John McClaughry: When imagination fails, raise school property taxes

Editor’s note: This commentary is by John McClaughry, the vice president of the Ethan Allen Institute.

The heavily Democratic Vermont House has passed a bill (H.889) designed to squeeze out enough new dollars to keep the Education Fund solvent for 2015. Republicans voted “No” on the higher education property tax rates, and their state chairman declared that the Democrats’ passage of the bill was a “cold and callous action.”

Let’s take a trip down memory lane to see how we got to this point.

In 1994 Gov. Howard Dean, then in his parsimonious phase, froze the amount of state aid distributions to school districts under the Foundation Plan. A group of disappointed money seekers, led by Rutland Northeast Superintendent William Mathis (now a Shumlin appointee to the State Board of Education) and ACLU co-counsel Peter Welch (now a congressman), brought a case to the Vermont Supreme Court. They made the highly imaginative argument that the “common benefit” clause of the Constitution (adopted in 1777 to outlaw special favors to cronies) somehow required property-rich districts to share their property base with property-poor districts. The court, led by Justice John Dooley (still a justice), gave them everything they wanted (without even a trial!).

The 1996 Brigham decision held that all school districts had to have “substantially equal … access to tax resources.” Armed with this judicial mandate, the Democratic Legislature joyously pushed through Act 60 of 1997 with its “shark pool” of revenue redistribution.

Act 60 broke the link between your school budget and your school property tax rate. It also conferred enormous and long-sought regulatory power on the State Board and Department of Education.

When popular resistance to the Act 60 shark pool mounted, the Republican Legislature and governor of 2003 enacted Act 68. The revised law tried to brake that spending by tying the “district spending adjustment” of the education residential property tax rate to the amount spent above a legislatively set dollar amount. In 2014, if a district’s voters spent 20 percent over $9,151 per pupil, their residential property tax rate would increase by 20 percent over the state-set 94 cents per $100 of fair market value.

The Republicans blame the Democrats for raising property taxes, but if the Republicans were in the majority they’d have to do exactly the same thing – unless they could come up with some magical new scheme, about which they seem to have no clue.

 

But those brake shoes aren’t slowing down the spending bus. The link between education spending per pupil and the residential property tax rate is still there, but it’s not at all obvious to the voters of any given district, because the tax revenues are all shipped off to Montpelier for redistribution through the Education Fund.

The Legislature’s duty is to keep that fund full enough to cover the budgets sent in for payment by the 277 school districts. They could, but won’t, add another penny to the sales and use tax (which the Republicans did to pass Act 68), or increase the General Fund contribution beyond $296 million when that fund is again $70 million in the red.

That leaves them with raising the two school property tax rates, and trying to find some new brake shoes to slow down local spenders without hammering them over the head with state spending restraint mandates.

Hence the present bill, that raises the residential base rate from 94 cents to 98 cents per $100 of fair market value and the nonresidential base rate from$1.44 to $1.515. The bill also increases the base education spending amount from $9,151 to $9,382. That is well under the 4.2 percent residential property tax rate increase, and thus inflates the district spending adjustment that translates to higher residential tax rates.

The Republicans countered with a proposal to scrap the whole system for 2017 and concoct something else (details not even hinted at). The Democrats voted that down and passed their alternative for feeding the education monster: creating a new education income tax in 2017.

The bottom line here is that legislators of both parties are facing politically unsustainable public school spending. The Democrats are doggedly using the tools of their beloved Act 60 to raise ever more revenues. They are also rushing forward with mandatory consolidation into Regional Education Districts that they believe might save a little money (but almost certainly won’t). Looking ahead, they have now gone on record in favor of raising income taxes.

The Republicans blame the Democrats for raising property taxes, but if the Republicans were in the majority they’d have to do exactly the same thing – unless they could come up with some magical new scheme, about which they seem to have no clue.

There is an alternative: changing the ponderous and increasingly state-controlled monopoly school system to a model built upon parental choice and provider competition. That seems to be well beyond the imagination of either quarrelling party.

Comments

  1. Dave Bellini :

    Vermont needs a property tax cap.
    We need Proposition 13 to happen in Vermont. The only way to control property taxes is to first reduce them, then to cap them. Then the education community would be free to argue the best class size, the best new program, how to expand special ed. and anything else but the bank would be closed.

