Vt. property taxes heading up again
By PETER HIRSCHFELD
Vermont Press Bureau | November 17,2013
MONTPELIER — Fewer than six months after passing the largest increase in statewide property taxes since the birth of the current education funding system, lawmakers are bracing for what looks to be another large rate hike next year.
Preliminary estimates from the Shumlin administration and the Legislature’s Joint Fiscal Office indicate that lawmakers will have to raise statewide property taxes by 5 cents next year in order to keep pace with school spending.
If projections hold true, it would be the second consecutive 5-cent increase, and would push the statewide assessment to 99 cents for every $100 of assessed property value, or $1,435 on a $150,000 home.
The impacts would be especially pronounced on a class of homeowners too well off for property tax subsidies, but with incomes in many cases modest enough to make higher tax bills a financial challenge.
According to the Joint Fiscal Office, a 3.8 percent rise in school spending next year would, under the current funding formula, translate into a 10 percent rate increase, on average, for households reporting income of more than $92,000 — the threshold at which taxpayers no longer qualify for “income sensitivity.”
“It’s unsustainable,” says Rep. David Sharpe, the ranking Democrat on the House Committee on Ways and Means. “It’s a big problem.”
The disconnect between the projected rise in school budgets in fiscal year 2015 and its disproportionate impact on residential tax bills is the consequence of a complex education-financing system that an increasing number of lawmakers say is in need of repair.
The other revenue Vermont uses to pay for public education — sales and use tax, purchase and use tax, the lottery, and what’s known as a “general fund transfer” — aren’t rising at the same clip as school budgets.
Paying for schools, then, requires an ever-growing reliance on the property tax. And with mechanisms in place to cushion the impact of rate hikes on the 60 percent of homeowners who qualify for income sensitivity, that means residents with incomes in excess of $92,000 will bear the brunt.
The House last year passed a package of financing reforms, some of which sought to curb local spending, and others which tried to redistribute tax obligations away from the non-income-sensitized population and onto renters and people with incomes below $92,000.
The Senate, however, mostly jettisoned the plan. And households with no income sensitivity will likely see their overall share of education financing jump from under 26 percent in fiscal year 2009 to more than 30 percent in fiscal year 2015.
Vermont Republicans have long been sounding the alarm over education costs, and fault the financing system, known as Act 68, for accelerating spending that rose by about 70 percent between 2000 and 2010, even as student enrollment figures plummeted.
Republicans, by and large, say income sensitivity removes the financial disincentive that local voters would otherwise need to say “no” to annual budget increases in their school districts.
And the non-income-sensitized voters who remain, Republicans say, lack the critical electoral mass to sway outcomes.
As property tax rates continue to rise, however, more rank-and-file Democrats have shown a willingness to consider reforms aimed at curbing local spending.
While there’s no move afoot to impose maximum staff-to-student ratios, or mandate district consolidation — proposals former Republican Gov. James Douglas perennially sought to enact — lawmakers in a Democrat-controlled Legislature seem to be flirting more seriously with extending a heavier hand from Montpelier into local budget deliberations.
Some lawmakers, meanwhile, are seeking more wholesale reforms; the House Committee on Ways and Means last week dedicated nearly an hour to a proposal that would reconfigure entirely the way Vermont pays for its schools.
The plan would replace the property tax-based system with a hybrid formula that has an equal reliance on income taxes. Rep. Jim Condon, a Colchester Democrat who is trying to generate traction for the concept, said the system would create a “more direct line” between budgets and taxpayers by magnifying the cause-and-effect relationship between spending increases and rates for people with incomes below $92,000.
The concept appeals even to proponents of Act 68, who say that while the system has ensured equity across school districts, property values aren’t always a useful indicator of a person’s ability to pay.
“When the average voter goes to the polls to decide their school budget, there’s a disconnect between what they’re voting on and how that’s going to affect their tax bill,” Condon said. “The idea here is that this would help relieve some of what I think are inequities.”
Iterations of Condon’s proposal have been around for years, and an overhaul of the funding formula won’t happen anytime soon.
But Sharpe said he thinks the legislative appetite will be stronger in 2014 for some of the more modest reforms pushed by the House last year. And while they may not be enough to address the problem in fiscal year 2015, according to Sharpe, they could help suppress the spending trajectory in future years.
Gov. Peter Shumlin has thus far assumed a mostly passive role in the school spending reform, and continues to reiterate his support for an education-financing system that he says is the most “elegant” in the nation.
But Shumlin’s commissioner of taxes last week told House lawmakers that the administration, in light of the looming rate increase, wants to hold a “symposium” in early January to discuss possible solutions.
“The idea wold be to get to get some local and national experts on finance, and just take a look at our system,” Commissioner of Taxes Mary Peterson said.
Peterson said that the existing school finance system, enacted 15 years ago, “is very elderly in terms of education funding systems.” And it appears that the Democratic governor may look to take more of a lead role in addressing a broad-based tax on Vermonters that is now growing at a faster clip than nearly any other revenue stream in state government.
Peterson said she hopes to hold the symposium shortly after lawmakers reconvene in January.
“We have equity. We have local control. We have quality,” Peterson said. “But I think it’s fair to … raise the question of whether we should spend quite so much.”