A big opportunity to improve school funding
The Legislature is actually looking at two big changes to education funding this session. There are misconceptions about each, but both, if done right, can strengthen the school funding system and make it fairer.
The change that has generated the most attention and discussion is a plan to provide more money to students who require additional resources, such as English-language learners, kids from poor families, and those attending small, rural schools. The money isn’t really the sticking point, although there are questions about the latest cost estimate for teaching English as a second language. The main point of disagreement is how to distribute additional resources to the districts that need them. One approach, student weighting, is more complicated for voters and tends to favor high-spending school districts. The other option, cost equity aid, would provide fixed payments per pupil for various categories of students, which would be more transparent and easier for voters to follow, and it wouldn’t exacerbate disparities in per-pupil spending among districts.
The other important change being considered doesn’t involve the distribution of education funds, but how those funds are generated. The proposal is to have all Vermont residents pay school taxes based on their income. Currently, about two-thirds of Vermont resident homeowners pay some or all of their school taxes based on their income. The remaining third, primarily high-income homeowners, pay a traditional property tax, which is based on the assessed value of their primary residence and the surrounding land.
“Brave Little State,” the Vermont Public Radio podcast, aired an excellent episode exploring the income-based education tax. Among the people interviewed were two members of the Vermont Tax Structure Commission, which recommended the income-based tax after studying the state’s tax system for more than two years. (Full disclosure, Paul Cillo, executive director of Public Assets, also appeared on the podcast.)
There are plenty of good reasons to make the change. It would be much less complicated than the current system—voters would know on Town Meeting Day how much they’ll owe in school taxes for the coming year. But the primary reason is fairness. Levying taxes according to people’s ability to pay is a much better way to generate revenue, especially to pay for something as fundamentally important as our children’s education.
A crucial finding in the Vermont Tax Structure Commission Report was that the value of a primary residence is not an accurate indicator of someone’s ability to pay. For lower-income households, their home value tends to overstate their ability to pay because they may owe a lot on their mortgage and have few other assets. For wealthy households, the value of their primary residence may represent a fraction of their income. Under Vermont’s current two-tiered system, high-income families typically pay a much smaller share of their income in school taxes than middle-income families.
As with student weighting, there are misconceptions about the income-based tax. Some warn that it would lead the wealthy to flee, but studies over the last 25 years undercut that argument. Some see the income tax as being too volatile; the Vermont Tax Structure Commission found the income tax posed less of a volatility risk than the property tax.
It’s too early to say what changes the Legislature will adopt in the end, if any. But now is the time for Vermonters to tune in, if they haven’t already. The proposed changes have the potential to affect almost everyone, and if done right would be a vast improvement to our existing funding system.
