The Senate Finance Committee voted 6-1-0 on H.853, also known as the yield bill, that sets the homestead property tax rate for fiscal year 2017. They also used the legislation to patch a loophole in a 2010 law that allows newly merged school districts to hike spending without a corresponding increase in taxes.
First and foremost, the legislation sets the property dollar equivalent yield at $9,645 and the income yield at $10,803 while the nonresidential property tax rate will be $1.539. This is different from the House passed version which would have set the property yield at $9,701 and income at $10,870. The nonresidential tax rate was changed from $1.53 to $1.539.
Any time the yield number goes down, taxes go up and anytime the yield number goes up taxes go down.
Taxes went up under the Senate bill because lawmakers decided not to apply the entire education fund surplus to the tax rate this year.
The House version included $19.7 million in surplus dollars from the education fund to increase the yield and keep taxes lower. By the time the bill reached the Senate education panel for consideration, the surplus had dropped to $18.8 million.
The numbers are like shifting sand at this point, according to Mark Perrault, senior fiscal analyst with the Joint Fiscal Office. About $870,000 is being spent on tax incentives for mergers and ed fund money is still in play in the transportation bill and the special education bills.
A number of school districts across the state applied reserve and surplus funds to FY17 budgets to keep spending down and avoid penalties under Act 46. A Vermont School Board Association estimate said the amount of surplus funds used at the local level could approach $17 million. Add in the surplus funds House lawmakers want to use from the ed fund and the yield would be inflated by more than $35 million in one time funding that will need to be made up next year, according to Nicole Mace, VSBA executive director.
The Senate education panel chose to apply the surplus funds over multiple years and the result was a lower yield and higher taxes.
David Sharpe, chair of the House Education Committee, disagreed with this logic. “Do I want to go home and say we raised taxes on you this year so that I might not have to raise them as much on you next year?” he said.
House ed panel members were concerned because school districts submitted budgets based on the yield being $9,701. But Perrault said that the difference between a yield of $9,700 and $9,635 works out to about $20 in additional property taxes for a $200,000 house.
Last week, Brad James, finance manager at the Agency of Education, told the members of the Senate Finance Committee that he had discovered a loophole in the way property tax rates are calculated for merging districts under Act 153 of 2010. The committee acted today to fix the problem.
The law provides property tax incentives over several years to school districts merging into a new unified union, to help them pay for any unanticipated costs associated with the merger. It is also meant to help them gradually move toward a targeted single tax rate across the new union.
The law also limits changes in tax rates to 5 percent: Towns that are spending above the new unified union rate won’t see their tax rate rise more than 5 percent regardless of spending. Those towns spending less than the unified union rate will gradually increase their spending but not more than 5 percent a year.
Bottom line: The way the law is written, the new unified school district could create a windfall without having to pay for most of it.
The fix ties any change in the yield from one year to the next to the 5 percent. This means that if the yield goes up 3 percent then the spending can increase that much before the 5 percent kicks in and if a district spends above that high mark there will be tax penalties. This will ensure that the 5 percent buffers in the law won’t allow for more spending.
James wasn’t entirely happy with this plan and said the agency would rather see it attached to a fixed number instead of linking it to the volatile yield that changes many times between December and June. “We have some concerns but closing the loophole is more important,” James said, adding that they can craft something more appropriate next session.
Other changes
The Senate Ed Committee stripped out a cost containment mechanism that would have reduced the excess spending threshold for school districts beginning in fiscal year 2020 from 121 percent to 119 percent.
The committee wanted to see how the governance changes that Act 46 brings about will affect education spending before imposing stricter cost controls.
The Vermont NEA’s Jeff Fannon told lawmakers on the Senate Finance Committee that communities need time to work through merger talks without having to worry about spending caps. “There have been a lot of different cost containment efforts over the last few years and it is important to give schools and communities a chance to catch up … they are going through merger talks, there are a lot of changes, and changing it right now would be premature.”
The Senate Ed yield bill also eliminated an unfunded mandate provision proposed by Rep. Patti Komline, R-Dorset.
Her proposal directed the JFO and the secretary of administration to consult with AOE’s secretary to figure out how much it will cost supervisory unions and school districts to implement new laws that are passed without dollars attached to them. Then it is up to the Emergency Board to decide what the final cost is and this will be transferred from the general fund.
The Senate Ed Committee omitted the section because they believe it is the job of lawmakers to discern such costs.
The Senate Ed version of the yield also deleted the requirement for the AOE to report on how a study of per pupil weighting factors might be conducted. This was done away with because it is impossible to do the study, according to AOE’s James.
The Senate finance panel agreed with their colleagues in all these matters and took several additional steps. They eliminated a provision that had to do with terms for dealing with debt in merging school districts. The measure was included in House Ways and Means to deal with a specific problem that was holding up separate merger talks in Washington Central and Washington West. Since then, they have been able to work out this problem in their discussions and articles of agreement. Some members on the Senate Finance panel felt that very few if any towns would need the guidance.
James, agreed with the committee’s move and said the provision “Muddies the waters up between towns and school districts (finances) which people try ot keep as separate as possible.”
Finance Committee members also replaced the JFO report on Rep. Scott Beck’s education finance proposal and replaced it with a report on the impact of Sen. John Rodgers’ proposal in S.168. Rodgers’ plan would fine areas that spend above the statewide average per pupil amount and it would bring taxpayer relief to school districts that spend less than the state average.
The panel also replaced a JFO study on the various impacts of Rep. Chris Pearson’s H.656, a bill that would adjust the education tax by income for all taxpayers with a report on the implementation of S.175 – Sen. Anthony Pollina’s proposal that has to do with using an income tax approach to education funding.
Nothing else was changed from the House-passed version of the yield bill. The following items remain:
• A mandate that the education secretary require school districts to report surpluses and reserve funds.
• Creation of a study committee to look at a common level of appraisal for merged districts so taxpayers from different towns in the new district all have the same tax rate.
• A request for annual outlooks on projected education revenues and expenses to be prepared and presented by the Joint Fiscal Office.
