Property tax shell game
EF dollars are used to cover the costs of policy programs that are not education, and the state has reduced its contribution to the EF from the General Fund (GF).
I believe that these past actions by the state have caused property tax rates to be some 28 cents higher now than they otherwise would be. School boards need to control their costs, but the state needs to take responsibility for misuse of the EF.
Three years ago the state recalculated the size of the transfer of General Fund dollars into the Education Fund. This led to a reduction in the size of the transfer by about $27 million each year. Without that redefinition the GF transfer would have been $27 million higher each of the past three years. Since each $10 million into the EF reduces the property tax rate by about 1 cent, I think that this means that current property tax rates are about 8 cents higher than they would have been without that reduction, which totals $81 million across three years. In effect, the Legislature has balanced the state budget on the backs of property tax payers.
I voted against this reduction in the transfer at the time and I have voted against every tax and budget bill since, as a protest against this action and other tax and budgetary abuses.
The other significant state responsibility is that there are state policy programs effectively funded through the Education Fund that are not directly education. The Income Sensitivity (IS) program, which pays part of low and middle income Vermonters' property taxes, is funded within the EF at around $150 million, even though it is really a homeownership subsidy program. The Current Use program (CU) is a tax exemption program that pays part of the property taxes owed on eligible forestry and agriculture land. It is funded through lost property tax revenue of about $50 million - revenue that never comes into the EF.
I support the policy goals of both of these programs. In fact, my family participates in both of them. But they are not education, and EF revenues should not be used to finance them. They belong in the GF where state programs are funded.
A really striking feature of both of these programs is that since they subsidize property tax payments for eligible taxpayers, every time property tax rates go up, the costs of the subsidies increase.
This then puts further upward pressure on property tax rates through greater costs and lost revenues. This vicious cycle of rising tax rates and rising subsidy costs of IS and CU is very important. It means that they are inefficient ways to achieve the policy goals, and the inefficiency is imposed on the EF and on property taxpayers. If these programs were financed through the GF where they belong, 1) property tax rates would come down by about 20 cents, and 2) the costs of the programs would come down by perhaps 10 to 20 percent as well. It would be necessary to find additional revenue to cover the program costs within the GF, and I have ideas about how to do that, but it is beyond the scope of this column. Please see my bill H. 353 for such budget and tax reform, or contact me for more information.
But the thorough tax reform of H. 353 or even just shifting CU and IS out of the EF are impossible right now. What should be possible is for the state to make up for the past reduction in the GF transfer for this year. An additional $27 million would lower the needed increase in the base rates by almost 3 cents. If something like this is not done, assertions by those in power that they want to reduce the increase in property tax rates are not credible to me.
Cynthia Browning represents Arlington, Manchester, Sandgate, and Sunderland.
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