In a party line vote, representatives in the Vermont House overwhelmingly supported a 5-cent increase in the statewide property tax on Wednesday. Democrats, who dominate the House chamber, and a handful of Progressives voted for the tax hike after a two-hour debate that explored every facet of the state’s complex property tax system. The tally was 96-45, almost exactly the split between Democrats and Republicans in the 150-member body.
Republicans asked the Democratic leadership and the House Ways and Means Committee to come up with new reforms to the Education Fund revenue mechanisms. They say constituents are fed up with paying ever higher property taxes over a period in which statewide school enrollments have dropped more than 10 percent. Vermont has the lowest student-teacher ratio in the country.
Democrats have no interest in changing the current system this legislative session.
The bill is up for third reading on Thursday, and it is likely to pass. If it passes, property tax rates for residential homeowners will go up from 89 cents to 94 cents per $100 in assessed property value and non-residential rates will go up 6 cents to $1.44. A penny on the tax rate raises roughly $10 million: $6.5 million from the residential rate and $3.5 million on the non-residential rate.
Under the House proposal, the base per pupil grant the state would send to towns increases from $8,723 to $9,151. This inflationary per student reimbursement hike for local schools would help to defray increases in local property taxes.
Rep. Dave Sharpe, D-Bristol, says that because two-thirds of Vermont homeowners earn less than $90,000 a year pay based on income most won’t see a significant increase in taxes. The base rate on income is 1.8 percent; the average is 2.7 percent. In communities that keep spending down, homeowners will see little or no change. Of the 219 towns now reporting budgets, 28 have decreased spending rates since last year.
At least two amendments will surface on Thursday to shore up the Education Fund, but debate on the matter will be rhetorical in nature.
On Wednesday, Republicans criticized the current use program which enables property owners, many of whom own large tracts, to get a break on taxes in exchange for keeping their land in agriculture or forestry. The GOP members also alleged that the income sensitivity program benefits people of means and creates a disconnect for lower income property owners who don’t pay significantly more when school budgets go up. They also harped on the Legislature’s decision to lower the General Fund transfer to the Education Fund by about $27 million two years ago, which raised local property taxes by about 3 cents on average.
Democrats staunchly defended Act 68, the education funding formula that evens out spending per pupil from town to town.
The predominant theme? Middle class Vermonters bear too much of the statewide property tax burden.
Democrats staunchly defended Act 68, the education funding formula that evens out spending per pupil from town to town, regardless of the relative property wealth of local municipalities, which also came under fire from GOP members who represent wealthy towns, including Stowe. They argued that it’s up to local voters to set spending rates.
This year school spending is set to increase by 5.5 percent if voters approve school budgets as proposed on Town Meeting Day.
If spending grows another 5 percent (the average increase over a decade) next year, the Education Fund revenues from residential taxes will increase by 13.2 percent, according to one projection. Overall growth in the fund would push total statewide school expenditures over $1.5 billion.
Rep. Heidi Scheuermann, who represents the wealthy ski town of Stowe, says the system isn’t accountable to taxpayers because local communities make the spending decisions, while the state as a whole sets the tax rate to pay for the system. That disconnect, in her view, has resulted in increased spending and higher rates.
“I urge this body to demand that the Ways and Means Committee go back to committee and address real education funding reform,” Scheuermann said in a speech on the House floor. “If the committee is truly committed to that goal of working with all sides to advance comprehensive reform – and if at a later date decides it needs a bit more time to do so well, I am willing to consider that request. But at this time, I will not be a part of this significant property tax increase on Vermont families and businesses.”
Rep. George Cross, D-Winooski, who taught school for many years in Vermont, said everyone in the state has the right to a decent education. Before Act 68, which leveled out spending from town to town, he said Winooski, one of the state’s poorer municipalities, had 15-year-old textbooks and maps. “I find myself incensed that in fact there are those in this hall who find the current system so problematic,” Cross said.
It’s the state’s contradictory policies that Rep. Don Turner, R-Milton, the House minority leader, says the Legislature must address. Turner said GOP members can’t support the tax increase because they believe lawmakers must tackle “real reform.”
“I feel that it is essential for this body to recognize that we cannot continue turning a blind eye to the real problem and accept responsibility for addressing it,” Turner said in a statement. “Providing small school grants while encouraging consolidation is not working. Maintaining the current student-to-teacher ratios is not working. Adding new programs or more unfunded mandates will not work. Increasing property tax rates and other revenue sources does not address the true and underlying problem of unsustainable growth in spending.”
Gov. Peter Shumlin, who asked school boards to keep spending increases at around 2 percent, said he hoped voters at town meeting send “a clear message to school boards and to their local communities that we’ve got to find ways to curb unsustainable costs of education in our state.”
