When imagination fails, raise property taxes
Republicans voted No on the higher education property tax rates, and their state chairman declared that the Democrats' passage of the bill was a "cold and callous action."
Let's take a trip down memory lane to see how we got to this point.
In 1994 Gov. Howard Dean, then in his parsimonious phase, froze the amount of state aid distributions to school districts under the Foundation Plan. A group of disappointed money seekers, led by Rutland Northeast Supt. William Mathis (now a Shumlin appointee to the State Board of Education) and ACLU co-counsel Peter Welch (now a Congressman), brought a case to the Vermont Supreme Court. They made the highly imaginative argument that the "common benefit" clause of the Constitution (adopted in 1777 to outlaw special favors to cronies) somehow required property-rich districts to share their property base with property-poor districts. The Court, led by Justice John Dooley (still a Justice), gave them everything they wanted (without even a trial!).
The 1996 Brigham decision held that all school districts had to have "substantially equal access to tax resources." Armed with this judicial mandate, the Democratic legislature joyously pushed through Act 60 of 1997 with its "shark pool" of revenue redistribution.
Act 60 broke the link between your school budget and your school property tax rate. It also conferred enormous and long-sought regulatory power on the State Board and Department of Education.
When popular resistance to the Act 60 shark pool mounted, the Republican legislature and Governor of 2003 enacted Act 68. The revised law tried to brake that spending by tying the "district spending adjustment" of the education residential property tax rate to the amount spent above a legislatively-set dollar amount. In 2014, if a district's voters spent 20 percent over $9,151 per pupil, their residential property tax rate would increase by 20 percent over the state-set 94 cents per $100 of fair market value.
But those brake shoes aren't slowing down the spending bus. The link between education spending per pupil and the residential property tax rate is still there, but it's not at all obvious to the voters of any given district, because the tax revenues are all shipped off to Montpelier for redistribution through the Education Fund.
The legislature's duty is to keep that Fund full enough to cover the budgets sent in for payment by the 277 school districts. They could, but won't, add another penny to the sales and use tax (which the Republicans did to pass Act 68), or increase the General Fund contribution beyond $296 million when that Fund is again $70 million in the red.
That leaves them with raising the two school property tax rates, and trying to find some new brake shoes to slow down local spenders without hammering them over the head with state spending restraint mandates.
Hence the present bill, that raises the residential base rate from 94 cents to 98 cents per $100 of Fair Market Value and the nonresidential base rate from $1.44 to $1.515. The bill also increases the Base Education Spending Amount from $9,151 to $9,382. That is well under the 4.2 percent residential property tax rate increase, and thus inflates the district spending adjustment that translates to higher residential tax rates.
The Republicans countered with a proposal to scrap the whole system for 2017 and concoct something else (details not even hinted at). The Democrats voted that down and passed their alternative for feeding the education monster: Creating a new education income tax in 2017.
The bottom line here is that legislators of both parties are facing politically unsustainable public school spending. The Democrats are doggedly using the tools of their beloved Act 60 to raise ever more revenues. They are also rushing forward with mandatory consolidation into Regional Education Districts that they believe might save a little money (but almost certainly won't). Looking ahead, they have now gone on record in favor of raising income taxes.
The Republicans blame the Democrats for raising property taxes, but if the Republicans were in the majority they'd have to do exactly the same thing - unless they could come up with some magical new scheme, about which they seem to have no clue.
There is an alternative: Changing the ponderous and increasingly state-controlled monopoly school system to a model built upon parental choice and provider competition. That seems to be well beyond the imagination of either quarreling party.
John McClaughry is vice president of the Ethan Allen Institute.
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