Property taxes to go up by as much as 5 cents unless school districts curb spending

Jeb Spaulding, secretary of the Agency of Administration, talks to reporters at a press conference called by Sen. Randy Brock, the GOP candidate for governor. Photo by Anne Galloway

Jeb Spaulding, secretary of the Agency of Administration. Photo by Anne Galloway

The statewide property tax will increase three cents to five cents this year, according to the Shumlin administration.

Unless schools make an effort to cut spending or the state makes a change in the base education rate formula, the statewide property tax rate will go up five cents for every $100 worth of property value. The current rate for commercial property is $1.38 and the rate for homestead property is 89 cents. Rates can be higher in local jurisdictions, which are based on local spending levels.

Tax Commissioner Mary Petersen is expected to send a letter to lawmakers about the increase by Dec. 1. She declined to say what the rate would be.

In a letter to school districts on Monday, Gov. Peter Shumlin asks educational leaders, i.e. superintendents, business office managers and school board members, to keep their budgets in check. The letter makes it clear that if schools spend more than the rate of inflation (2.2 percent) the statewide property tax rate will likely go up by as much as 5 cents.

The governor points out that while schools have performed well he says schools must “redouble efforts to constrain, if not reduce, education spending.”

State officials say early estimates show that school spending will likely go up by 4.8 percent in the coming year. That increase translates to a 5 cent uptick, based on current numbers and statutory requirements that provide for inflation-adjusted increases in the funding formula for schools.

“By all accounts, our spending levels are among the highest in the nation,” Shumlin writes.

Shumlin, like his Republican predecessor Gov. Jim Douglas, asks school leaders to hold the line on school spending at a time when student enrollments continue to decline. There are currently 89,400 students in Vermont schools; next year the number is expected to drop by 650.

“If you all can hold school spending to the rate of inflation the increase will be less,” Shumlin writes. “I understand that situations vary by district and support local decision making by school boards and voters, but acknowledge that we are looking at the fifteenth consecutive year of declining enrollments.”

Despite a dramatic decline in enrollments from a recent high of 103,000 students, Vermont consistently ranks among the top education spending states. The American Legislative Exchange Council, a conservative think tank, placed the state seventh in school spending. Vermont has the third highest public education spending rate on a per capita basis in the country, according to a ranking published by Deseret News, a Salt Lake City newspaper this year.

The governor’s letter is accompanied by a spreadsheet that details spending levels for every school district in the state. The average spending per pupil is $12,788. Mount Tabor, in Rutland County, will spend about $9,038 per pupil this year, while the Reading school district in Windsor County, will spend $18,650 on each student this year.

Jeb Spaulding, the secretary of the Agency of Administration, said the two biggest factors that affect the statewide property tax rate are spending at the local level and the grand list, or the market value of real estate, on which the rates are calculated. “The governor doesn’t control either one of those,” Spaulding said.

The only way the administration and lawmakers can reduce the statewide rate is by lowering the per pupil base education state reimbursement rate for schools. The difference between that rate and the actual cost to educate students is made up by local property tax increases.

Steve Dale, executive director of the Vermont School Boards Association, said the letter is reasonable. “It’s just a reminder to boards as putting finishing touches on their budgets,” Dale said. “It’s important to be aware of the fact there’s very limited funds and it’s important to keep spending within limits.”

Upward pressures could make keeping budgets in check difficult, Dale said.

Health insurance premiums are set to increase by 14 percent this year.


Follow Anne on Twitter @GallowayVTD

Comments

  1. Cynthia Browning :

    Remember that the administration and the legislature decided to reduce the contribution from the General Fund to the Education Fund by some $27 million by rebasing the formula used to determine the amount of that transfer. If that $27 million was replaced, the property tax rate could be lower by about 3 cents.

    That being said, all school boards certainly do need to do everything that they can to hold the line on spending.

    But it is just hard for me to read the last two paragraphs of the report above, about how there is nothing the administration or the legislature can do to lower property tax rates, when there IS, and they did not do it last year.

