March 26 - Issue #7
House Approves 86˘/$1.35 Education Tax Rates:
Challenges on Horizon
On Thursday, the
House approved H.783, the miscelleneous tax bill. H.783 has several implications for public
education, and it is described in detail later on in this Education Legislative Report.
Arguably the most impactful provision of H.783 for public education is
that it sets the fiscal year 2011 statewide education property tax rates at
$0.86 for homestead property and $1.35 for nonresidential property. These are the same rates that were effective
for 2010, and 2.2 cents less than the rates proposed by the Tax Commissioner
this past December.
Since the Tax Commissioner
made his recommendations four months ago, the landscape for education funding
has changed significantly. It had been
projected then that schools would increase spending by roughly $20 million, or
two percent, but the Department of Education recently reported that education
spending will actually decrease in fiscal year 2011 by about two-tenths of one
percent. This significantly reduced the
need to increase property tax rates. Nevertheless, if current assumptions hold,
the total amount of education fund revenue generated in fiscal year 2011 with
the rates proposed in H.783 will be approximately $10-15 million less than will
be required to fully fund school budgets approved in March.
The result of this
gap might be that the education fund reserves would decrease and approach, but
not exceed, the minimum required.
Another more troubling possibility is that fiscal year 2011 school
expenditures might need to be further reduced to meet the Challenges for Change spending targets we have described in prior Reports.
The Challenges report was also
issued when school expenditures were expected to increase. In recognition of the reduced and
level-funded school budgets that have been approved, Commissioner of Education
Armando Vilaseca has repeatedly stated that it is his intent to implement Challenges reductions beginning in
fiscal year 2012 and not in the upcoming budget year. (The public education Challenges implementation plan has not yet been released and is
scheduled to be announced next week.)
It is the firm belief of our Associations that it would be
improper and unnecessary to require further reductions to 2011 school
budgets.
- In November, Commissioner Vilaseca and Finance and
Management Commissioner Jim Reardon asked school districts to reduce their
spending, and the districts honored this request.
- In January, the Vermont-NEA negotiated a pension
agreement that reduced the state’s pension obligations for educators by at
least $15 million dollars for 2011 and all subsequent years.
- As of Town Meeting Day, local voters showed strong
support for the modest school budgets that were proposed, approving 94
percent on the first vote.
- Finally, the state has already implemented a reduction
in general fund support for the education fund by more than $36 million over
fiscal years 2010 and 2011.[1] This action also put pressure on
property tax rates and education fund reserves.
House Approves Miscellaneous Tax Bill
As was referenced above, the House gave
preliminary approval to H.783, the miscellaneous tax bill, on Thursday, and
final passage is expected today. In
addition to setting education property tax rates, the bill includes the
following education-related provisions.
The bill will now move to the Senate for consideration.
Blue
Ribbon Tax Structure Commission to Study Education Finance
H.783 would require an existing tax
structure commission to broadly examine and evaluate the education system and
education finance in Vermont. Here is an
excerpt from what would be the commission’s new charge.
- Goals. In consultation with the house
committees on education and on ways and means and the senate committees on
education and on finance, identifying the five most important short-term
goals and the five most important long-term goals for an education system,
taking into account the following: student educational achievement,
education governance, finance, spending controls, and cost savings; and
design a quantifiable nonmonetary measure of whether schools provide a
‘substantially equal education opportunity’ for student educational
achievement; and report its finding by November 1, 2010.
- Evaluation. Evaluate Vermont’s current education
governance, finance, and spending control systems in light of the goals
established in subdivision (1) of this subsection, the current education
governance model, and the proposed changes to education governance made by
the general assembly and determine the elements of the current system
which achieve these goals well and should be maintained and those elements
which do not achieve these goals well and should be modified or eliminated,
and report its findings by March 1, 2011.
- Proposals. Develop new system of education finance,
spending controls, and cost savings guided by but not limited to the goals
established in subdivision (1) of this subsection and the elements
identified in subdivision (2) of this subsection to be maintained,
modified, or eliminated, and report its proposals by July 1, 2011.”
The commission may appoint an
“advisory panel,” which would be comprised of persons with a wide range of
perspectives and expertise in the areas of public education, policymaking, and
taxation. Legislative committees of
jurisdiction would have until the 2012 session of the General Assembly to
prepare legislation based on the report.