  2. Peter Everett :

    How about Massachusetts Prop 2-1/2, enacted in 1980. Unions stated the collapse of Education then. Now, it’s one of the top states in the country.
    Yeah, there were some layoffs, class size grew a bit, funds were cut, etc. It wasn’t devastating as the Unions said it would be. How to I know? I was a MA teacher from 1971 – 2006.
    Don’t let the NEA or politicians blackmail you. I found out that the Union is concerned about one thing only….it isn’t the children, it’s themselves. As for politicians, I don’t think I need to say anything.

    • Wendy wilton :

      Peter thanks for your insight. I think you are right. If a cap or a student:teacher or staff:student ratio were imposed, the system would adjust and go forward. I think John makes a good point also in the impact of parental choice: ultimately this would shift the dollars to the schools that perform the best for the students. If both spending controls and choice were enacted it would be meaningful.

  3. Paul Richards :

    “Don’t let the NEA or politicians blackmail you. I found out that the Union is concerned about one thing only….it isn’t the children, it’s themselves.”
    Well said Peter. As long as we have public sector unions we will all be subject to blackmail. The system works great for the union and the politicians that benefit from their revenue. The kids and the taxpayers? not so much. Why do you think they are so afraid of charter schools?

  4. Jamie Carter :

    I think John is spot on with school / parental choice. School choice will allow parents to place their children in a school that they feel best fits their needs. And their are a range of ways schools could distinguish themselves to compete for students.

    That said, I believe the state using an educational income tax primarily is a much more equitable way to fund education. People will cry over it taking away local control, but the fact is there is no local control NOW. Money goes to Montpelier and then redistributed. Further, by drastically lowering property taxes, it allows for more people to move into homes and stop renting. Thats good economically as well, and also may ease the housing shortage.

    But really what we have is 3 problems…

    A.) how to finance schools in an equitable manner and ease the burden on property owners. I think H.889 is a good step towards this depending on how the Legislature actually implements it.

    II.) How to control costs and

    3.) how to make education better. I think school choice will result in a better quality education and help to control costs. It may result in some public schools being eliminated and going private, or just closing all together. People struggle with that, but we have less students, why would we not have less teachers, less staff, and fewer schools?

    A school choice / voucher system (paid by an educational income tax) is the way we should be moving towards. I’m glad to see the legislature looking at this seriously, I just hope they have the guts to follow through with it and not half-a@@ it.

  5. Janice Prindle :

    A tired bunch of conservative complaints and the same old same old fantasy that the myth of a free market, applied to schools, will solve everything. When it’s actually the “free” market that has driven up the costs of schools: health insurance (as the largest part of personnel expenses), fuel, technology– and it won’t be any different for independent schools (I know because I taught at one). When education is not a commodity you are required to purchase, but a social covenant upon which the future of a civilization depends, and we have a moral obligation to do all we can to minimize the impact of inequality in providing children a decent education regardless of their zip code. It’s “liberty and justice for all,” not “liberty for the well off, and screw the rest of you.”

    • Paul Richards :

      So schools and health insurance are examples of the free market? Maybe I have been misinformed all these years but it seems to me that both are far from examples of the free market.
      Public sector unions are nothing but a forced monopoly managed by the unions and the government with no real involvement from the tax payers.
      Health insurance, the last I knew was and has been a government regulated industry. One of the reasons why it is “the largest part of personnel expenses” is because we have all been bribed into continually funding better health insurance plans for unions members than what we can afford ourselves. All “for the good of the children” as human shields. Don’t think the government has had a hands off approach to health insurance. For example; why are insurance companies not allowed to sell health insurance across state lines? Ask the government. You will see how well the government runs healthcare. About as well as they run everything else, like the social security system. The American government is too big and too corrupt to run anything effectively.
      As for fuel and technology? We have better access to the best and cheapest than most. Once we loose our place as the worlds currency that will all change. We will loose that, not because of the free market but because our government is too big, corrupt and without control. IMHO that is neither liberty or justice for anyone.

  6. Ed McFarren :

    You give far too much credit for original thought to the legislature. There’s always some nameless, faceless bureaucrat from the education department with a magical scheme to save the public system “for the sake of the children.” Can’t help wonder how much that magical system will cost us.

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