Public Assets Institute > Policy Areas > Education > Another attempt to lower property taxes by raising them

Another attempt to lower property taxes by raising them

It should be obvious by now: You can’t provide property tax relief by raising property taxes. In fact, it should have been obvious long before now.

Yet that is exactly what the Legislature included in Act 46, the school consolidation bill, in 2015. (It then repealed that provision in 2016.)

And that is exactly what the House Education Committee is proposing again this year. The committee voted on Friday to introduce a committee bill (H.509).

This latest attempt at property tax relief would increase taxes for about half of Vermont towns—the half that has the highest property taxes already—and lower taxes for the towns that have the lowest property taxes.

Seriously. I’m not making this up.

Twenty years ago Vermont got away from its parochial funding system, where each town was largely responsible for paying to educate its own children. The current system recognizes that we’re all responsible for educating all of the state’s children. So all of our education resources are pooled into the Education Fund, and all communities have equal access to that funding pool based on the same set of rules.

The property taxes that go into the Education Fund come from non-residential property based on a single, uniform rate statewide ($1.535 per $100 of fair market value this year) and from primary residences with tax rates determined by each town’s education spending per pupil. The homestead tax rates are the same in towns with the same per-pupil spending, and the rates are proportional throughout the state—that is, a town that spends 20 percent more per pupil than a neighboring town will have a 20 percent higher homestead tax rate.

The current system provides children with equal access to educational resources, and because tax rates are tied to per-pupil spending, it discourages unnecessary spending. Higher spending per pupil results in proportionally higher tax rates, and lower spending per pupil results in proportionally lower tax rates.

H.509 would do away with this proportional system for homestead taxes. Instead, it would create two groups of towns: one below an arbitrary spending threshold and one above. The group below the threshold would have a single, uniform tax rate and receive a fixed amount per pupil—initially about $12,500.

Towns in the second group—those that spend more than $12,500 per pupil—would receive the $12,500 per pupil at the uniform rate and also be in a separate sharing pool. As with the current system, they could expect their tax rates to go up as they spend more per pupil. The ultimate tax rate calculation, however, would depend on how many towns and which towns were in the separate sharing pool.

Vermont had a system like this in the late 1990s and early 2000s. The separate sharing pool was known as the “shark pool.” It proved unwieldy, unpredictable, and confusing, and the Legislature wisely scrapped it in favor of the simpler, proportional system we have now.

We all have a stake in seeing that all children in the state get a good education. H.509, by pitting one group of towns against another, undermines this fundamental feature of Vermont’s school funding system.

Posted by Paul Cillo on March 22, 2017 at 11:40 am

4 Responses to “Another attempt to lower property taxes by raising them”

  1. Philip R Hammond says:

    So, if a town wants to lower its tax rate, especially in the lower group of towns, it reduces the amount it spends on education. A step in reducing the effectiveness of the Public School System. Between that and “Trump’s” education agenda the Public School System will soon be a page in the history books.

  2. Craig Gilborn says:

    School consolidation was initially promoted to save money. When saving money was questioned, the key word became “opportunity,” as in: All Vermont students will have access to what was implied would be access to an excellent education. But H509
    penalizes districts that offer opportunity and rewards districts that curtail opportunity, as when [German] as a foreign language is criticized solely because [German] as a language is not taught at a (cheaper) neighboring school district. H509 sounds like a race to the bottom of the barrel. Why not set a bar of what each super-consolidated high school should minimally offer in course offerings, as two foreign languages, calculus, studio art/music, etc?

  3. Scott Beck says:

    Of course, what the author neglects is that applying the yield to an entire district’s education spending creates a disconnect between a district”s education spending and its homestead tax rate – current practice.. On average, for every dollar of spending increase, a district only raises $.50 under the current construct.The other half on average comes from other districts irregardless of their spending decisions. By only applying the yield to spending in excess of a reasonable base spending amount ($13,111 in FY18) based on a statewide $1.00 homestead property tax rate we could reconnect district spending to its district tax rate and remain Brigham compliment. Try this one on for size. If every district spent $13,111, every home owner would have an education tax rate of $1.00. Under current law a district spending $13,111 will pay a rate of $1.30. Where does that $.30 go? You guessed it, higher spending districts. By increasing the cost of money beyond a base amount we can slow the growth of education spending and achieve equity and fairness for districts and taxpayers.

  4. Paul Cillo says:

    Rep. Beck serves on the House Education Committee and proposed the plan that is in H.509. When Rep. Beck says: “On average, for every dollar of spending increase, a district only raises $.50 under the current construct,” he means that the homestead grand list for the average town raises only half of the funds for the town’s school, which is true. But Vermont did away with the local property tax to fund schools 20 years ago, so a town’s grand list is irrelevant, and tax rates are no longer determined by the size of the local tax base. The entire state is responsible for the education of all of Vermont’s children, and all school taxes are state taxes. No town has a residential property tax base large enough to fund its own school. Therefore, all towns draw on the other revenue in the Education Fund: nonresidential property taxes, the transfer from the state’s General Fund, and other dedicated taxes like lottery proceeds and a third of the sales tax. The result is a system that allows each town to decide how much to spend per pupil and all towns with the same per-pupil spending have the same tax rate.

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