A report released on Friday proposes three changes to Vermont’s property tax system.
The changes include: a “renovation” plan that would lead to reductions in school spending; a “variable income tax” proposal that would replace a portion of the property tax revenues with income taxes; and a regional block grant plan that would replace Act 60/68.
The report was authored by an ad hoc group of lawmakers and former state officials. House Speaker Shap Smith called together the Education Working Group in September and the 10-member panel has met every two weeks since then.
Education finance reform is a high priority for the speaker this year.
Lawmakers are under pressure to lower spending in the wake of property tax hikes over the past three years that amount to a roughly 11 cent to 15 cent increase on the statewide rates. The homestead rate will be $1 per $100 of property value if the Legislature agrees to a 2 cent increase this year; the non-residential rate will be $1.56. Over the past 15 years, student enrollments statewide have dropped by 20 percent, and the state has the highest per pupil spending cost and lowest student-teacher ratio in the nation.
Lawmakers this session will decide whether to tinker with Act 60 and Act 68, or replace the state’s unique statewide property tax system with a new formula for funding education. The other looming question is whether lawmakers will institute cost controls that would put a damper on school spending.
Smith said the report will help the Legislature consider new ways to address problems with the financing system. The panel looked at the complicated issue from different angles that he says will spur new ideas and debate.
“My hope is that by putting ideas on table, we’ll get other people to put ideas on the table as well — and we’ll take all comers,” Smith said. “I think that we know that there are challenges with the current system even though I think we often forget we are getting really good results.”
Here is a rundown of the proposals:
- The “renovation” plan is a bundle of cost control ideas including: setting a per pupil spending target, increasing incentives for district consolidation, requiring that all state mandate costs come out of the General Fund, streamlining school hiring processes, developing a model teachers contract and phasing out small school grants and phantom student subsidies for schools that have seen large declines in student enrollments. The plan also recognizes that schools with high numbers of children in poverty need more financial support and that distribution of resources should be shifted accordingly. The renovation plan also includes a surcharge would go into effect when schools exceed a per pupil spending threshold set by the state.
- Under the variable income tax proposal, Act 60 and 68 would be replaced and a large percentage of the revenues for education would come from the income tax. The residential property tax rates would be a fixed, uniform rate statewide. The non-residential tax rates to business, land, hunting camps and second homes would remain the same and would also be fixed statewide. Both property tax rates would be insulated from local decisions. The remaining revenues would come from an income tax that would be variable, depending on local school spending levels. The income sensitivity, property tax rebate and renter rebate programs would be eliminated.
- The regional block grant model gives the state responsibility for raising all revenues for education. The Legislature would set tax rates based on the estimated statewide student count and a per pupil spending target recommended by the secretary of the Agency of Education. All revenues for education would come out of the General Fund and would be appropriated by the state. Money would be allocated in block grants to regional entities to be determined. The regions would then distribute funding to local school districts, which would be guaranteed to receive a minimum per pupil allocation. From there, the regions and districts could direct spending to suit the unique needs of communities.
When the Legislature returns in January, local control of school decisions and spending will be at the heart of the debate on education finance reform.
The regional block grant proposal — the most radical of the three — would give the state the authority to determine how much the state will spend on education each year. The money would then be distributed to regions based on student population.
Smith says the proposal, which would involve a complete overhaul of the existing system, is worth considering.
“I don’t think you can the change current system until you’ve vetted what the alternative looks like,” Smith says. “It’s worth taking a look at alternatives so we can compare it to current system, then we can make an evaluation about whether to make a change or not.”
In the current system, the state collects revenues through a statewide property tax. The money is spent by local school districts. While the state has an excess spending penalty in place, the threshold for the penalty floats. That sets up a situation in which local spending can grow statewide without cost controls from the state kicking in.
Smith says local control “is one of the most thorny questions” the state faces, and the Legislature needs to figure out just how much local control school districts have over decision-making.
“What’s interesting to me is that oftentimes you hear from local entities that they don’t have control over decision-making,” Smith said. “We have to get to the root at whether there is control there now before we decide whether we need more statewide control.”
If school districts don’t have local control, “some might say let’s change that and some would say why don’t we just formalize it,” Smith said.
Gaye Symington, the former House Speaker and a member of the panel, says she supports many of the ideas in the report, but she opposes the regional block grant plan. Symington decided not to sign off on the report because she believes the regional block grant plan shouldn’t be given equal weight.
“It’s putting forth a model where Montpelier decides what should be spent in schools,” Symington said. “I think that’s not consistent with Vermont, and it also takes education funding and mixes it in with General Fund, and I think there’s value in having an Education Fund and having the full cost of education there for everyone to see.”
Rep. Oliver Olsen, I-Londonderry, proposed the regional block grant option, and he’s not sure he agrees with his own proposal. “I’ve put a bunch of ideas out there that in the final analysis I might not support, but we have to have a conversation to put ideas on the table and discuss them. Then other ideas will come forward.
“We can’t move this conversation forward and we’ll never find a solution unless people have the courage to put the ideas on the table,” Olsen said.
The panel included: Reps. Mitzi Johnson, Oliver Olsen, Dave Sharpe & Jeff Wilson, Mollie Burke, Chip Conquest, Bernie Juskiewicz, Bill Johnson, former secretary of the Agency of Administration Neale Lunderville, and former House Speaker Gaye Symington.
