House panel sets 4-cent statewide property tax rate increase for homeowners
The base rate for homeowners will be 98 cents, and the rate for non-residential taxpayers will be $1.515. The base education amount, which is used in the formula to calculate the actual rate property taxpayers are assessed, will go up to $9,382. The base rate for household income will go up to 1.9 percent under the proposal.
The committee was able to reduce property tax rates because statewide school spending increases were less than expected (3.1 percent instead of 3.8 percent). Lawmakers also used reserve funds to help lower the rates.
After weeks of wrangling, the committee has also agreed to several significant changes to elements of the education funding system, including a phase-out of the small schools grant over a six-year period, a reduction in the maximum income sensitivity benefit for certain households and a new provision that would tie the excess spending threshold for school districts to inflation. (Under current law, the threshold is linked to the average rate of spending for the previous year.)
Property tax bill
The property tax bill includes a commitment that the Legislature incorporate an education income tax into the current education financing system, which is currently funded by property taxes, a General Fund transfer, sales taxes, lottery proceeds and purchase and sales taxes.
The vote was 10-1, and Rep. Janet Ancel, chair of the committee, said the bill garnered tripartisan support from Republicans, Democrats and an independent. Rep. Patti Komline, R-Dorset, cast the sole dissenting vote. Komline plans to introduce an amendment that would require the Legislature to reform the statewide property tax system. This session, she launched an online petition drive calling for the repeal of Act 60 and Act 68, which established the statewide property tax formula designed to equalize education spending under the Vermont Supreme Court's Brigham decision.
Ancel said everyone on the committee worked hard and contributed something to the bill. "I think the vote on the bill reflects that," she said. "A 10-1 vote on a property tax bill is an accomplishment."
"One of the reasons we were able to reduce rates as much as we were was because school boards kept spending down, and voters approved those lower budgets," Ancel said.
Though members of the House tax writing committee did not have the appetite to overhaul Act 60/68 this year, they incorporated ways to curb per pupil spending without changing the underlying formula for the statewide property tax.
Shifting the formula to include a larger income tax component is an important aspect of the bill, Ancel said.
"Some people say we depend too heavily on the property tax to fund education," Ancel said. "I think that's true, but we haven't been able to make that move to the next step and that section of the bill I think positions us to begin to really push that concept."
Ancel said the three year phase-out of small school grants, previous versions of which have been rejected by the General Assembly in prior years, wouldn't start until 2019.
She anticipates that the anchored threshold for school spending could have a major impact on budgets over time. "Tying the excess spending threshold to something that grows by inflation instead of last year's spending is probably going to be a big deal," she said.
Property tax rates went up 5 cents last year for homestead and nonresidential rates, and many lawmakers question whether ongoing increases in school spending are sustainable.
Lawmakers are taking action because they are worried that the system has reached a tipping point. Taxpayers rejected 35 school budgets earlier this month - an historically high number - and in light of public outrage at the rising cost of education statewide, the House Ways and Means Committee is hoping that changes to the small school grant program and the excess spending threshold will bring spending down over time.
Members of the House Ways and Means Committee say they can't count on long range plans for education restructuring through H.883 to move forward. Lawmakers hope that the changes they propose will begin to lower costs - regardless of the political fate of school district board and administration consolidation efforts.
Rep. Dave Sharpe, D-Bristol, said though his committee was able to moderate rates somewhat, "they are still high."
"There will still be concern on the part of Vermonters about their education taxes, so we also put a number of provisions in place that hopefully over time will put pressure on spending, and one of those pieces is the high spending threshold - maybe the key piece," Sharpe said. "We've heard from school boards that that's the biggest signal they pay attention to in terms of restricting their budget growth."
Here are the details:
Anchored excess spending
Under current law, if a school district spends more than 123 percent of the statewide average cost per "equalized" pupil, taxpayers in that district face a tax penalty. (Until this year, the threshold was 125 percent, the cap is 123 percent starts next year, continues in to fiscal year 2016 and then drops to 121 percent.)
In existing statute, the average equalized per pupil amount is based on the current year's spending, which has been growing faster than inflation.
A provision in the proposed property tax rate bill ties average equalized per pupil increases to the most recent New England Economic Project cumulative price index instead of the overall average increase in spending statewide.
Lawmakers believe this measure will put downward pressure on school spending statewide because it will have an impact on many more school districts. The excess spending threshold currently affects five to eight schools a year.
Small school grants
The bill gradually eliminates the small schools grant. The grant, which provides about $7 million in funding to schools with fewer than 100 students or that have an average grade size of 20 or fewer students, would be phased out over time. Starting in 2019, the grants would be reduced by 30 percent over a three-year period. Schools that are small by virtue of geographic necessity would be exempted from this provision.
Of the state's 282 school districts, 92 have fewer than 100 students and qualify for small school grants.
Change in budget ballot language
The legislation requires ballot measures for school spending votes to include per pupil spending rates and a year over year percentage increase calculation.
Schools that are seeing an increase in student enrollments will no longer be able to count the uptick in students in the current academic year. The Secretary of Education would create an average daily membership figure based on a two-year period for each district.
Under current law, the maximum income sensitivity rebate is $8,000. That number is reduced to $6,000 in the bill. Households with anyone who is 65 years old or older would be exempted from the provision.
A provision that requires half of any surplus General Fund revenues to be distributed to the Education Fund expires this year. Lawmakers agreed to the measure a few years ago as part of an effort to make up a gap created by the "rebasing" of the General Fund transfer to the Education Fund to 2008 levels. The rebasing lowered the overall amount of the transfer by $27.5 million, or the equivalent of 2.5 cents on the statewide property tax rate.
House Ways and Means Committee members agreed to put one-third of any "unexpected" surplus into the Education Fund, one-third into health care for retired teachers and one-third into the Rainy Day fund.
Income sensitivity slope
The income sensitivity slope for a house site value would be extended from $200,000 to $250,000. If you own a home worth $300,000, for example, and you earn $100,000 a year, the formula for calculating the amount owed, based on income would be based on a maximum $250,000 house site value.
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