Possible state ed surplus use raises concern

Bennington Banner, December 9, 2008
NEAL P. GOSWAMI, Staff Writer

BENNINGTON — The state’s education fund will have a $20 million surplus next year, according to the Douglas administration, but some lawmakers, think tanks and policy advocates are raising eyebrows at how the administration may spend it.

Home values

Vermont Tax Commissioner Tom Pelham said there are several reasons why he has projected a $20.5 million surplus for the next fiscal year if the property tax rate remains the same. The biggest, however, is the state’s three-year system of determining home values. The housing market in Vermont was still “pretty hot” three years ago, he said, and numbers from then are still influential in the formula.

The end result is that the education fund, a collection of several sources, including the statewide property tax, a portion of the Vermont Lottery and parts of the sales tax and the motor vehicles purchase and use tax, has been able to maintain positive revenues at a time when the state’s general and transportation funds are facing major shortfalls.

In fact, the state must cut more than $60 million to balance the budget in light of new revenue forecasts.

But Pelham’s recent actions and words have some concerned about what the administration may have planned for the surplus funds.

Pelham did not recommend a statewide property tax rate last week as required by state law. A lower rate would reduce property taxes for Vermont homeowners. Instead, Pelham, in a letter to legislative leaders, said the “extraordinary fiscal choices” the state is facing requires that the administration and the Legislature have “flexibility” in crafting a fiscal course.

By not setting the tax rate, Pelham, a former finance commissioner under former Gov. Howard Dean, said the governor and lawmakers have more options on how to use the surplus that could include spending it outside of education. The maneuver was not an attempt to open any new doors, Pelham said.

“The door is always open. The Legislature and the governor have the power to do what they agree upon,” he said.

Pelham said his letter to legislative leaders provides the needed information to calculate a tax rate that would return the surplus to taxpayers. He will not recommend it, however.

“I am not formally going to recommend that, and the reason is that we’re entering some extremely stormy waters,” he said. “I fully understand that difficult choices are made, and that the fewer straps you have holding down leaders of the Legislature and the governor the better.”

Pelham said the idea to withhold a tax rate recommendation was his, and he did not face pressure from the governor’s office. “It’s a dialogue between the folks in the governor’s office and me. It’s something that I recommended and that made a lot of sense to them,” he said.

But others are not convinced the administration is doing the right thing. “I would think (a surplus) would go back to the taxpayers,” said Sen. Dick Sears, D-Bennington, a member of the Senate Appropriations and the Joint Fiscal committees. “I don’t think you can move money out of the education fund.”

Rep. Cynthia Browning, D-Arlington, said she has been in touch with Democratic leaders about the surplus and its possible uses. She said the state should be using any education fund surplus to lower the statewide property tax.

“I definitely want to find out what’s going on here,” Browning said. “I’m very, very concerned with the idea that they would be using the money for anything other than reducing the property tax rate.”

Jack Hoffman, senior policy analyst for the Public Assets Institute, said any use of the surplus other than lowering property taxes would amount to a tax increase by the Douglas administration.

“There’s no question that if they choose to use this money — take it out of the Education Fund and use it for something else — they are effectively raising property taxes,” Hoffman said.

Pelham said, however, that there is no actual surplus yet. It will depend on what the Legislature does with the tax rate.

“The Legislature has the power to change tax rates. Should the Legislature leave those tax rates the same, that surplus would be there,” he said

Contact Neal P. Goswami at ngoswami@benningtonbanner.com