Public Assets Institute > Policy Areas > Education > The Mystery Is Why, Not How

The Mystery Is Why, Not How

On Town Meeting Day, voters in many Vermont communities are confronting school tax increases that are bigger than the increase in overall school spending or the increase in per pupil spending. One explanation from critics of Vermont’s education funding system is: Well, that’s Act 60 for you. They’re happy to have most people believe that the funding system is some mysterious black box that no one can understand and that produces such weird results.

But there is no mystery. State funding for education that does not come from property taxes—or from the income-based school tax—has been declining for the last two years.

The bulk of the funding for education comes from residential and non-residential school taxes. However, just five years ago, 39 percent of the funding came from other sources: an annual appropriation from the General Fund, the lottery, a share of the sales and purchase and use taxes, Vermont Yankee, and a bit of federal Medicaid money. This year, these sources are only providing 30 percent of the support for education.

In 2008, these other sources contributed $450 million to the Education Fund. This year, they will amount to only $389 million. Part of decline has been driven by the economy. The sales and purchase and use taxes are down and so are lottery receipts. But the administration and the Legislature also have been shortchanging the Education Fund. This year, they reduced the annual transfer from the General Fund by $18.4 million and used about $6.5 million from Medicaid for other purposes. The transfer is being reduced again next year, and it’s not clear yet whether the Medicaid money will be cut again.

Residential and non-residential school taxes are growing faster than school budgets because they are having to make up for the loss of the other state revenues. If these other revenues were covering the same share of education costs they did in 2005, property taxes today would lower by more than $110 million. Since a penny on the tax rate generates roughly $10 million, that works out to a reduction of about 11 cents on the tax rate.

There shouldn’t be any mystery about what’s causing property taxes to rise as much as they are. The mystery is why the administation and the Legislature are choosing to drive up property taxes when they have other, better alternatives.

Posted by Jack Hoffman on March 2, 2010 at 3:41 pm

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