The statewide education property tax could go up by 2 cents next year, according to preliminary estimates from the Joint Fiscal Office. The projected increase would push the residential rate to 89 cents, and the nonresidential rate to $1.38 for every $100 in property value.
The cost-driver for the increase is school spending. The Department of Education estimates that education expenditures could rise 1.7 percent this year.
The figures from the Joint Fiscal Office are preliminary and subject to change. The commissioner of the Department of Taxes will release a recommendation to the Legislature for the statewide property tax on Dec. 1.
The House Ways and Means Committee heard testimony on the Education Fund on Tuesday from Joint Fiscal. In addition to the spending uptick, there are two additional factors that could affect rates for certain classes of taxpayers. The state under statute must change the base per-pupil spending rate to reflect inflation over the last three years. It must also lower the statewide Grand List value to reflect the three-year rolling average decline in property values.
Rep. Janet Ancel, D-Calais, said the latter two factors could have different impacts on groups of taxpayers. In practice, she said, the Legislature has tried to equalize the effect of rates on non-residential and residential property taxpayers.
“In terms of total money needed by the Education Fund, it's spending that drives the increase,” Ancel said. “If school spending increased by 1.7 percent, and we didn't change anything else, the tax rate has to go up.”
The statewide property tax is one of the main sources of funding for education in Vermont. School districts, in response to declining student enrollments and recessionary pressures over the last few years, have held spending at or below inflation, and this year is no exception.
The projected 1.7 percent uptick in school spending for fiscal year 2013 represents a $22.2 million uptick above total state education spending, $1.36 billion, for fiscal year 2012.
The other two factors, declining property values and inflation, affect the education funding calculation and impact different sets of taxpayers. Those who pay based on income, for example, may see a slight decrease in their tax bills, according to Joint Fiscal, and nonresidential property taxpayers will see an increase.
Mark Perrault, the Education Fund number-cruncher from Joint Fiscal, told House Ways and Means on Tuesday that the value of properties on the $81.3 billion statewide Grand List is projected to decline by 1.45 percent.
Ancel said the drop in the Grand List was anticipated, and the decline is expected to continue, according to Tom Kavet, the Legislature's economist, until 2013 when values would begin to slowly regain strength.
The other factor at work is the base rate per-pupil spending adjustment. The base rate must increase from the current rate of $8,544 to an inflation-adjusted rate of $8,891 under current statutes.
The base rate is used to calculate the adjusted local property tax rate. The equation looks like this: 87 cents (the current statewide residential property tax rate) is multiplied by the per-pupil spending rate of the town, divided by the base statewide per-pupil spending rate. Because towns almost invariably spend more than the base rate, the total local property tax for education is typically higher than the statewide rate.
The tax rate for a town that hypothetically spends $12,000 per student, coupled with a statewide property tax rate of 87 cents and a statewide per- pupil base rate of $8,544, would be $1.22. Under the projected tax rate of 89 cents with a base rate of $8,891, the tax rate for that same hypothetical town would be $1.20.
There is no spending adjustment formula for nonresidential property, Perrault said. People who pay based on income would pay a little bit less under the spending adjustment because the base education level would be going up.
A $14 million Education Fund surplus for fiscal year 2012 will be rolled into the fiscal year 2013 fund through the Budget Adjustment Act. Without the surplus money, the tax rate estimate would have gone up another penny.
Municipal tax abatement bill passes
House Ways and Means approved a municipal tax abatement bill for Tropical Storm Irene victims in a 9-0-2 vote last week. The legislation provides $2 million to $4 million in statewide property tax relief to residents who lost their homes and are also receiving abatements for municipal taxes.
The legislation is now teed up for the full Legislature to consider in the first weeks of the session.
The committee debated whether the bill sets precedent for future natural disasters. After a brief discussion, members agreed that the provision is a stopgap.
“I think everyone agrees that this isn't a long- term solution, that this is a very reasonable way to address a very immediate problem,” Ancel said. “We all felt towns needed to know as quickly as possible what environment they'll be operating in.”
Update from ed finance consultant
Lawrence Picus, the education finance consultant hired to analyze the state's education property tax system, went over a preliminary report with committee members via telephone conference call last week.
Picus' research so far outlines trend data with regard to Vermont's spending compared with other states, student enrollment levels, student performance and student-to-teacher ratios.
Vermont's total per-pupil spending, for example, is now $17,447 on average, according to information Picus gleaned from the NEA's Rankings and Estimates. The national average is less than $11,000 per student. Maine, Connecticut and Massachusetts spend about $15,000 per pupil. Rhode Island is the only state in New England that comes close, at just under $16,000 a student.
Vermont has the lowest student-to-teacher ratio in the country, at 10.5 to 1, and it has one of the most rural and decentralized systems, according to data from the U.S. Department of Education. The national average is 15.5; Maine's ratio is 11.5 to 1; New Hampshire, Rhode Island and Connecticut have a ratio of about 12.6 to 1.
Average teacher pay is less than $45,000 per year. The average compensation nationally is $50,000; Massachusetts pays teachers an average salary of nearly $70,000; Connecticut's salaries are roughly $65,000 and Rhode Island comes in at $55,000. Of the New England states, only Maine pays less at a rate of $42,000.
Ancel said the interim status report from Picus “provoked discussion.” The purpose of the independent review is to evaluate whether the education finance system is meeting the goals of Act 60 and 68.
It is too soon to say whether the Picus report, which will be issued during the coming session, will generate legislation, Ancel said.
It is unlikely that House Ways and Means will introduce bills based on the recommendations of the Blue Ribbon Tax Structure Commission Report this year. “I think we spent quite a lot of time on the Blue Ribbon report, and we won't take it up again unless there is consensus something should move,” Ancel said.