This is in no way meant to minimize the importance of your contribution to the school TC, but if your PTO is a 501c(3), you may have some options about keeping your money. I have no idea if the laws vary from state to state either.
The reason I mention this is b/c the staff accountant for an organization of which I member (and used to sit on the Board), once told us that "not-for-profit is a tax status, not a goal." 
I live in a mid to upper middle class town. In elementary school, the teachers still ask for supplies at the beginning of the year. Each kid brings a box of tissues, roll of paper towels, some hand soap. Kids bring their own pens and pencils. In some classes, they keep these in their own desks but in others they are pooled and shared. I think the school supplies some, but kids still share.
How much money are you talking about? Our PTO does both - we give each teacher a gift certificate in the beginning of the year (but not for a lot) and then give the school a gift. This year we are improving the "sound system" (mic and speakers) in the gym/audotorium/lunch room.
I would be sad if that was our gift as well.
I think you need to contact your local paper and maybe even your local news. I think this issue needs to be brought up and your government needs to be made aware of the lengths a school has to go to - to get the basic needs.
Make a big deal about it that the PTA has to provide items that the district and gov't should allote money for.
Just a thought. Maybe stir up the pot a little and put the heat where it belongs
Good Luck
CG
Every year here the kids get a list of supplies they have to bring in, including tissues, hand soap, pencils, crayons, all stuff we used to get provided for us when I was a kid. All stuff the district SHOULD pay for, of course. But we send it all in, every year. A couple of months ago Matthew's teacher asked everyone to send in more pencils, because they were out of "extras."
Every year I give the teachers a Staples gift card for $20 for the holidays and again at the end of the year. I figure it's what they need the most. I'm positive teachers end up buying a lot of stuff for their classrooms that the district SHOULD pay for, but don't.
Yes it's sad, yes it's not right, yes we should all be outraged. It's most sad for the families that may end up having to do without some other necessities so they can send in the pens and paper and glue and soap.
This post makes me so crazy. Clearly, it's the district's responsibility, but what a drag of a decision. Although I am absolutely certain that room could be found in the budget just through streamlining procurement.
Grr.
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