    Rep. Cynthia Browning, Arlington

  2. Scott Garren :

    Any discussion of school spending in Vermont should start by acknowledging that Vermont is in the top 10 states in almost every measure of education outcome and very often in the top two or three. We spend a lot on our schools and we get what we pay for! We are a small state and we take rightful pride in our small, locally responsive schools as well we should.

    ALEC is a far-right think tank pushing a conservative ideology and a very dubious source for objective information on any topic at all. For instance, Vermont is at the top of almost every quality list in their report and yet they grade us a D+ on education policy! The Deseret News ranks Vermont 4th, not 3rd as reported and it covers staff spending only not total spending.

  3. Tom Pelham :

    I’m not sure why Vt. Digger finds in necessary to search far and wide for data that profiles Vermont’s education funding system. Here are two excellent Vermont based resources:

    From the Vermont Legislature:

    http://www.leg.state.vt.us/JFO/Education%20RFP%20Page/Picus%20and%20Assoc%20VT%20Finance%20Study%201-18-2012.pdf

    From the Vermont League of Cities and Towns:

    http://www.vlct.org/assets/Advocacy/Issue_Papers/2012-4_education_funding.pdf

    Unfortunately, our legislative leaders have created their own “fiscal cliff” with regard to education funding and property taxes by not paying serious attention to the messages contained in these reports.

  4. Ron Pulcer :

    In the last go around of education cuts (“Challenges for Change”), the Rutland City School Board was encouraged to make cuts by the State of Vermont. They decided to cut out the Information Technology program at Stafford Tech, and at a time when smartphones and social networking are areas where there is some job growth.

    There are efforts underway lately to entice people to move to VT for grow the IT industry, by the VT Software Alliance and local businesses (at least in northern VT). At the same time that, at least one school has already cut out their IT courses.

    Ironically, the politicians on both sides of the aisle raised a lot of money for their election campaigns. Some raised more then their job actually pays. Some of what was raised was not spent on campaign ads, etc.

    Perhaps the politicians might consider donating their leftover “campaign war chests” to the Education fund, so that taxpayers will not be further burdened then they are already.

    http://vtdigger.org/2012/11/15/campaign-finance-winners-spend-less/

  5. walter carpenter :

    “ALEC is a far-right think tank pushing a conservative ideology and a very dubious source for objective information on any topic at all.”

    Agreed. ALEC is hardly a reliable source for objective information. And, also, how much is the constantly rising health insurance costs contributing to the schools having to seek higher budgets?

  6. Let’s talk numbers and other random thoughts for a second:

    A reduction of 650 students out of almost 90,000 is a meaningless number and should be translated as “zero”. For that matter there are districts such as Bennington, Stowe and Williamstown that are seeing an increase in student numbers.

    (Walter – an answer to you) Hold on to your boots at town meeting – school employee related health insurance premiums are slated to go up 12.8% for your fiscal year 2014 (school year 2013-14)! In Williamstown we’re paying about $70,000 (erring on the low side) per month for the district contribution to these premiums – I figure Williamstown will be seeing an increase of almost $9,000 per month or about $108,000 per year. (By the way – Williamstown is one of those slightly below state average spending districts with an above the state average student to teacher ratio.)

    $108,000 translates into anywhere from 2 to 1.5 full time highly qualified teachers; or 1 principal with a secretary or; in the case of Williamstown, the better part of an extra-curricular sports program; or a lot of busing; or a replacement roof for a small to mid-sized school; or ….

    Maybe we can do without any of those things.

    So now the Governor has sent out a blanket statement asking for holding the line on spending in the face of massive insurance premium increases, more demands from the state regarding the purchase and use of modern communications technology (think data reporting, the new curriculum known as “common core”, student needs – all of which not only requires purchasing hardware, software and support services, but also additional hiring at the district level for training and maintenance … whew … that’s a lotta spending we have to engage in so as not to spend more).

    Oh, and have you heard how the state legislature and governor have promised grand savings and better service if you’ll only let them run things for you? The newest push is for SU consolidation – and they’ve already dropped the pretense of major cost savings (there really aren’t any there – folks at the SUs are not a bunch of idle bureaucrats sucking of the taxpayer teats – these folks are working long hours and working hard). First the state has been mandating consolidation of local district policy making and implementation authority up to the SU level, and now the state will be pushing to move the policy making and implementation even farther from the local district by consolidating the SUs!

