Public Assets Institute > Policy Areas > Education > School-financing law is working

School-financing law is working

published Feb 25, 2007, Burlington Free Press

By Paul Cillo

Ten years ago — on Feb. 5, 1997, — the Vermont Supreme Court declared the state’s foundation formula for financing education unconstitutional because it failed to provide all Vermont children with equal educational opportunity. Vermont corrected the problem with Act 60 and later Act 68.

Financing education would be simple if both running a school and raising the money to pay for it were controlled either by towns alone or by the state. But a system of locally run schools funded by local taxes ends up treating children and taxpayers unequally across the state. And one that lets the state run the schools using state revenues strips communities of local control.

Act 68, signed by Gov. Jim Douglas in 2003, is a complicated law because it addresses this complicated problem. Like its predecessor, Act 60, it provides equal educational opportunity to all of Vermont’s children, it does so in a way that is fair to taxpayers, and it keeps control of schools in local hands.

Most people would agree that these are good goals. They are proud of Vermont’s schools and want to keep them excellent. They want all of our children to have a shot at a successful future. And they know that local control is not only the best way to manage a public education system, it is also central to the cohesion of our communities.

Still, understandably, they are concerned about increasing taxes. And some have turned that concern into a cry to repeal Act 68, which opponents say is “broken and can’t be fixed.”

In fact, there’s some good news about taxes — and for much of it, Vermont can thank Act 68.

1. School tax as a percentage of personal income has dropped. Yes, school costs have gone up significantly, and with them taxes. But personal income has grown faster. The result: From 1996 — the year before Act 60 — to 2006, the percentage of personal income that goes to taxes has dropped from 5.4 percent to 4.9 percent.

2. Most Vermonters are protected from rising property taxes. The income-sensitivity provisions of Act 68 allow people in owner-occupied homes to pay their school taxes based on income, not the value of their homes. Most of these households — 60 percent — do so. Even if school property taxes rise in their communities, they aren’t forced to move.

3. The confusing system is about to get simpler. Unfortunately, many people don’t know how much they’re paying. To pay based on income, taxpayers must first pay their property taxes, then wait for a check from the state. Because these taxpayers do not connect the two parts of the system, they feel they are paying a huge property tax bill. In fact, they’re paying the property tax bill minus the refund (or “prebate”). The Legislature has gotten rid of this two-step process. Starting this summer towns will bill taxpayers the actual amount they owe.

4. There’s more money due from state coffers for education. Under Act 68, money is transferred from the General Fund to the Education Fund each year. The law requires that the amount of the transfer grow at the same rate as General Fund base spending (anticipated year-after-year spending). Over the past two years, however, the General Fund transfer was millions less than required by law. To make up the difference, property taxes grew. If Montpelier plays by the rules, the burden on property taxes will be lighter.

Every state wrestles with funding public education. The money has to come from somewhere — and every state continues to rely on property taxes. Act 68 is fairer and more sustainable than an all-property-tax system. It balances the needs of all of Vermont’s children with those of its taxpayers and it trusts local communities to manage their schools best. Our system needs refinement. But Vermont’s Act 68 is still the best school financing law in the nation.

Paul Cillo is president of the Public Assets Institute, a nonprofit that analyzes state tax and budget issues. He is a former majority leader of the Vermont House and co-wrote Act 60.