[A] Senate committee got surprising news Wednesday at the end of a grueling day spent slogging through the details of the bill that sets education tax rates: A loophole in state law allows newly merged districts to jack up their spending without a corresponding boost in their taxes.
A representative of the Agency of Education told the Senate Finance Committee about the quirk in a 2010 school district merger statute.
“Seven or eight months ago, we realized it is possible for a new entity following the law strictly to increase its spending tremendously the first year,” said Brad James, finance manager for the agency. “They can only increase their tax rates by 5 percent. So who pays? Everybody else in the state.”
No one has taken advantage of this glitch in the law yet, he said, but people have realized it exists.
“There is potential to have a significant rise …, and their taxpayers don’t pay a significant amount,” James said. The agency has suggested that lawmakers find a way to close the loophole, but it isn’t clear whether they will try in the remaining days of this session.
The next round of school budgets won’t go before local voters until March, so the Legislature would have a chance to act early next year.
Many school districts are discussing mergers as a result of last year’s Act 46, but the merger options outlined in Act 153, from 2010, and Act 156, which passed in 2012, are being used by a number of districts to meet the goals of Act 46 and garner tax incentives for merging.
Act 153 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.
For example, a school district that was spending $15,000 per pupil could decide to spend $28,000 per pupil, but the local education property tax rate would not rise more than 5 percent, and the rest of the state would pick up the increased tab. In the meantime, the money could be spent on anything — a new school building, enhanced programming, or a fund to help keep taxes lower in the future.
Senate Finance Chair Tim Ashe, D/P-Chittenden, wanted to know Wednesday why there wasn’t anything addressing this in the bill the House sent over.
James said the agency alerted House members and some Senate members to the issue, but it was at a time when there was a lot of chaos around addressing Act 46 spending caps, which were squeezing districts as they prepared school budgets early this year.
The agency is giving lawmakers the information they need to make an informed decision, James said, but there isn’t any urgency to do something this session since no merging districts have tried to take advantage.
The first potential mergers under Act 46 are still being voted on and won’t be operational until next year.