By the Lake Champlain Chamber
The most difficult matter at hand in this legislative session is the financial cliff over which our education fund is heading. If nothing is done, all property taxpayers will see substantial property tax bills, with non-homestead ratepayers (businesses and renters) seeing the majority of the increase.
The Background
It’s helpful to have a quick history refresher on why Vermont’s education spending is the way it is.
In 1997, in Brigham v. State, the Vermont Supreme Court concluded the state’s education funding system, which relied heavily on local property taxes, violated the common benefits clause of the Vermont Constitution by creating significant disparities in educational resources and opportunities between school districts.
The Legislature responded with the implementation of Act 60 in 1997 and Act 68 in 2003, which introduced a statewide education property tax and a funding formula aimed at reducing disparities in education spending between school districts.
The Legislature revisited the system with Act 127 in 2022 to create per-pupil weighting, a mechanism that adjusts for variations in the cost of educating students involving assigning different student weights based on their needs or circumstances, which then influences a school district’s tax rates.
Some communities would see a dramatic shift in the effective number of students enrolled with the new weighting factors and thus would see a dramatic change in tax rates.
To counter this, legislators created a temporary cap on tax rates of 5% so long as a district’s spending did not increase by more than 10%. This is where the unintended consequences start.
Where We Are Today:
As if Vermont’s education funding system wasn’t complicated enough, Act 127 has given everyone a perverse incentive to spend with abandon.
Districts read Act 127 and saw an opportunity to follow a perverse incentive and make new investments, so long as they stay in the sweet spot of that cap outlined above.
In what can be described as a tragedy of the commons, if everyone makes use of this loophole, it means that all collective spending increases, and with a statewide system, everyone needs to make up the difference, driving the statewide rate up.
On Friday, the Agency of Education will have the combined cost of all the warned budgets, which are estimated to be as high as $275 million.
What can most easily be described as a circuit breaker in the property tax system means that, at a certain point, non-homestead property taxpayers pick up the bulk of the increase in taxes.
Business groups sent a memo to the chairs of the committees of jurisdiction this week pushing back on their members being the potential solution to this mess and urging legislators to take the initial step of clarifying legislative intent in the Budget Adjustment Act.
Other Factors Contributing to the Cost of Education:
There are also many factors that increase cost of education in the state.
Many districts used one-time, pandemic-era ESSR funds for positions in schools that they are now seeking to retain.
As an employer, you are well aware that healthcare costs are climbing for everyone, including the large education workforce.
As we’ve covered numerous times, capital construction is slated to be about a $6 billion (that’s a b) commitment over the next decade to renovate many schools.
Flood relief is a component of this as well, as S.160 reimburses municipalities for certain state education property tax payments if the municipality grants state education property tax abatements to property owners for damage caused by severe storms and flooding in 2023. This comes at an estimated cost of $1 million.
It’s worth noting that all of this is at a time when our state’s student population is shrinking, and we have only about 5,000 first graders.
More broadly, the tragedy of the commons we are experiencing due to the unintended consequences of Act 127 is emblematic of the legacy of the Brigham decision in that local voters’ decisions are not directly felt, be those decisions to spend more, not grow their grand list, or forgo efficiencies.
Republished from January 26 Week 4 Advocacy Update of the Lake Champlain Chamber.