[T]he General Assembly lowered tax rate increases in the waning hours of the session after overcoming what seemed like an insurmountable impasse hours before.
There were two issues that drove the conference committee to a standstill — the House’s desire to use all of the surplus funds to keep taxes down, and the Senate’s demand that excess spending thresholds revert back to previous levels.
In the end, Senate lawmakers agreed to use the whole surplus and the House agreed to keep the excess spending thresholds at 121 percent and anchor them to 2015 per pupil spending instead of 2014 per pupil spending. That means that any district that spends more than 121 percent of 2015 state average per pupil spending in fiscal year 2018 will be penalized with a double tax on each additional dollar.
“We’ve reaffirmed that surplus money in the Ed Fund should be returned to the taxpayer and every penny taken in to support public education should either be spent or returned to sender,” said Rep. Adam Greshin, I-Warren, a member of the House conference committee.
The General Assembly passed the House version and sets the property yield at $9,701, the income dollar yield at $10,870 and the non-residential property tax rate at $1.535.
The Senate’s version of H.853, also known as the yield bill, would have set the property yield at $9,645 and the income dollar yield at $10,803 and the non-residential property tax base rate at $1.539.
Any time the yield number goes down, taxes go up and anytime the yield number goes up taxes go down. Taxes went up under the Senate bill because lawmakers decided not to apply the entire $18 million in education fund surplus to the tax rate this year. The difference in taxes for a $200,000 homestead would be about $20 more under the Senate plan.
The impasse came down to two opposing approaches to the use of tax dollars.
“It is a philosophical issue,” Greshin said. “I think we should always spend what we take in. I don’t like the paternalistic view of managing surpluses to smooth out the moves that school boards may or may not make year round.”
The Senate believed it was more prudent to retain some of the surplus and return it over two years.
Local school districts have spent all of their rainy day funds – an estimated $17 million – this budget cycle to stay under the now defunct allowable growth caps put in place this year. Retaining the surplus would give local districts more leeway in next year’s budget cycle, senators said.
“We are looking at towns that have no reserves and we anticipate that school budgets are not going to get better so we stepped it down,” said Sen. Ann Cummings D-Washington, chair of the conference committee. “You are putting it all in this year to keep tax rates low and let next year go where they may go which may cause a bigger uptick,” she added.
The stalemate solidified when Sen. Tim Ashe P/D -Chittenden, chair of the Senate Finance Committee refused to use the entire $18.8 million surplus as a one time infusion of cash and threatened to use one of his tax bills to block the House yield.
Speaker of the House Shap Smith began negotiating directly with Ashe on behalf of the House to keep the entire surplus in the pot.
“I just don’t really understand why it is better for us to hold onto the money rather than return it to the taxpayers and Senator Ashe has not been able to explain why that is a good idea,” Smith told VTDigger.
In the end, the House prevailed, but the Senate held firm on lowering excess spending thresholds from 121 percent of the state average per pupil spending in 2014 to 119 percent in fiscal year 2020.
The past few years, lawmakers tightened the threshold by anchoring it to FY14 per pupil spending and then dropping the percent from 125 to 123 to 121. This means more towns will fall into the excess spending category next year and they will have to pay a penalty for each additional dollar they spend over the threshold.
The Senate proposed reverting to the original excess spending thresholds that were based on the prior year’s statewide average per pupil spending. They would have held at 121 percent. After intense negotiation they agreed to 121 percent of the average per pupil spending in 2015 beginning in fiscal year 2018.
The new bill also changed the fix that the Senate Finance Committee added to address a loophole in previous education law that allowed merging school districts to spend more than they would be taxed. The new version includes “intent language” that makes towns and merging school districts aware that they will not be able to take advantage of the loophole. The Agency of Education will make recommendations to address the loophole in the next session.
Other items in the bill:
- The Secretary of Education has to collect data on budget surplus amounts, reserve fund amounts, and reserve fund uses.
- The law provides for a study group to examine the viability of moving merged districts to an aggregate common level of appraisal.
- Requires a Joint Fiscal Office to report on the various impacts that H.846, Rep. Scott Beck’s, R-St.Johnsbury education that formula that would change the way the statewide education property tax is calculated.
- Instructs the Joint Fiscal Office to report on the impacts of implementing S.175, Sen. Anthony Pollina’s P/D-Washington, bill that would create an education tax that is adjusted by income for all taxpayers.
- The JFO will prepare an official annotated copy of the Education Fund Outlook. This will be reviewed by the Emergency Board. It will include projections of different categories of education expenses and costs.