    And after hiring all the additional administrators that will be required to fulfill the needs of greater centralization the Governor will likely send out a letter asking districts to spend less because the money just isn’t there.

    Finally: local control is that level of politics that allows for immediate and effective access to those who make and implement policy. In the case of our schools that means students, parents and supporting community members being able to easily influence those policies and how those policies are carried out. Every time policy making is moved from the district to the SU that is a loss of local control. Every time consolidation of SUs or local districts occurs that is a loss of local control.

    Why? Because the policy making and implementation is moved further from those who need to influence the process the most (students, parents, community members).

    Consolidation is by definition not a bad thing, and under the right circumstances can do quite well. But consolidation should be a matter of a local control and local needs driven decision – NOT as the state legislature prefers today where THEY, not you and I, will decide what happens with our local school districts.

  7. Ken Remsen :

    School boards have been told to expect a 14% increase in insurance rates. A reduction of 650 students spread over 300+ schools doesn’t mean significant staff reductions.

    • Tom Pelham :

      Ken…In 1997, Vermont’s school enrollment was 106,341. By 2008, it had fallen to 94,114 and the projection for 2013 is 88,289. Yet, from 1997 to 2008, the number of teachers and instructional aides increased from 10,786 to 13,104 and today, Vermont has the lowest ratio of students to teachers in the nation at 9.8. The national average is 15.3. While enrollments declined over 6% since 2008, education spending has increased over 11% and propety taxes are up 15.5%.

      On a year over year basis, your perspective on student decline makes sense, but in view of this long term trend of fewer students and higher staffing levels, the Governor’s jaw boning for restraint makes sense. However, as Scott Mackey’s comment notes, jaw boning and finger pointing at school boards is likely not enough to overcome the structural flaws in Vermont’s school funding system.

      • Tom, that doesn’t change today’s reality – a 650 drop in student count is meaningless – could just as easily be clerical errors.

        We on the school boards have to plan the FY ’14 (2013-14 school year) based upon the numbers for FY ’14.

        I see absolutely no structural flaw in the current school funding mechanism. Costs have been driven by insurance premiums, compensation for an increasingly professionalized (in a good way) staff (also think of the increased costs they bear from preparing to enter the teaching work force); increased centralized mandates and the likes. Communities and local school boards are simply reacting in an intelligent manner to reality.

        • Tom Pelham :

          Rama….attached to the Governor’s letter was data on school spending in Vermont that profiles Vermont’s education spending per student in 2011 at $15,405. That amount multiplied by the projected 650 student decline equals over $10 million, an amount certainly not meaningless and far from “a clerical error” to statewide property tax payers. While I’ll agree with you and Ken that extracting this potential savings on a single year basis from our entangled funding system might require specialized surgery, the downward trend of declining students has been unbroken since 1997 (amounting to over 18,000 pupils) and looking at the demographics, will remain unbroken for years to come. Given this trend line, asking school districts to accommodate declining enrollments during their budget process is a reasonable request of the Governor.

          Further, like you, I served on a school board for eight years and the board made specific changes to address declining enrollment. For example, we moved to multi-age classrooms from the traditional common age classroom structure as well as downsized our teachers’ corps as the accumulated level of student decline allowed. I share Scott’s frustration that the tax benefits of these sorts of decisions only marginally accrued to local district taxpayers, possibly discouraging school boards from embracing strategies that lower costs.

        • Tom Pelham :

          Rama….attached to the Governor’s letter was data on school spending in Vermont that profiles Vermont’s education spending per student at $15,405. That amount multiplied by the projected 650 student decline equals over $10 million, an amount certainly not meaningless and far from “a clerical error” to statewide property tax payers. While I’ll agree with you and Ken that extracting this potential savings on a single year basis from our entangled funding system might require specialized surgery, the downward trend of declining students has been unbroken since 1997 (amounting to over 18,000 pupils) and looking at the demographics, will remain unbroken for years to come. Given this trend line, asking school districts to accommodate declining enrollments during their budget process is a reasonable request of the Governor.

