PAI: New plan would cement property tax frustration

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PAI: New plan would cement property tax frustration

Tue, 02/20/2018 - 7:24am -- tim

by Jack Hoffman Public Assets Institute In his annual letter to the Legislature the tax commissioner announced that a projected 3.9 percent increase in per-pupil spending next year was going to result in a 6.2 percent increase in the average homestead property tax rate. This is the kind of disconnect that really irks local voters and school officials alike.

There are reasons for next year’s big tax rate jump—more on that later. But here’s the thing: The education funding proposal being developed in the Vermont House would not end the frustration from modest spending increases that result in disproportionately larger property tax increases. In fact, these would become a permanent feature.

The new funding proposal may appear to offer relief in the beginning. 

It’s true the proposed plan starts off with a base property tax rate that would be much lower than what we have now: $0.25 per $100 of property value would generate nearly $13,000 per pupil in every district. However, spending more than the base amount per pupil, which 85 percent of districts currently do, would push up tax rates quickly: If you added $1,250 per pupil, the tax rate would double; add $2,500 and property taxes would triple. That’s a difficult calculation to try make on your cell phone during Town Meeting.

And voters will be back in the situation where it’s the property tax that goes up with additional school spending. The new proposal does away with income sensitivity, the current system that allows about two-thirds of Vermont resident homeowners to pay school taxes based on their income, which is a much fairer measure of ability to pay.

The proposal is billed as a move away from the property tax and toward the income tax. It does call for a new education income tax—although the new tax appears to generate about the same amount Vermont currently collects in income-based school taxes. But more importantly, the new income tax will not respond to changes in school spending.

Under the system we have now, higher per pupil spending means higher tax rates, and the rates go up proportionally. For two-thirds of homeowners, the tax that increases is based on their ability to pay. Under the new proposal, the income rate would be fixed, not variable with spending as it is now. When voters need to spend more to educate their children, their only choice would be to increase the regressive property tax.

Local voters and school board members are frustrated. This year, for example, more than half the projected tax increase has nothing to do with increased spending. Instead, it is related to several decisions the Legislature made last year: It gave tax breaks to districts that merged; and it tapped into Education Fund reserves to fill shortfalls, in order to prevent raising taxes.

The new funding proposal may appear to offer relief in the beginning. But unlike the current system, which allows the income-based tax to grow as education spending grows, it will be only the property tax that voters can affect at Town Meeting. And those property taxes are likely to rise more quickly than voters predict.

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