It’s not often that Rep. Oliver Olsen, a Republican who hails from Jamaica, and Jack Hoffman, senior analyst for Public Assets Institute, share similar opinions on school funding issues.
Olsen lives near a ski town and is about as anti-Act 60/Act 68 (the equalized statewide funding mechanism for education) as a pol can be.
Hoffman is a proponent of the law, which was developed on the heels of the Vermont Supreme Court’s Brigham decision and was ushered through the Legislature in 1997 by then-House Majority Leader Paul Cillo, the founder of PAI.
But Olsen and Hoffman are of the same opinion when it comes to the governor’s proposal for a “zero increase” in the statewide property tax rate. They say it’s unrealistic, given the cuts schools have already made to programs, and it will lead to higher property taxes at the local level. They say Gov. Peter Shumlin is balancing a portion of the General Fund budget, which has been in the red for the last several years, on the backs of local property taxpayers.
In an interview on Monday, Shumlin said holding down the statewide property tax rate is critical. “I am bound and determined not to see property taxes go up when Vermonters are struggling to pay their bills,” he said.
The governor also pointed to a recent drop of about 650 teachers in the education workforce as “good news.” Vermont has the highest student teacher ratio in the country because of declining enrollments, 10.7 students for every educator.
Shumlin gets to zero by asking school districts to level fund their budgets for a third year in a row, despite a projected 1.7 percent increase in education spending next year. In addition, the governor is proposing a per pupil spending rate that is lower than the amount required under statute.
Each of these changes cuts a penny off the tax rate.
Original projections from the Joint Fiscal Office show a two-cent increase in the property tax rate. A penny on the tax rate is roughly equal to $11 million.
Download a copy of the Property tax EF Outlook – Current Law and Administration spreadsheet from JFO.
The third, more troubling problem, according to Olsen, is a behind-the-scenes factor. Last year, Democrats in the Legislature made a statutory change that received little attention. Lawmakers “rebased” the General Fund contribution to the Education Fund. (Olsen failed to get an amendment passed that would have blocked the provision.)
The so-called General Fund transfer changes from year to year, depending on the rate of inflation. The “rebasing” creates a permanent $27.5 million reduction in the annual General Fund transfer, according to JFO spreadsheets. If the law hadn’t been changed, the target amount of the General Fund transfer for fiscal year 2013 would have been $309.8 million, instead of $282.3 million, the total amount the state is slated to pay. In 2009, the state paid $291.8 million, and in the intervening three-year period, the General Fund transfer dipped, as federal stimulus funds of $38.6 million temporarily helped to shore up education spending in Vermont. Last year, the General Fund transfer was $276.2 million, and the Shumlin administration distributed $19 million in stimulus funds directly to local districts.
Download a spreadsheet of the Property tax base year changes from the JFO.
Download a second spreadsheet, property tax base year changes, Part2.xlsx
In fiscal year 2013, no stimulus funds will be available to schools or the state.
Olsen says the governor’s rhetoric about lowering the statewide property tax, obscures the fact that these factors will ultimately lead to higher taxes at the local level.
“We reduced the General Fund transfer when stimulus funds were available,” Olsen said. “Now in the absence of the whole ARRA budget construct, I believe this is the largest raid on the Ed Fund since Act 60 was passed.”
“The governor needs to be honest with Vermonters about what’s happening with the property tax rate,” Olsen said. “His own administration said there would be an increase in spending. The fact is, individual spending will increase without substantial reform proposal, and it seems pretty obvious, based on his press conference last week, that he is gearing up to blame school boards for what looks like an inevitable increase in the property tax rate.”
Shumlin was dismissive of Olsen’s complaint. “It’s an old song for people who didn’t pay attention last year,” he said in an interview. The governor said education groups, including the Vermont-NEA and the Vermont Principals Association, agreed with the reduction in the General Fund transfer last year and understood that the stimulus funds were to be used as a bridge for school districts that needed another year to make cuts in spending.
Hoffman said the reduction in the General Fund transfer will lead to higher local property taxes and increased pressure on school boards.
Cuts in school spending don’t translate into lower tax rates for many towns, Hoffman said. “The way Act 60 and Act 68 work, there is equity so this is going to increase property taxes across the board,” he said in an interview. “Everyone is affected here — it’s not like it used to be when some towns affected others weren’t. When the Legislature cuts the transfer it drives up property taxes for everyone.
“So far, what we’ve seen is that local voters have stepped up and have been willing to pay the higher property taxes,” Hoffman said. “They are controlling their budgets but clearly property taxes have been going up despite efforts by local school officials to hold down their spending.”
In a blog post for PAI last week, Hoffman wrote that by cutting the General Fund transfer, lawmakers have “forced local school officials to increase property taxes to cover what had been the state’s responsibility.”
Hoffman has developed trending data that shows the decrease in the transfer has shifted more of the tax burden on local taxpayers. In fiscal year 2005, for example, 61 percent of education funding came from school taxes and 39 percent came from the General Fund and dedicated revenues (the lottery, a portion of the sales tax). Last year, Hoffman writes, school taxes covered 67 percent of education expenditures and the General Fund contribution paid for 33 percent of school costs.
“The shift means that property taxes, which still fall harder on middle-income Vermonters than on the wealthy, are $77 million higher than they would otherwise be,” Hoffman writes. “Meanwhile, our progressive income tax has been cut for those at the top.”
Original consensus projections from the Joint Fiscal Office, the nonpartisan research arm of the Legislature, and the Shumlin administration, showed that the statewide property tax rate of 87 cents for every $100 of value for residential property and $1.36 for non-residential property would grow by 2 cents in fiscal year 2013. This growth projection took into account two factors: a 1.7 percent increase in school spending and a statutory requirement that the state lift a two-year cap on the base per pupil spending rate, which would increase the rate from $8,544 to $8,891 for each student enrolled in schools around the state.
The change in the statewide per pupil spending rate also skews local property taxes. The current rate is $8,544, and under statute it’s supposed to go up by 4.2 percent to account for inflation. The governor has proposed raising the rate by 2.1 percent.
Mary Petersen, the commissioner of the Department of Taxes, said the per-pupil spending rate has been frozen for three years and a jump in the rate would put upward pressure on schools when they’re trying to hold budgets level.
According to the Joint Fiscal Office, the tweak in the per-pupil spending rate puts more of a burden on homeowners who are eligible for the income sensitivity program. If the change is approved, they’ll pay about $35 more a year, on average, according to the Joint Fiscal Office. Meanwhile, the shift lowers rates for non-residential property owners (second homeowners, businesses and landlords) by about $20 per $100,000 worth of value on average.
Download a PDF of the Property tax per pupil rate change from JFO.
Hoffman says the property tax is more regressive than income tax. Even with income-sensitivity programs, the property tax represents a larger percentage of income for lower and middle-income residents than it does for their wealthier counterparts.
“What’s happening is, the Legislature and the administration don’t want to increase broad-based General Fund taxes,” Hoffman said. “The income tax would be a more progressive alternative. As long as they’re not doing that, the cost gets pushed onto the property tax, which hits lower income people harder than upper income people.”
