Editor’s note: This commentary is by Tom Pelham, formerly finance commissioner in the Dean administration, tax commissioner in the Douglas administration, a state representative elected as an independent and who served on the Appropriations Committee, and now a co-founder of Campaign for Vermont.
Over the years, it has become clear that some in the media do not fully grasp how Vermont’s education property tax system works. The profile is often that rising school budgets cause income sensitized households to experience the same proportional increase in property tax burdens as non-income sensitized households. Yet, should the Legislature adopt the education tax increases proposed by the administration, the average property tax rate on house sites will have increased by 21.3 percent vs. an increase of only 4.2 percent in the average rate on income sensitized house sites since 2012.
For example, in a recent news story this profile of income sensitivity is allowed:
“Rep. Johanna Donovan, D-Burlington, is the chair of the House Education committee. … Donovan points out that if a town raises their school tax by 10 percent, people in the income sensitivity program see their tax burden increase by the same percentage.”
However, aside from the fact that towns don’t raise their school tax, Rep. Donovan’s assertion is even more fundamentally inaccurate with regard to proportionality, yet no effort is made in the report to present a correct analysis.
The current proposals for education tax rate increases for the coming year, fiscal 2015, demonstrate how Rep. Donovan is in error.
When the Legislature increases the property tax rate faster than the income rate, as has been the case in recent years, the claim of proportionality between these two classes of taxpayers is nullified.
Education taxes on residential property are divided into two groups. Income sensitized payers, who comprise 110,361 or 64.5 percent of residential payers, are levied their tax based upon a percentage of their income. The remaining 60,855 residential payers are levied a tax based on their property value. For 2013, Tax Department data shows that on average the income sensitivity program reduces the school tax burden on the house and two acres (the house site) of those eligible by about 50 percent.
For both of the above groups, the “effective rates” are a combination of two factors: a base rate which is set by the Legislature and a “multiplier” then applied to these base rates. The “multiplier” is a calculation of a local school district’s spending per pupil relative to a “base amount” also established by the Legislature.
Each year the tax commissioner starts the discussion of how rates might change with the submission of statutorily required recommendations to the Legislature before the start of the legislative session. The Legislature tracks the progress of school budget approvals during the session to determine how much money is needed to fund voter approved school budgets and then, near the end of the session, finalizes residential tax rates for the coming year to raise the necessary funds.
In December, the tax commissioner submitted her recommendations. She proposed that the base rate for non-income sensitized residential payers be increased from $.94 to $1.01 for a 7.4 percent increase. She proposed that the base rate for those paying based on income increase from 1.8 percent to 1.84 percent, for a 2.2 percent increase. If enacted, this 2.2 percent increase will be the first for the income base rate since 2011 while over this same period the Legislature has increased the property base rate by 17.4 percent.
The calculation for the “multiplier” applied to these base rates is the same for both. Technically, it’s derived from dividing a local school districts “education spending per equalized pupil,” a legislatively crafted subcomponent of a district’s total education spending, by the “base amount” established by the Legislature. If per pupil spending rises at the same rate as the base amount, the multiplier remains unchanged. If spending rises at a slower rate than the Legislature’s base amount, the multiplier is reduced and vice versa.
When the Legislature increases the property tax rate faster than the income rate, as has been the case in recent years, the claim of proportionality between these two classes of taxpayers is nullified. The Legislature’s Joint Fiscal Committee projects that the effective rates, the combination of base rates and multiplier, for 2015 will be 2.74 percent for income sensitized taxpayers and $1.54 for property taxpayers. In 2012, the respective effective rates were 2.63 percent and $1.27. Thus, the effective income rate has increased by only 4.2 percent versus a property tax rate increase of 21.3 percent – hardly proportional.
Under all circumstances, the Legislature and not school districts or towns control and manipulate both base education tax rates and as evidenced by the above, the rising burden on wallets of residential property tax payers have been substantial relative to those of income sensitized payers. Unfortunately, the media often fails to convey this underlying reality to their readers and listeners.
