Lawmakers faced with thorny choices
By LOUIS PORTER Vermont Press Bureau | January 28,2007
MONTPELIER The Legislature has spent the last three weeks listening to experts talk about the potential impacts of global warming on the state, but simmering in the background a local issue has been heating up to the boiling point: rising property taxes.
The problem is that as student enrollments have steadily declined, school spending has increased from $813 million in 1999 to $1.3 billion in 2007. In an oft-repeated statistic in the Statehouse, Gov. James Douglas noted in a press conference last week that over the last decade, enrollment in Vermont's public schools is down nearly 11 percent, while school staffing is up 22 percent.
The state's average per-pupil rate is more than $10,000, which is among the highest in the nation. Its average student-to-teacher ratio is 11.3 to 1, the lowest ratio in the nation, according to Governing Magazine and 2003-2004 U.S. Department of Education figures. Vermont students consistently score better than their peers nationwide on standardized tests.To slow the growth in spending, Douglas has proposed a cap on spending, while lawmakers are still mulling over a large number of possible changes.
Both Republicans and Democrats say they will not be able to do anything substantive about rising costs unless they can develop a compromise plan they can both agree on. In part that is because any proposed changes are likely to irk as many voters as they soothe, either by cutting spending on pet programs or by not reducing property taxes enough.
Bungled tax transfer
The wrangling over the state's property tax system got even messier this week, with the discovery that the last two state budgets have not included transfers from the general fund into the education fund as required under Act 68. The 2004 law requires that yearly deposits into the education fund match the percentage increase in general fund spending.
Late Friday it was still not clear exactly how much the education fund has been shortchanged, but some estimates put the number at potentially more than $14 million. The impact on the statewide property tax rate is said to be several cents per $100 in value.
Because the general fund revenues in large part come from sales and income taxes, that mistake pushed property taxes paid by Vermonters higher than they would have been even as political leaders discussed the need to lower those taxes.
Lawmakers and officials in Douglas' administration said they would work to make up that difference.
Douglas administration officials said that the governor's proposed budgets for 2006 and 2007 had included large enough transfers of general fund revenues into the education fund. They say legislators left the transfers out of the final budgets.
"The Legislature ultimately chose not to include the transfer in their budget," said Douglas spokesman Jason Gibbs.
The head of the House Appropriations Committee, Rep. Martha Heath, D-Westford, called the mistake an honest oversight.
The governor signed the budgets for both years, even though they did not comply with the law.
"It appears it is a matter that was not discussed in any great detail and may have been overlooked," Gibbs said.
Unending growth in spending?
The failure to transfer the money to the education fund is merely a side-ring in the property tax circus, but those on both sides worry it may distract from the larger efforts by legislative leaders and Douglas to deal with what they agree is the major problem the growth in education spending and therefore in the property taxes that largely fund the $1.3 billion in annual spending.
"Nobody is going to say 'thank you so much for the work you did'," Senate President Pro Tem Peter Shumlin said. "The only way you can do this is with bipartisan leadership standing together."
And, in part, that is because the issue is complicated and difficult enough that a few distractions could make it impossible.
"If there is going to be meaningful change in school funding it can't be a matter of partisan sniping," Douglas said.
Neither Douglas nor lawmakers seem inclined to again tweak how school funding is paid for and call that a solution. Last time that was attempted the changes to Act 60 which made it Act 68 the state's sales tax went up from 5 percent to 6 percent but spending continued to climb.
As Speaker of the House Gaye Symington said this week, "You let the pressure off and the spending goes up."
But if the problem rising spending and declining student numbers can be seen on the horizon, solving it is still a long way off.
Douglas has proposed capping school spending. If schools wanted to increase their spending by more than the rate of inflation plus population growth they would have to gain the approval of a "supermajority" of 60 percent of voters.
But he has gotten a frosty reception to the idea from Democratic lawmakers. For one thing, a cap punishes towns that already control their spending on schools, because a four percent increase on a large budget is more money than on a small one, they said.
"The irony is there is nobody in the state whose job it is to look at education spending as a whole," Sen. Susan Bartlett, D-Lamoille. "It's no wonder it feels out of control."
Part of the problem is the sheer number of potential places to look for increasing costs. Special education, for instance, grew at 15 percent a year between 1999 and 2007.
The number of children with autistic behavior in the state, for example, increased from 13 in 1992 to 540 in 2005, Symington said.
"Each of these statistics raises more questions," she said.
This week a group of Republican lawmakers lead by Sen. Kevin Mullin, and Rep. David Sunderland, both of Rutland, announced they would introduce a bill which includes a grab bag of different cost-cutting ideas, some of which even they said they were uncomfortable with. Some of the changes are: a statewide teachers contract, consolidation of school boards and limits on how much money school districts can get from the state if they spend more than 110 percent of the statewide average.
Local control lost in the balance?
One thing on the minds of some lawmakers is what any of those changes, if enacted, would mean for local control of schools. If the state collects the money, and tells schools how much they should spend, and, along with the federal government, tells them what they must do, what do school boards decide?
"We are certainly a lot more involved than we were before Act 60," Douglas said.
Rep. Rick Hube, R-Londonderry, has a blunter assessment.
"I don't think there is anything much left of local control anymore," he said. "I think it is a myth."
Hube is one of the founders of the "Revolt and Repeal" effort to undo the statewide property tax, a movement which has gathered the support of 55 towns across the state.
Steve Jeffrey of the Vermont League of Cities and Towns said that in some ways local boards already have their hands tied, between state and federal requirements, employment contracts and the property tax system.
"All of this falls into the hands of the school boards and they are told in many cases they have no choice but to put it into the laps of voters," he said.
Paul Cillo, a former lawmaker who helped create Act 60, says Vermonters need to take a step back before they get swept away in the tide of property tax hysteria.
By his calculations, school spending isn't keeping up with the growth in Vermonters' incomes, much less burying them.
Net school spending (after income-sensitivity measures were taken into account) was 5.4 percent of Vermonters' incomes in 1996, and 4.9 percent in 2006, Cillo said.
"Vermonters' incomes have grown faster than the growth in education spending," Cillo said. "That is very different than what we hear."
That doesn't mean that school spending and property taxes shouldn't be examined, Cillo said. But, it does mean that the state should avoid irrational responses to the problem, he said.
But, like most things in the complicated debate, it matters what you measure. For instance, a tax department analysis shows that median income for Vermonters between 1992 and 2004 grew at between 3.1 percent and 3.7 percent a year, significantly less than the growth in school spending.
Cillo adds that most Vermonters are paying taxes on their own homes based not on their value, but on their incomes. An income-sensitivity provision was set up as part of Act 60 to protect Vermonters from losing their houses because they can't afford the taxes.
Last year, the Vermont Tax Department gave out $118 million in prebates to taxpayers who qualified under the income-sensitivity provisions of Act 68. This year, $135 million is expected to be credited in rebates and prebates to taxpayers.
But those same Vermonters own deer camps, parcels of land larger than two acres and businesses, none of which qualify them for income-sensitivity allowances when tax bills are assessed, administration officials point out.
Of the 316,773 parcels of land on which taxes are billed in the state, about 167,732 are "homesteads" belonging to residents, and the owners of roughly 110,000 of those are billed by income, rather than property value. A third of the non-residential property in the state is billed to out-of-state owners; the rest is owned by Vermonters.
"The fundamental problem is that for a long period of time school spending has grown at a rate twice the rate of Vermonters' incomes," Tax Commissioner Tom Pelham said.