Three percent school spending increase could drive statewide property tax up another penny

New proposed legislation would have the state collect property taxes instead of towns. VTD/Josh Larkin

New proposed legislation would have the state collect property taxes instead of towns. VTD/Josh Larkin

The Legislature will likely need to raise the statewide property tax rate by 2 cents, the head of the chief tax writing committee said on Tuesday.

Rep. Janet Ancel, chair of the House Ways and Means Committee, said the increase will be necessary because school budgets have increased more than anticipated.

School budgets increased by an average of 2.9 percent statewide, according to the latest figures from the Vermont Department of Education, following Town Meeting Day ballot results from municipalities around the state. Of the 248 budgets that were approved last week, seven were defeated in Benson, Pittsfield, Colchester, Springfield, the Currier Memorial district, Stamford and Danby. Three percent of budgets were defeated this year, compared with a rejection rate of 43 percent in 2003.

The Joint Fiscal Office originally estimated a spending increase of 1.7 percent.

The current rate for residential property taxes is 87 cents per $100 of assessed real estate value and $1.27 for non-residential.

Steve Dale, the executive director of the Vermont School Boards Association, said voters are supporting budgets. “The question is, what does that do to property tax rates,” he said.

The overwhelming majority of budgets have passed over the last five years, despite an average increase in the statewide property tax of 3.8 percent for homestead property taxes and 3.4 percent for nonresidential rates since 2007, according to information from VSBA.

Rep. Dave Sharpe, D-Bristol, said he wouldn’t be surprised if “there is a shift in the burden from property taxes to income taxes.”

The increase in school expenditures throws the Education Fund balance sheet out of whack. Ancel said a 1 cent increase approved by the House last month won’t be enough to ensure that the state meets its obligation to set aside adequate reserves for the Education Fund. Typically, the state sets aside 5 percent of the fund in reserves (about $30 million last year); under the current scenario, the reserve level is 3.5 percent (about $20 million).

Dale told the committee that the Education Fund has become increasingly reliant on property taxes. This year property tax collections would have been $55 million less, or a 5 cent lower rate, according to VSBA, if the Education Fund received the same proportion of non-property tax revenues as it did in 2007, when the state fully funded the General Fund transfer to the Education Fund. Statewide school funds also receive revenue from the sales tax and the lottery.

“I’m reinforcing the action you took to restore the General Fund transfer to the Education Fund,” Dale said.

The decision about whether to move ahead with an increase in the rate now lies with the Senate at this juncture.

Two other factors could put more pressure on the Education Fund and local property taxes. The Legislature and the Shumlin administration “rebased” the General Fund transfer to the Education Fund to 2008 levels in fiscal year 2012. The move eliminated any inflationary increases in the transfer amount. The House has passed a provision that would funnel any surplus money after budgetary obligations are met toward closing the $27.5 million gap. Senate President Pro Tem John Campbell has evinced little enthusiasm for shoring up the transfer surplus funding.

In addition, the Senate is considering several bills that could tap more money from the Education Fund. The Joint Fiscal Office estimates that a dual enrollment proposal that would enable Vermont high school students to take college courses could cost $3.5 million. There is also a school choice bill in the Senate that would have an unknown Ed Fund impact. The proposal would transfer funding from one school to another if the schools don’t have an equal exchange in the number of students.

The state is counting on $2.1 million in taxes assessed on Vermont Yankee. The state’s sole nuclear power plant is in limbo as the courts and the Vermont Public Service Board decide whether it can continue to operate past its 40-year anniversary on March. 21.

Lawmakers have also booked $700,000 in funding for consolidation grants for school districts that are attempting to merge.

Editor’s note: This story was updated at 11:17 a.m.

Anne Galloway

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