JAMAICA — Along with two of my colleagues from the Ways & Means Committee, Rep. Jim Condon, a Democrat from Colchester, and Rep. Adam Greshin, an independent from Warren, I recently introduced a comprehensive education finance reform bill.
At a high level, the bill proposes to make the following changes to the system that finances Vermont's K-12 education:
• Replace the current variable residential education property tax rate with a much-lower fixed residential property tax rate that would be uniform across the state;
• Allow residential rental units to be taxed at the lower residential property tax rate, rather than the non-residential tax rate;
• Implement an education income tax structure that would vary according to local school spending;
• Eliminate the income sensitivity, property tax rebate, and renter rebate programs (no longer necessary due to the lower residential property tax rate);
• And provide financial incentives for school districts that operate high performing schools or schools that demonstrate improvements in student achievement.
Before I go into detail about this proposal, I would like to take a step back and provide some background for how we arrived at the proposal in H680.
Two fundamental problems with Acts 60 and 68 are the lack of transparency and accountability that stem from the inherent complexity of the system. Very few legislators truly understand how the system works, let alone average citizens voting on school budgets.
Under the current system, there are no fewer than six types of voters who are impacted in different ways by the school spending decisions that we ask them to make on Town Meeting Day:
• Voters who own their own homes, but are ineligible for income sensitivity assistance. They pay the full residential property tax rate.
• Voters who own their own homes and are eligible for income sensitivity assistance (i.e., those with household income up to $90,000). In a roundabout, convoluted way, they pay a tax that is based on their household income.
• Voters who own their own homes and are eligible for partial income sensitivity assistance but are limited by an $8,000 cap on income sensitivity payment. These voters own more than 2 acres of land, earn more than a certain amount of income through interest and dividends, and/or have a home that is valued over $500,000. These folks pay a hybrid property/income tax.
• Voters who own their own homes but have less than $47,000 in household income. They are guaranteed to pay no more than 5 percent of their household income in education taxes, regardless of local school spending decisions.
• Voters who rent their home. They don't pay property taxes, and although their landlord does, those taxes are at the fixed, non-residential rate, which does not vary based on local school spending;
• And voters who live rent-free in another person's home (i.e., parent, child, boyfriend/girlfriend, couch surfer, etc.). They don't pay property taxes.
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This list gives you a sense of the challenge that school boards face when posed with the obvious question on Town Meeting Day: “How will this budget affect my bottom-line tax bill?”
The problem is that there is never a clear answer to that very straightforward question.
The first objective of our new bill is to make the impact of school spending decisions much more transparent, so the voters have a clear understanding of how a proposed school budget will translate into their individual tax obligation.
Currently, about 70 percent of Vermont homeowners participate in the income sensitivity program; in a roundabout way, they are effectively paying an income tax based on their local school spending.
However, this is far from evident to the average taxpayer: it involves a tax credit applied to a property tax bill based on the prior year's income and property tax liability.
So, if 70 percent of homeowners are already paying based on income, why not short-circuit this convoluted system and have everyone pay an education income tax with a system that is much more transparent? This is what our bill proposes to do.
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We propose an income tax structure (with three marginal rates) that would vary based on local spending decisions.
Every income-earning Vermont resident would be subject to the tax, regardless of whether or not he or she owns property. Local spending decisions would drive income tax rates up or down for local residents, proportionate to per-pupil spending in that community.
When asked the question “How will this budget affect my bottom line tax bill?,” a school board would have one answer that would apply to all voters: “These are the income tax rates that you will all pay.” No more prebates, rebates, exceptions, and other machinations to complicate the picture.
The second objective of our bill is to provide greater accountability for local spending decisions.
One of the problems with the current system is that we have folks voting for school budgets who don't have to pay for those decisions. That just isn't fair. With our bill, virtually everyone eligible to vote on school budgets would pay into the system. Everyone would have skin in the game.
A third objective of our plan is to bring greater accountability for how education tax dollars are being spent.
The proposal would provide financial incentives (resulting in lower tax rates) for school districts that have high performing schools and/or schools that can demonstrate improvements in student achievement.
With this kind of incentive, we would be asking voters to focus on how effectively their school dollars are being spent, rather than simply looking at the total spending. For example, if the school board budgeted money to lay down Astroturf on the football field, voters might question the wisdom of such an expenditure if they were missing out on a tax break because the school was underperforming academically.
By providing financial incentives to encourage greater focus on student outcomes, we can facilitate local decision-making that results in more efficient and effective use of education tax dollars.
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Education funding is a rather dense subject; the complexity of the current system makes it challenging to compare and contrast alternatives - even those (such as this one) that would simplify the system.
I hope that my outline of the proposed legislation makes sense, but I would invite you to ask questions. I would also ask you to share your comments and criticisms.
No proposal is perfect, but unless people are willing to put ideas on the table and invite feedback, we will never have the opportunity to move forward.