Income
Sensitivity
Income sensitivity, which allows
middle- and low-income Vermonters to pay the school taxes on their house and up
to two acres based on household income rather than property value, would be
limited by two new provisions. Combined,
these two changes would increase taxes on income-sensitized taxpayers by
approximately $5 million in the first year of implementation.
The first would limit income
sensitivity to the first $425,000 of housesite value. In other words, regardless of income, all
Vermonters would pay taxes based on property value for the value of a housesite
in excess of the first $425,000. The
$425,000 limit will increase annually according to an inflationary index (the
FHFA Vermont House Price Index).
The second change would eliminate a
minor provision of income sensitivity that currently gives income-sensitized
taxpayers an additional tax reduction of up to $50 annually for owning acreage in
excess of a house and two acres.
Sales
Tax in Schools
Schools and school districts that generate
revenue though sales or services are and will be exempt from the state sales
tax. However, under H.783, if a
commercial vendor is sharing in the proceeds from sales or services provided at
a school, the vendor would be required to collect and pay sales tax on the
total value of the sale or service. The
vendor would be required pay sales tax regardless of whether the direct
recipient of the sale or service is the school or the vendor.
State
Collection of Education Property Tax
H.783 does not specifically declare
that the state will relieve municipalities of the duty to collect education
property taxes, but it would take a step in that direction. H.783 requires the Department of Taxes to
solicit bids “for assistance in developing a request for proposal for the
design and development of an electronic system for the department’s
administration, billing, and collection of the education property tax…”
Capital Bill: Seven Million for School Construction
The House Committee on Corrections and
Institutions passed the annual capital bill, H.790, which
appropriates funding for capital construction projects throughout state
government. This year, in addition to
appropriating $645,000 for emergency school projects, the bill provides $6.3
million for state aid for school construction. Because the moratorium on new state aid for
school construction remains in place, these funds will be appropriated to
projects that were approved prior to the moratorium’s enactment. H.790 is now under consideration in the House
Appropriations Committee.
According to H.790, the $6.3 million
is to be divided up among the eight approved school and technical center
renovation projects that are still waiting for state aid; each project would
receive 29.4 percent of the remaining aid owed.
The 18 biomass and wood pellet heating projects that are also owed state
aid would not receive any aid in fiscal year 2011 according to the bill.
The current obligation for state aid
for school construction, before application of the $6.3 million that would be appropriated
in H.790, is $21.5 million for renovation projects and $12.8 million for
biomass and wood pellet heating systems.
The moratorium on new state aid has been in place since March of 2007.
Governor Douglas had proposed that the
state retire its obligation to provide aid to districts in $5 million annual
amounts to be paid from the education fund.
H.790 rejected this approach, allocating more than had been proposed by
the Governor and continuing to pay for the state aid out of the state’s capital
bond revenue.
Appropriations Bill Under Consideration
On Thursday, the House gave
preliminary approval to H.789, the state’s appropriations bill for fiscal year
2011. Final approval is expected today,
and the bill would then move to the Senate. The bill would fund educational
programs and services at the expected amounts, except for adult basic
education, which would see its appropriation reduced by $1 million. The following bullet points describe how the
bill would address certain education-related provisions.
- $6.9
million of school-based Medicaid reimbursements would be deposited into the Education Fund as required under
16 V.S.A. 2959a(g). In fiscal years
2009-10, the state retained that portion of the Medicaid reimbursement as
part of an overall process to increase state revenues. In 2011, the monies will now be used to
decrease education property taxes, as was originally intended.
- H.790
would allow approved teen parent education programs to draw public
education funds from school districts indefinitely under the current
funding system. That is, the
programs would be allotted 83 percent of the prior year’s statewide
average net cost per pupil for each full-time equivalent student. In fiscal year 2010, 83 percent of the
prior year’s net cost per pupil for secondary students was $10,031. That provision was set to expire July 1st.
- The
education fund would be required to pay for the corrections system high
school and for a grant to parents of low-income preschool children in
fiscal year 2011. These expenses
were paid out of the education fund for the first time in 2010. The bill states that these expenses will
revert to the general fund in 2012.
END