Commentary: Act 46’s Trojan Horse (February, 2016)

By David Jaqua

The recent enactment of Act 46 brought a little noticed but significant change to Vermont’s education funding formula. The change will further confuse people as to why their education property taxes keep going up, and whom to blame.

For two decades, frustrated taxpayers looking to hold someone accountable for steadily rising property tax bills have been faced with an infuriating circular argument: state legislators blame local boards and voters for approving higher school budgets, and local officials blame the legislature for the complicated state funding formulae and costly mandates. The result is that all escape blame, and taxes keep going up.

So why the need for this tricky “fix” now?

During the real estate boom years, the Act 60/68 formulae allowed spending to increase significantly while legislators were able to hold the statewide property tax rate steady, or even in some years to lower them slightly, due to the rising Fair Market Values (FMV) of homes. This kept legislators happy. They could say” Hey, we didn’t raise your tax rates!” Taxpayers, especially those without income sensitivity, knew better; their tax bills increased significantly. However, when the real estate bubble burst, this political sleight of hand stopped working.

The drop in FMV for homesteads meant that the legislature had to increase statewide property tax rates in order to keep pace with continued rising education spending. So, from 2009 – 2015 the residential statewide property tax rate increased from $0.86 to $0.99 per $100 of FMV. This is something voters can understand – and they do not like it.

So what is this tricky “fix”?

What the Legislature did in Act 46 is pin the statewide residential property and income sensitivity tax rates at $1.00 per $100 assessed FMV (and 2% for income sensitized households) — forever.

In a nutshell, they have figured out a way to allow for continued increases in education spending and property tax bills, without having to be accountable for raising the statewide property tax rate.

To this end, they came up with two new spending adjustment “fudge factors” over which they, the legislature, have total control. These two new spending adjustment factors are called the “property dollar equivalent yield for property tax payers”, and the “income dollar equivalent yield for income sensitivity payers”. The legislature can set these obscure figures at whatever they desire, and then claim that they have held the statewide property tax rate steady. That accomplished, they can then go back to pointing the finger of blame at local communities when higher tax bills come in.

The Commissioner of Taxes is required to annually recommend to the legislature values for these two “fudge factor” yields. Here is what she wrote in her December 1, 2016 letter:

 It should be noted that the term “yield” is not used in the same manner as in a traditional property tax equation. For example, to calculate the per pupil spending that the $1.00 (per $100.00) of homestead property rate “yields” one might think it would be solved by multiplying 1% by the total homestead grand list, and then dividing by the number of equalized pupils, thus solving for the yield per pupil. However, that is not how either the property yield or the income yield is determined. Both “yields” in this education formula are sensitive to a variety of factors, and heavily influenced by the anticipated amount of education spending around Vermont.

Terrific. This is transparency? Where is the accountability? “Made up yield” is probably a more accurate name. According to the spin put out by the legislature, the reason for this change was to make education tax policy more understandable. This method will better connect people to their spending decisions. Really? Do you think so?

The other major aspect of Act 46 was to impose strict per pupil spending thresholds and excess spending penalties for districts that exceed those thresholds. However, this year the legislature voted to raise those thresholds significantly. Without the thresholds, and keeping all else the same, spending and taxes will keep going up. So, at the end of the day, all Act 46 will have accomplished as far as property taxes go is that it will help the legislature wriggle off the hook of accountability at the ballot box.

– David Jaqua, a former software consultant, has been a student of Vermont’s education finance laws since the enactment of Act 60. David lives in Stowe.

{ 2 comments… read them below or add one }

Jim Bulmer March 1, 2016 at 4:37 pm

For two decades tax payers are looking for someone accountable for ever rising property taxes?????????????????? Are you kidding me??????????? These complainers have no one to blame but themselves as they keep sending the same tax and spend idiots to Montpelier election after election!!!!!!!!!!! Will anyone wake up and effect real change this November and vote the bums OUT?????????


J. Paul Giuliani March 2, 2016 at 12:51 am

There’s another dirty little Act 46 secret that’s going to whack taxpayers. Under Act 60, a school district calculating its local “educational spending” is able to include debt service on its school bonds. That makes sense. The cost of capital improvements should be paid over time by the beneficiaries of the improvement (i.e., taxpayers and parents). A wizard at the Agency of Education has told supervisory unions and school districts that under Act 46, debt service no longer will be allowed as a component in computing local “educational spending.” Instead of being subsidized through the state education tax, the district’s debt service liability will be the exclusive responsibility of local taxpayers. This is consistent with the State’s abandonment of school building construction grants-in-aid. And so the inexorable drift to total control of public education by our Montpelier Masters continues, These are the same folks who have done so well with healthcare, medical insurance, an energy policy, telecommunications, economic development, unchecked regulatory excess, etc., etc.


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