Legislative Update

September 14, 2008

Rep. Anne Donahue

The Vermont League of Cities and Towns will be voting in October on a radical new position regarding property taxes and education funding. I hope the recommendation passes, and that enough political pressure is generated that it gets full consideration by the legislature.

The position is as straightforward as one can get: “The state should assume full responsibility for funding Vermont’s education system. Municipal government should no longer be responsible for trying to administer a state education tax. The state must bill, collect, and administer all education taxes.”

Since the first year I was in the legislature, one of the most common topics for finger-pointing has been the rising cost of education. The Legislature blames local school boards for irresponsible spending, and local school boards blame the state for the costs of state requirements they have no control over.

Those requirements – including what the education fund is used for and how it is collected – change every year, and towns must adapt to them.

Setting aside what drives cost increases for the moment, the real villain in the question of fairness is the “common level of appraisal” (CLA), which is based upon the myth that we can actually take the appraisals of each separate town and figure out whether they are up to date with existing market prices, so that each town is paying a fair share based upon current values.

My first year, I asked another freshman legislator, who is a former Tax Commissioner, if we had looked at how other states addressed state-wide fairness in education property taxes.

The answer was no. Why? Because no other state attempts to use the property tax as such a high percentage of its education funding. And why might that be? Ordinary logic suggests the difficulty of actually figuring out how to compare one town’s changing value against another, when so many different factors affect the creation of “value.”

The alternative of heavy reliance on funding through a local property tax creates the problem with inequity in education access in the state depending upon whether you come from a “poor” or “wealthy” town. Vermont was neither the first nor the last to have a state Supreme Court find this mechanism unconstitutional.

The new issue paper from the League confirms this in actual numbers. About 70 percent of the funding for education in Vermont comes from the property tax. The national average is barely more than 50 percent.

As costs rise, is it any wonder that taxpayers are desperate for property tax relief?

Of course the rising market has, for some time, been the goose laying golden eggs, so killing off the goose was pretty unpopular politically. As the League points out, the fund grew so quickly that the Legislature could keep up the appearance of “cutting taxes” – cutting back on the tax rate – as revenue increased.

As I pointed out some time ago, however, what happens when the goose gets anemic? That time is now.

In fact, the last revenue forecast placed the general fund at a 2 percent drop, transportation at a 3.5 percent downgrade, and education at a 3 percent drop from projections. This led to the significant cuts in the general fund budgets and in transportation. The $5 million loss to the education fund got little attention, because it was absorbed through use of the reserve fund. If revenues drop further, as feared, this entire funding mechanism will have to be addressed head on.

If that is the result, it will be a good thing, long overdue. The Legislature has done nothing but tinker with a failed system, making regular changes that make little real impact.

Last session, I has hopes for a serious review when the Speaker set the goal of a three-part process: identify what we can agree is the education we need to provide; identify its reasonable cost; and identify how to pay for it is a way that was fair and understandable. Everything was supposed to be on the table.

Politics got in involved from both sides, and it didn’t happen. Ideas for new approaches got little consideration.

Back to cost drivers: schools are now facing the same economic realities as state government and as each of us, with the cost of fuel the leading cause. How we respond – increase the tax rate? Cap local school budgets? – will be immensely complicated by a system that mixes decision-making between state and local elected officials.

Once again, my hope is that we can “clear the table” and begin with a fresh perspective, even looking (heaven forbid) at how other states fund education. The League, once again, is working at presenting new ideas, and it need to be listened to.

Please share your own ideas and concerns. I can be reached at 485-6431, counterp@tds.net, or via my blog, annedonahue,blogspot.com.