[T]he House passed legislation Wednesday that would drastically change the way Vermonters pay for schools.
Gov. Phil Scott says significant changes will need to be made before it has a chance at getting his approval.
The new school spending formula that passed by a vote of 85 to 54 would go into effect July 1. It raises the same amount of money for schools but reduces the burden on the property tax by adding an income tax surcharge.
Scott, a Republican, has not been a fan of the plan arguing that it doesn’t go far enough to contain school spending, and it isn’t a real tax break.
“Reducing property tax bills only to make up the difference by collecting more from Vermonters’ paychecks is not what they’ve asked for and it is not relief,” Scott said.
The House bill changes how property taxes are calculated starting in fiscal year 2019. An income tax surcharge would be collected through paycheck withholdings retroactively, starting Jan. 1, 2018. Other income would also be taxed. About $60 million would be collected from the surcharge to bring down the average property tax rate by 15 cents, or about 10 percent. It also gets rid of the general fund transfer to the education fund, instead creating direct tax revenue streams to education.
Before passing the bill, state representatives explained their positions on what has been one of the central legislative debates of this session.
Most Republican said they were opposed to a new income tax surcharge that makes the state’s marginal tax rate the third highest in the country, and were opposed to taxing out-of-staters who invest in Vermont companies.
A group of Democrats, independents and Republicans tried to push the start date for reforms out by a year to give school boards a chance to adjust, rather than revisiting budgets that were just passed by residents on Town Meeting Day.
Rep. Heidi Scheuermann, R-Stowe, brought back to the floor a House Ways and Means Committee proposal that would have cut property taxes in half and eliminated an income sensitivity program.
The committee backed off the idea, which was touted by House Speaker Mitzi Johnson, when they found out low-income earners living in high spending school districts would end up seeing a spike in taxes.
Scheuermann pushed for the proposal to be reconsidered, with implementation pushed back to fiscal 2020. That would mean asking Vermonters to absorb a 5.5 cent tax increase this year, which Scott has said he will not accept.
She also suggested removing the tax on out-of-state investment in Vermont businesses — a piece most Republicans railed against — and lowering the income cut-off for those who don’t have to pay any school taxes, from $47,000 to $35,000.
“It ensures a modest amount of skin in the game so that spending decisions are made with additional thought,” she said. “This is our chance to do something meaningful and put a stamp on education finance changes that are meaningful while providing long-term property tax relief and sustainability.”
Several lawmakers spoke in support of her bill, including Kurt Wright, R-Burlington, who sits on the Ways and Means Committee.
“Our very own speaker of the House touted this bill as a 50 percent property tax relief on average for Vermonters,” he said. “This bill reconnects voters to their local decisions on spending. Right now we have a system where people are totally disconnected from their votes” due to income sensitivity.
Rep. Cynthia Browning, D-Arlington, who is also on Ways and Means, said her committee researched the proposal and decided too many low-income people would be hurt.
“I know it is unsatisfying but being big and bold and doing it in a way that is inequitable and hurts people isn’t good,” she said.
The amendment failed with a roll call vote tightly tied to the party lines.
Other amendments eliminated the income tax surcharge, pushed the start date forward and moved the cost of teacher pensions back into the general fund. A measure that would have moved teachers to a statewide health care benefit program was pulled from consideration.
Rep. Jim Harrison, R-North Chittenden, planned to offer an amendment that would require state officials to negotiate teachers health care contracts, but he pulled it because he said House leaders promised to take it up later in the session.
“We have an agreement with House Education they will pick up the issue and try to come to some kind of conclusion on advancing it in the remaining time of the session,” he told the Republican caucus. “And if that falls short we have a commitment from the speaker that another education bill will be on the floor and we can offer an amendment at that time.”
Scott has been imploring lawmakers to move teachers to a statewide health care benefit since last session and supported Harrison’s move.
“Last year, we had an opportunity to realize significant savings through a statewide health benefit while maintaining the same level of coverage for school employees. Unfortunately, the agreement reached with the Legislature meant we couldn’t realize the total available savings, but it did include a provision to revisit a statewide benefit this year,” he said.
In a letter to lawmakers on Tuesday, Scott made it clear he opposed the school funding changes. After H.911 passed, Johnson issued a statement telling Scott that veto threats put property tax relief in jeopardy.
“If the Governor does not support this bill, it means Vermonters’ property taxes will increase by 5.4 cents, it means the state is not providing tax relief to low and middle-income Vermonters who receive Social Security benefits, and it means the Governor is lining up with the President and Republicans in Congress,” she stated.