          Further, like you, I served on a school board for eight years and the board made specific changes to address declining enrollment. For example, we moved to multi-age classrooms from the traditional common age classroom structure as well as downsized our teachers’ corps as the accumulated level of student decline allowed. I share Scott’s frustration that the tax benefits of these decisions only marginally accrued to local district taxpayers, possibly discouraging school boards from embracing strategies that lower costs.

  8. Scott Mackey :

    The real issue here is that our current school finance system provides no incentives to school boards to control costs. Our system has removed the link between spending and local taxes.

    Simply urging school boards to exercise restraint does not work. Until last year I chaired our school board, and I can tell you that it is demoralizing to work hard to restrain spending in your own district and then pick up the paper and read that other districts throughout Vermont are hiking spending. Understandably, boards are not willing to cut programs for their kids while other districts do not.

    Mr. Garren states above, “We spend a lot on our schools and we get what we pay for.” The problem is that “we” don’t pay — “some” do. The “some” is a minority of taxpayers with incomes above $88,000 pay the full property tax burden. The “we” is the majority of taxpayers who get a tax subsidy in the form of “income sensitivity.”

    This system allows school boards to raise spending without putting a significantly higher property tax burden on the majority of taxpayers in the district. This in turn leads to approval of budgets by the majority of voters sheltered from higher property taxes.

    Until this system is changed, don’t expect school spending restraint.

    • Carl Werth :

      Scott hits the nail right on the head!

    • Craig Powers :

      Guys:

      It will never change because the voting block created by the income sensitized population is too BIG!!!

      The same set up will be coming with Green Mountain Care and health care reform. Few will pay for the masses.

      Welcome to Vermont!

  9. Moshe Braner :

    Scott Mackey commented:

    “Our system has removed the link between spending and local taxes. … “income sensitivity” … This system allows school boards to raise spending without putting a significantly higher property tax burden on the majority of taxpayers in the district.”

    - this is a common misconception, even our previous governor said such things. But the reality of Acts 60 & 68 is that, if a district increases the per-student spending by X percent, then the tax bill (amount of money, not “rate”!) of those local taxpayers who pay by property value increases by the SAME X percent, and also the tax bill of those local taxpayers who pay by income increases by the SAME X percent. The proprtional impact is uniform. That’s by design. This did convert the education funding from a regressive property-based tax to what is essentially a less-regressive income tax. While all low and moderate income taxpayers pay the same percent of their income as others in the district, it is not quite a “flat” tax in that higher-income residents, who pay according to property values, usually (depending on their property) pay what amounts to a smaller percentage of their income. This too is by design. It is a compromise, but it is far better than the pre-Act-60 system.

    That said, increasing teachers’ pay every year by more than the rate of inflation is unsustainable, and that means it cannot be sustained. (That last bit should not need to be said, but the word “sustainable” has been twisted out of recognition in recent years.) This trajectory will break sooner or later, no matter what we do, but planning ahead may be less painful than letting reality cobber us. The same is true for the trajectories of medical spending and energy costs.

    If and when we move to a single-payer health coverage, including everybody (teachers and state and IBM employees included), that will help reduce some of the pressure to increase spending.

    • Eric Bradford :

      “higher-income residents… pay what amounts to a smaller percentage of their income.”

      Excuse me?!? The only way this would be true is if someone were making nearly as much as the value of their home every year! Act 60/68 CLEARLY favors those earning below the cutoff.

      • Moshe Braner :

        Not so, because the rate applied to property value is different from that applied to income. Of course Act 60/68 was designed to help those with a typical house and income that is not high. That’s the whole point. But the impetus to enact it was because a typical high earner owns a house that is of lower value, relative to their income, than the situation of lower earners.

        E.g., just to put up some example numbers to make it clear:

        Household A: income: $50,000. House value: $200,000. Typical modest-income Vermonters. They pay taxes on the house even though they don’t really own it, they have a big mortgage on it. Under the current school funding they pay something like $1500 in school taxes, computed with “income sensitivity” based on 3% of their income (the rate depends on the local per-student spending).

