areas.

Sounds simple, right? But this system creates some major inequalities.

The Big Problem: Unequal School Funding

Because property taxes vary from one neighborhood to another, so does school funding. This leads to a serious education gap between wealthy and low-income communities.

Wealthier Areas: More Funding, Better Schools

In high-income neighborhoods:
- Homes are valued higher, which means higher property tax revenue.
- Schools get more funding, which translates into better resources, smaller class sizes, and higher teacher salaries.
- More funding also means access to advanced programs, technology, and modern facilities.

Low-Income Areas: Less Funding, Struggling Schools

In lower-income neighborhoods:
- Homes are valued lower, so property tax revenue is much smaller.
- Schools receive less money, leading to outdated textbooks, fewer teachers, and larger class sizes.
- Limited funding can also result in fewer extracurricular activities and special programs.

This cycle makes it harder for students in lower-income areas to succeed, creating an educational divide that can last for generations.

The Impact on Homebuyers and Real Estate

Now, let's talk about how this affects homebuyers and real estate values.

1. School Quality Influences Property Value

It’s no secret that good schools boost home values. Families with children prioritize school districts when buying homes, which increases demand in areas with top-rated schools. As a result:
- Homes in highly rated school districts tend to have higher prices.
- In contrast, homes in poorly funded school districts often have lower property values.

2. Higher Property Taxes Can Be a Double-Edged Sword

While higher property taxes contribute to better schools, they can also be a burden for homeowners. Some buyers may hesitate to move into areas with steep tax rates, even if the schools are excellent.

3. Neighborhood Segregation

Because wealthier families can afford to live in top school districts, this system reinforces economic and racial segregation in housing. Lower-income families often get priced out of areas with well-funded schools, making it harder to break the cycle of poverty.

Potential Solutions to Fix the Funding Gap

Clearly, the reliance on property taxes for school funding creates serious inequities. So, what can be done to level the playing field?

1. State and Federal Funding Adjustments

- Some states have "equalization formulas" to redistribute funds from wealthy districts to poorer ones.
- Increased federal funding could also help balance the disparities.

2. School Funding Reform

- Some experts argue for less reliance on property taxes and more funding from state income or sales taxes.
- This would help create a fairer distribution of resources across all schools.

3. Community Involvement

- Local initiatives like education foundations, grants, and nonprofit programs can help supplement school funding.
- Getting involved in school board meetings and advocating for policy changes can also make a difference.

Final Thoughts

The connection between school funding and property taxes is a double-edged sword. While it makes sense that local taxes support local schools, the system widens the gap between wealthy and low-income districts. This doesn’t just impact students—it affects real estate values, homebuyers, and overall community development.

As homebuyers, realtors, and citizens, it’s important to understand how school funding works and advocate for fairer policies. After all, every child deserves a quality education, no matter their zip code.