Cillo said the nonpartisan Public Assets Institute’s mission is to explain the state’s fiscal policy in a way ordinary Vermonters can understand.
Cillo started with the basics of education funding – including residential and nonresidential property. “There is one nonresidential rate that applies throughout the state, currently at $1.44 per $100 of fair market value,” he said. “It’s set by the Legislature, and everyone pays the same rate.”
Cillo explained the residential rate. The statewide residential rate is now at 94 cents, but that rate, he said, changes based on local spending decisions. “A district can choose to spend more than (the state’s per-pupil block grant of $9,150), and the residential rate goes up proportionally. If you spend 50% more, your tax rate will be 50% higher.”
To ensure that people in different towns are paying property taxes based on similar fair market assessments, the rates are “equalized” through what Cillo called “a pretty good system” to adjust rates – the common level of appraisal. “Similarly situated taxpayers are treated the same,” he said.
As an example of how the system works, Cillo showed the tax rates in three different towns with similar per-pupil spending rates of about $13,500 per student. In all three towns, the homestead property tax was $1.29.
Cillo also explained that income sensitivity, for residential taxpayers who pay education property tax based on income, is also affected by local spending decisions. The basic cap for residential taxpayers is 1.8% of household income. “If a community decides to spend 50% more than the base amount ($9,150 per pupil), then the income will be 50% more, or 0.9% for a total of 2.7.%”
Hoffman, responding to a comment by Dover Selectboard Chair Randy Terk, noted that in every Vermont community, the taxes raised through the residential, or homestead, education tax is used for local funding. “In no town in the state is the residential tax enough to cover the total budget,” Hoffman said. “All the money from local residents goes to local schools and the budget gets supplemented with (state) education fund money.”
“So towns with second-home owners or industry, that don’t have TIF districts, are picking up the bulk of the costs that aren’t covered by residents,” said Dover School Board member Laura Sibilia. A TIF, or Tax Incremental Funding district, is a state program that allows towns to direct education tax revenue from the district to pay debt on public infrastructure in the district. Cillo noted that nonresidential taxes aren’t the only revenue stream from which towns receive additional education funding. “There’s also the general fund contribution.”
“Which is shrinking,” added Sibilia.
According to Cillo’s figures, the general fund contribution for 2014 is 32.8% of the state education budget. In 2005, that number was almost 39%. “The property tax is picking up a larger share,” Cillo agreed, “from 61.2% in 2005 to 67.2% in 2014.”
Rep. Ann Manwaring noted that a $23 million cut in the general fund transfer made during the Legislature’s “Challenges for Change” contributed significantly to the change in the general fund transfer. Hoffman noted that there had been a $25 million cut in the transfer the year before.
While Sibilia acknowledged that dollar amounts were equally distributed from the education fund, she said not all students were equally supported by the state. “The state hasn’t looked at scale, scope, equity or opportunity,” she said. “In a town like Wilmington, or Dover where there are 100 students, students aren’t guaranteed the same opportunities because we don’t have the same buying power as a town like Brattleboro. There’s no scale mechanism. The presumption that equal dollars will provide the same opportunity is patently false.”
“I don’t know that I’d call it patently false,” said Cillo. “You could look at it as a glass half empty/half full situation.”
Cillo said the state could make additional adjustments based on school size, but he also noted that the conversation in the Legislature has focused on consolidating small schools, not increasing their funding.
Sibilia said the conversation has always focused on money, but with no connection between the money that’s collected and spent, and what it buys. She said the Public Assets Institute could be helpful in changing people’s thinking if they would include that in their analyses.
But Cillo said the Public Assets Institute’s mission isn’t to evaluate education. “We talk about the fiscal aspects because that’s what we do. We’re not talking about which standards are best. We’re interested in the discussion, but it’s not something we can lead on. We’re doing these seminars because people don’t understand the basics. It’s not that this is the best system, it’s what we have.”