        Household A: income: $200,000. House value: $400,000. 4x the income, but only 2x the house value. That’s the general pattern in reality. Their school taxes: something like $5000 – equivalent to only 2.5% of their income.

        The basic policy question is: should ones contribution to school funding (or anything else) be based on income, wealth, or “real property”? 200 years ago, most Vermonters were farmers and the value of their farm represented the farm’s potential for making money. Those days are long gone. And if you think that it still should be based on property, why only homes and land? Shouldn’t you then say that rich people pay based on the value of the their yachts, bank accounts, stock portfolios? Wealth distribution is even more unequal than income distribution – but not for primary residences.

  10. Eric Bradford :

    Now let’s consider a more typical “over the threshhold” Household C: $90K income, $300K house. They’re paying 4.5% of their income in school taxes alone, or 7-7.5% of their income in total property tax. If they have the bad fortune to live in a $400K house, the numbers are 6% school tax and 8.5-9% total. The national median is for total property tax as a percentage of income is 2.7%.

    If your “Household A” is making, say, $75K – much more typical for a family in a $200K house – they’re still paying under 3% in school taxes.

    “should ones contribution to school funding (or anything else) be based on income, wealth, or “real property”?”

    More to the point, should the answer be different depending on whether you break above or below an arbitrary income level? Of course not. The system is broken.

  11. Tom Haviland :

    I recall at one point seeing a graph of school spending with healthcare excluded that showed increases in spending are almost entirely driven by health care costs. Unfortunately I can’t find the graph now.

    But it seems pretty clear the way to fix this is to fix the cost of health care problem. Hopefully our single payer system will do that.

  12. Moshe Braner :

    Eric: both of us are presenting rough example numbers, so it’s hard to compare. But assume that the (school) property tax on the $400,000 house was $5000 as in my example, then on the $300,000 house it would be $3750. That is just over 4% of an income of $90,000. Now suppose that the threshold for “income sensitivity” is right there at $90,000. The income sensitivity rebate phases out gradually as one’s income approaches the threshold, so if the income was $89,000 they’d pay almost as much. Only as their income decreases significantly below the threshold would the rebate be substantial. If the income was $75,000 they’d probably pay about 3% of the income – in my example it was 3% at $50,000 income, and it would be above that for $75,000. The transition at the thershold is gradual. On the other hand, at much higher incomes the tax, purely property-based, is a lower and lower percent of the income, assuming those richer people own a house that is less valuable in proportion to their income, which it the typical case. The highest tax as percent of the income is somewhere in the middle. Again this is by design. It was the way the legislature agreed to lessen the burden on those with low income, without raising it for the richest. I would prefer funding the schools with a straight income tax for all. A flat rate income tax for everybody (with the rate proportional to local per-student spending) would shift some of the burden to those with incomes much higher than our examples. Would you support that approach? I don’t know about you, but many “conservatives” who clamor for a flat rate federal (or state) income tax would probably oppose this. Why? Because it all depends what you are changing from. Any tax policy change means somebody will pay more so somebody else will pay less. A flat rate for the (currently progressive) general fund income tax would be a shift of the burden from the rich to the poor, while the change I proposed above would be a burden shift from the middle class to the rich.

    And BTW my statements referred to the school tax only, excluding the other municipal services.

  13. Eric Bradford :

    “The highest tax as percent of the income is somewhere in the middle. Again this is by design.”

    Oh, well that sounds great. Vermont definitely doesn’t need to worry about repelling those in the $90-150K range, they’re not the kind of people we want here anyway.

    The bottom line is that a typical homeowner below the income sensitivity cutoff pays less than they would without the income sensitivity provision, as evidenced by the fact that millions of dollars are returned to homeowners every year. This clearly influences their vote. Look at the graph on page 4 of this document:

    http://www.vlct.org/assets/Advocacy/Issue_Papers/2012-4_education_funding.pdf

    …and give me another explanation for the hockey stick curve you see around 1999, when Act 60 was enacted.

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