“As our student count drops, as we educate fewer and fewer kids, we have got to have creative conversations locally about how to deliver better education for less money,” Shumlin said.
The governor blamed the higher spending levels on health care premium increases and the need to raise tax rates on dwindling property values as a result of the Great Recession.
When asked by reporters whether directives for spending caps or school consolidation should come from Montpelier, he demurred. “Without discovering a pot of gold somewhere, it’s going to be difficult for the state to control or help mitigate decisions made at the local level,” the governor said. “There can’t be a school board member in the state who doesn’t understand that the current rate of spending is not sustainable. We have to have conversations locally about delivering education more efficiently.”
Shumlin said he believes legislative fixes like putting caps on spending, bringing down income sensitivity thresholds and eliminating small school grants won’t make any difference in rates, based on local decisions on local spending.
“We’ve had lots of conversations about consolidation,” Shumlin said. “My biggest nightmare would be folks in Montpelier deciding what schools stay open and what schools are closed. Local communities know best what should change.”
The amendments
Rep. Anne Donahue, R-Northfield, plans to introduce two amendments on Thursday that would use money from the current use expenditures to buy down the tax rate. One would freeze the current use expenditure for a year, which now stands at about $41 million. The savings she said would reduce the property tax increase by half a penny. The other amendment would move the current use expenditure to the General Fund as a state policy priority and reduce 4 cents from the proposed rate.
Other lawmakers want to make fundamental changes to the financing system. Rep. Scheuermann and Rep. Patti Komline, R-Dorset, have proposed an amendment that would force the Legislature to put a new funding system in place for the 2015-2016 fiscal year. The proposal failed in House Ways and Means by a 6-5 vote.
Last year, the Legislature allocated half of all surplus monies toward Irene-related projects, such as the Waterbury State Office Complex, and the other half toward bringing the base amount of the General Fund transfer to the Education Fund back up to inflationary levels. Rep. Cynthia Browning wants to apply all the surplus money to the General Fund transfer. She will introduce an amendment on Thursday that reallocates $11 million from the fiscal year 2012 budget surplus to the reduce the property tax increase by a penny.
Waterbury town officials are concerned that Browning’s proposal could cause further financial difficulties and delays for the state office complex, which is a major economic driver in the town.
In an email Browning wrote: “I think that the Legislature should do more to make up the $27 million short, and there will be other sources of funding for the VSH and Waterbury projects, which will unfold gradually across time. We all know that in rebasing the calculation of the General Fund transfer to the Ed Fund several years ago we shorted the fund some $27 million, which is repeated each year. We have put in place a mechanism that may eventually, rebuild that contribution gradually from future budget surpluses, if they materialize.”
Browning says the reallocation would mean the state could need to borrow more money to pay for the Waterbury State Office Complex, but because the project will be spread out over three years there will be time, in her view, to make up the difference.
“The Legislature has put several spending items into the Education Fund, and there are millions of dollars in property tax expenditures authorized by the Legislature that mean revenue losses to that fund,” Browning wrote. “In my opinion the Legislature has an obligation to meet the original General Fund transfer goal, before the rebasing, in order to reduce the property tax rate increase. I found $11 million that is just sitting in an account, and not working. I think we should put it to work to lessen the burden of the proposed property tax rate increase.”
Waterbury town officials are concerned that Browning’s proposal could cause further financial difficulties and delays for the state office complex, which is a major economic driver in the town.
Bill Shepeluk, Waterbury town manager, said if the amendment is approved, the state will have to find $11 million somewhere else. The proposal, he said, creates more uncertainty about how quickly the state will be able to build the new Waterbury State Office Complex.
Rep. Rebecca Ellis, a selectboard member and local representative from the town, said: “I just think generally in Waterbury it is important for the local economy and recovery to have the state office complex rebuilt there expeditiously and putting together the different pots of money for Waterbury is going to be a difficult task and this would make that task more difficult.”
Editor’s note: This story was updated at 6:15 a.m.and again at 6:30 a.m. and 7 a.m.
Clarification and update: Rep. Dave Sharpe, D-Bristol, says that because two-thirds of Vermont homeowners earn less than $90,000 a year pay based on income most won’t see a significant increase in taxes. The base rate on income is 1.8 percent; the average is 2.7 percent. In communities that keep spending down, homeowners will see little or no change. Of the 219 towns now reporting budgets, 28 have decreased spending rates since last year.
Update: Other lawmakers want to make fundamental changes to the financing system. Rep. Scheuermann and Rep. Patti Komline, R-Dorset, have proposed an amendment that would force the Legislature to put a new funding system in place for the 2015-2016 fiscal year. The proposal failed in House Ways and Means by a 6-5 vote.
