Editor’s note: This commentary is by John Odum, who is the Montpelier city clerk.
Property tax reform. Education spending. Whatever you want to call it, it’s the hot topic in Vermont public policy, and many feel that it’s finally become hot enough for policymakers to consider making some changes. Of course that’s easier said than done.
Or at least it can be. Voices calling for change fall into two basic camps; those who feel the current funding system for schools is unsustainable, and those who simply don’t believe we should spend as much as we do on schools. For the latter group, the equation is easy – spend less, or even scrap the entire system of equalizing education funds going all the way back to Act 60, Brigham decision be damned.
But trashing something is always easier than building something new, so what is the former group to do? Without addressing the philosophical right or wrongness of either camp and instead approaching it as simply a puzzle to be solved, it must be said that there are always possibilities. Here’s just one of them.
If we start from a place of not wanting to cut schools, but also allow that property taxes are a problem, what is that problem, exactly? It’s not as easy as simply “they’re too high,” that’s only half of it. Even more significant is the fact that they’re too volatile. As with gas prices in the past, rising costs create a burden, but it’s a burden that can often be managed if the rising would just plateau. But property taxes just don’t leap up for one year, they leap up again the next and the next.
The two biggest drivers of that volatility (generally speaking) tend to be health care and special education. Now health care policy is obviously in serious flux right now, so let’s put that aside and look at special education – which accounts for a hefty chunk of local school budgets and is an extremely dynamic school budget line from year to year. Currently, the state covers around 60 percent of the overall special education costs.
What if the state covered 100 percent?
Imagine it for a moment. School budgets – and therefore property taxes – would become far more stable and predictable from year to year. But beyond that, they could also drop dramatically. It my city of Montpelier, the fiscal year 2015 school budget line for special education was approximately $4 million. Take out that $4 million budget line and the 17 cent increase in local property tax on our last Town Meeting ballot would have become a roughly 30 cent decrease.
Politically, the optics are good. The state would be making a strong statement that special education is a shared responsibility of the entire Vermont community collectively, and the change could allow for fewer struggles between families in need of the services and their local school districts.
But it’s not small change we’re talking about, as it would mean coming up with another $80 million or so in state revenues.
Now here’s where you might find it.
You could increase the effective rate for state income tax by 0.5 percent for those earning $200,000 or more and generate $50 million right off the bat. Last year there were 2,089 filers at that level, including 502 at $1 million and above. On average, those earning $1 million or more would pay an additional $6,000 (average tax would go from $181,000 to $187,000).
You could shift some of the burden to out-of-staters. A 1 percent increase in the rooms & meals tax would raise $16.2 million. Eliminating most of the capital gains exclusion could bring in up to another $10 million per year.
You could revise the formulas for ski area leases of public lands and generate an additional $2.5 million per year. If you did away with the property tax exclusion for ski lifts and snowmaking equipment, that’s $1.5 million per year.
And there are other ways that could shift a few million from the local to state level here and there, if some of these are politically unpalatable. What we’re talking about here is the opportunity for a tax shift, largely from the middle class and burdened by local communities, to those more able to afford it through a taxation infrastructure better suited to collect it. Not only would it make property tax bills more affordable and predictable, it would be a significant enough transfer of the burden to provide some middle class financial stimulus in the process.
It would make property tax bills more sustainable and shift much of the burden to where it belongs. Would there be challenges? Naturally. Without the local budgetary pressures, special ed costs could start climbing faster – but that’s frankly a much more manageable problem than the package of problems the current situation presents us with.
It has to be stated that the prospects for a policy change like this are slim. Why? Because the current administration has indicated repeatedly that they are not interested in shifting the tax burden from the middle class to the wealthy. Clearly, that is a political calculus – one I am not here to fault the governor for. Politics is a very real force, and each elected official has to make their own decisions on balancing the ideological, the practical and the political.
But the fact is that the politics have changed, given the failure of so many school budgets last March, as well as the dynamics of the just-passed general election. The old calculations could be in flux.
And if not, so what? Do I imagine for a moment that anybody is going to take this idea and run with it?
Not very likely.
The real point here is that these problems are not unsolvable, that there is room for creative solutions, and that it’s time for good faith conversations that throw all the ideas out there.
The time to talk is now, so let’s hear it everybody.
