Happy Birthday Act 60
Act 60 celebrates its 15th birthday this month, which makes it Vermont’s most durable education financing system in the last 50 years. Prior to Act 60, there was the Foundation Plan for state aid to education, the Morse-Giuliani formula, the Miller formula, and the Hunt-Simpson formula. The longest lived of those was the Miller formula, which lasted from 1969 to 1982.
What made Act 60 different from its predecessors is that it wasn’t just a patch on an inadequate system. Instead, it created a new, sustainable method for paying for Vermont’s schools.
The old state aid formulas essentially left towns on their own to fund their schools and filled in with state money when local taxpayers were tapped out. The result was an upside-down system where the towns with the lowest tax rates could afford lavish school budgets and many towns with the highest tax rates had the least to spend per pupil.
In February 1997, the Vermont Supreme Court ruled that Vermont’s old funding system was unconstitutional because it failed to provide equal educational opportunity to all schoolchildren. The Legislature responded with Act 60, which was signed into law June 26, 1997, and revised it six years later with Act 68.
One goal of Act 60 was to bring equity to school funding—that is, to create a system where equal effort generates equal revenue. Now, school districts that have the same tax rates have the same amount to spend per pupil (assuming all property is assessed at fair market value). Another important goal was to move away from property values as the basis for school funding toward a system based on Vermonters’ ability to pay. Although we don’t call it an income tax, about two-thirds of Vermont resident homeowners pay school taxes that are calculated as a percentage of their income. The rates vary depending on per-pupil spending decided by each town—but again, districts with the same spending per pupil have the same income-based tax rate.
A study presented to the Legislature last January found that Act 60 had met its goal of providing equity by largely eliminating the link between the wealth of a community and the amount it spends for education.
Basing school funding on Vermonters’ income has lowered property taxes for thousands of low- and middle-income households and made the system more progressive. However, high-income Vermont residents are still paying a smaller percentage of their income to support education than the typical middle-class resident homeowner. Recent changes to the system have added to this disparity by penalizing certain households with dividend or interest income and homeowners whose home values exceed $500,000.
One thing that could help ensure the system is equitable for another 15 years would be finally to cut the link between property values and education funding for all Vermont residents. History and habit have conditioned us to believe that the market value of a family’s primary residence is a useful indicator of how much that family should pay in school taxes. But in practice that would mean that a family with a modest house but lots of income pays less than, say, a retired couple on a fixed income whose property value was driven up by market forces outside their control. A more rational and fairer way to raise money for schools in the 21st century would be to tax all Vermont residents on their ability to pay—that is, a percentage of their income. Non-residential property should still be taxed on its fair market value.
In the 1890s, Vermont instituted a statewide property tax to support education and reverted to the local property tax in the early 1930s. Now that we’ve seen the benefits of an income-based school tax, perhaps we can mark 15 years of Act 60 by getting rid of the property tax for all Vermont homeowners. That would be cause for celebration.
