Proposal promises big changes in ed. funding
by Mike Eldred
Feb 03, 2018 | 2634 views | 0 0 comments | 36 36 recommendations | email to a friend | print
MONTPELIER- The House Ways and Means Committee is proposing sweeping changes to education funding, changes proponents say will reduce dependence on property taxes and create a more progressive, income-based system.

The proposal, which hasn’t yet been introduced as a bill, would slash the base homestead property tax to 25 cents. Spending above a base amount would continue to be raised through a local property tax but, according to a summary prepared by the Legislature’s Joint Fiscal Office, the average Vermont residential education tax rate would fall from $1.59 to just under 91 cents.

The non-residential education property tax would remain unchanged.

The proposal also eliminates the current system’s “income sensitivity” and homeowner rebate provisions, and instead would create an education tax on income over $47,000 in adjusted gross income. The rate on income between $47,000 and $100,000 would be at .75%, and income above $100,000 would pay a rate of 1.4%. According to the Joint Fiscal Office, the income tax would raise about $99.3 million in revenue.

House Ways and Means Committee Chair Janet Ancel says the proposal satisfies a longstanding desire to reduce the state’s reliance on property tax for funding education. “An income tax better reflects the ability to pay – it’s the money you have in your pocket.”

Although previous committees have discussed various income-based education tax systems, Ancel says it has been difficult to factor in local decision making. “Would you want to have a Calais tax rate and a Burlington tax rate? And what would it mean for businesses that had employees from different communities?”

The proposal would also eliminate the annual general fund transfer to the education fund, currently at about $322.9 million, replacing it with a combination of dedicated revenues and transferring some costs that are now paid through the education fund to the general fund. Currently a portion of the sales and use tax, about $144 million, goes to the education fund each year, with the rest going to the general fund. Under the new plan, 100% of the sales and use tax would be solely dedicated to the education fund, a total of about $400 million to the fund annually.

Ancel says the elimination of the general fund transfer will end the annual politicking that accompanies it. “It has been a source of political bickering,” Ancel notes.

The current proposal falls short of funding the state’s $1.6 billion education bill by about $45 million, Ancel says. “That sounds like a lot, but there are still things, like the liquor tax, that we can move over to the education fund,”

she says. “But the idea is to have the funds operate on their own and stop the tension that occurs with the general fund transfer,” she says.

Broadening the funding base helps ensure a steady annual revenue stream, and Ancel says sources such as the sales tax are growing.

“People think of the sales and use tax as susceptible to economic conditions, but our collection from internet sales has been much better in recent years,” Ancel says. “And, unless there’s a recession, income tax revenue is always growing. And we know we’ll always hit a recession at some point.”

Although the proposal intends to reduce dependence on property taxes, Ancel says the homestead and non-residential property tax would continue to be the source the state will go to when there’s a need to adjust the annual education fund revenues. “It is, and should be, difficult to raise the income tax,” she said. “I don’t see that as the place to go.”

The proposal also eliminates the excess spending penalty, which charges districts a dollar-for-dollar penalty for spending above a certain per-pupil amount. Ancel says, however, that the proposal would still control excess spending with a reduced tax yield on the local property tax for spending above a $12,982 base amount. The current per-pupil yield for a tax rate of $1 is $9,842, according to the JFO summary. Under the proposed system, the per-pupil yield for above-block spending would be $4,450. “It keeps a brake on spending without introducing the concept of caps.”

One thing that won’t disappear, however, is the annual education property tax rate adjustment based on the common level of appraisal. “We can’t change that as long as we have a statewide property tax,” Ancel says.

The proposal shifts the burden of education tax from one based on property “wealth” to one based on actual income, Ancel says, resulting in a more fair and transparent system. “We want the overall impact to be more progressive for individuals,” she says. “And it’s fair to kids, in the sense that it meets Brigham. Income sensitivity has worked well for us, but it has gotten very complicated. People don’t understand it, and if they don’t understand it, they don’t feel it’s fair.”

Rep. John Gannon says the proposal appears to be good news for individual taxpayers. But he says it doesn’t address the funding challenges that small schools in rural districts face. “I think taking the complexity out of education funding, and having a more progressive tax system for education funding is beneficial,” Gannon says. “I do think it will help a lot of people. Does it end the funding challenges we have in Wilmington and Whitingham? No.”

Rep. Laura Sibilia says the proposed funding system addresses only the revenue side of education funding. “The House is taking a serious look at where the money is coming from, but it doesn’t fix the spending side, and it does nothing to fix the equity problem,” Sibilia says. “The governor has some proposals about how the money gets spent. Nobody has addressed the equity piece, and that’s why Whitingham’s lawsuit is so important, and our weighting study.”

During the last session Sibilia and Gannon successfully championed a study of the state’s weighting system for equalized pupils.

Proponents say the study would examine, among other things, whether a rural “weight” should be added to compensate for additional costs inherent in educating students in a rural area, as whether current weights, such as weighting for families under federal poverty guidelines, are adequate. The legislation passed, but the state agency of education refused to take up the study without additional funding. So far, the funding has proven elusive.

Sibilia notes that the proposed funding system would not reduce the tax burden, it would shift the burden to other payers. She’s concerned that some of the burden would shift unfairly to Vermont business property owners, who will pay the education income tax as well as the same non-residential tax they’re now paying on their business properties. “But people with moderate incomes may see some relief,” Sibilia says. “I will be interested to see an evaluation that include the winners and losers under the proposal.”

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