Commentary: The School Property Tax Deadlock (June, 2018)

by John McClaughry

Gov. Phil Scott and the Democratic-controlled legislature are well into crunch time over the FY2019 state general fund budget and the related education finance bill.

The governor obviously takes very seriously his 2016 campaign pledge to hold state General Fund spending to a growth of 2.36% a year, and to oppose – and veto – any increase in tax rates. However the actual homestead school property tax rates are not set each year by the legislature and the governor. They are determined district by district based on each district’s spending per equalized pupil. The total tax dollars thus raised, when added to other specified revenue sources, must add up to the sum of all the voter-approved school budgets.

Last year the governor (enthusiastically) and legislature (unhappily) agreed to grab more than $40 million from various accounts and reserves, and put that into the Education Fund to produce a slight reduction in homestead school property tax rates. That was effectively an internal loan that has to be repaid this year.

On May 1, two weeks before adjournment, the governor unveiled a sweeping new plan for curbing education spending and keeping homestead property tax rates flat.

His plan promises to deal with a financing gap of $236 million over the next five years. It proposes to appropriate between $44 and $58 million in one-time funds to replenish the now-depleted reserve funds and keep the homestead property tax rates flat for the coming year. The governor has apparently forgotten (again), that in his 2016 campaign he promised “We need to stop using one-time money to plug reoccurring budget holes.”

The administration’s plan promises “nearly $300 million in savings” over the five year period. Reviewing the governor’s projections, the respected, nonpartisan Joint Fiscal Office fairly concluded that “the administration’s 5-year outlook is a mathematical exercise only: their analysis does not indicate specifically how this ‘gap’ will be closed.”

The big ticket in the administration’s proposal to save the $262 million is “increasing student to staff ratios” in Vermont schools, ultimately (and supposedly by attrition). This is mathematically attractive but not credibly achievable unless the state seizes control of the schools.

When the administration floated the idea of imposing fines on school districts that didn’t meet its 5.75 to 1 ratio test, it vanished within about two days. In truth, nobody can accurately predict just how districts would react to the mandate and associated penalties, and thus how much spending would be saved.

A special education law enacted earlier this year could – possibly – produce some savings, but no one knows how much, because no one knows how the school districts will choose to make use of new flexibility, and how often service reductions will be challenged by plaintiff lawsuits.

Establishing a statewide teachers’ health insurance program could, depending on its terms, produce savings, but no one knows what the terms of such a program would be. The governor also plans to spend some of those savings, if any, on preschool, state colleges, and technical education.

What this comes down to is whether to put $34 million (or $58 million) from available one-time revenues into the Education Fund to keep homestead school property tax rates flat, and rely mainly on mandated student to staff ratio increases to produce enough “savings” to keep them flat for five years (Scott’s proposal); or letting the homestead property tax rates rise by maybe two cents to reflect increased school budget spending, while using much of the one-time revenues to pay down the enormous long-term liabilities ($2.4 billion) of the teachers’ retirement and health benefit funds (the Democratic proposal).

To their credit, the Democrats have worked conscientiously to be fiscally responsible. They rightly believe that the governor’s projection of marvelous “savings” over five years, essential to holding the line on homestead school property taxes, is speculative at best. They also responsibly oppose, as Scott himself did two short years ago, using the one-time funds to hold down tax rates for one more year. Their recommendation for using those funds is to slightly but symbolically reduce the liabilities of the teacher retirement funds.

The problem the Democrats face is that most homeowners badly want property tax relief, and are not very receptive to appeals for sound fiscal practice. It is after all election year, and if Scott’s proposal prevails, his strong suit in November will be that “he stopped rising school property taxes.”

At this writing, the resolution of the school finance issue, and thus the vetoed budget, has not taken shape. What does seem almost certain is that the terms of any resolution this month will produce exactly the same problem next year, when there’s no reason to believe that  significant  one-time funds will appear to cover another Education Fund shortfall.

John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).

{ 2 comments… read them below or add one }

Gerard Malavenda June 6, 2018 at 9:44 pm

Why don’t all the teachers, and all state employees by extension, give up their Cadillac health plans and get their health benefits from the Affordable Care Act? Wouldn’t that save a ton of money?

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Valerie June 6, 2018 at 10:37 pm

The only thing I’d add to John’s well-written article is the “one time” funds which make up this year’s surplus are from us, the taxpayers being overtaxed. The state taxed us more than needed for the budget.

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