Commentary: Facing the School Property Tax Monster (September 2014)

By John McClaughry

John McClaughry

Homestead school property tax rates have increased in each of the past four years. The “solution” debate omes down to command-and-control versus freedom. 

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           Once again Vermonters are preparing to go to the polls, and there are plenty of issues on their plate. For the one third of voters who must pay the school homestead property tax, the Big Issue is likely to be “why am I staring at yet another, bigger school property tax bill? Where does this end?”

The legislature and governor have increased the homestead school property tax rate in each of the past four years – and they are almost certainly going to do it again in 2015. The rate has climbed from 86 cents per $100 Fair Market Value (in 2011) to 98 cents (in 2014) – even as the number of public school pupils has dropped by a thousand in each of those years.

The Democrats, who are proud of authoring Act 60 in 1997, are eager to finish tying the cost of education to the income tax. The Act 60 “income sensitivity” option allows homestead owners with incomes under $90,000 to pay 1.8% of their income instead of the actual property tax. This feature costs the Education Fund $158 million a year, which has to be made up with other revenues.  The more than sixty percent of Vermont households who choose this option thus have no concern about the level of school spending.

Last May the Democrats declared that they intend to enact an education income tax by 2017. This “solution” alarms even Gov. Shumlin, who correctly understands that raising income tax rates to bring in another $580 million a year (to replace just the homestead school property tax) would be economically catastrophic.

The Republicans claim that the Democrats “have blocked every attempt by Republicans to reform our state’s broken educational funding system.” By that the party chair apparently refers to the Republican proposal to enact a death sentence for Act 60, after which somebody will  – hopefully – come up with a better idea. That “repeal and replace” bill does not deserve to be considered any kind of a “solution”.

There are several types of “real solutions” that might produce lower homestead property taxes.

One might be called the Soviet model. If the voters are voting too large school budgets, the Agency of Education could mandate a limit on increases. Or mandate a higher pupil to teacher ratio. Or use mandatory consolidation to allow regional education districts (REDs) to close small, expensive schools. Or put public schools on a “global budget”, like the Shumlin proposal for single payer health care.

Politicians have historically shrunk from imposing such centralized control, but its day may be coming closer with a governor who can’t allow the Education Fund to gobble up tax dollars that he will badly need to pay for Green Mountain Care.

Another model would be something akin to California’s Proposition 13 of 1978. That measure limited property tax rates and allowed reassessment only when a home changed hands. Not surprisingly, when local school districts couldn’t keep raising property tax rates and assessments, they fled to the state capitol for money to cover their budgets. The state was obliged to comply, with restrictive conditions leading back toward the Soviet model.

Another proposal for making voters more sensitive to school budget explosions was the Scudero Plan (S.253 of 2008). This bill would have had the voters vote not on the dollar amount to be spent, but on the cost per pupil in their schools. It had the virtue of bringing school spending down to understandable numbers like $13,045 per pupil instead of $17,875,000. The technique was unfamiliar, it was not clear that the plan would result in less spending, and the legislature showed no interest.

Probably the best and potentially most popular “solution” –  except among the Education Establishment – is trading in the increasingly ponderous and state-controlled monopoly school system for universal parental choice among a wide variety of education providers.

That proposal is based on the idea that the state should not stand in the way of parents who are eager to have their children attend a school that costs less than the local public school. Since many parents would choose schools costing less, total education spending would fall. However, it’s not possible to predict by how much and when, or how the public schools would attempt to reform themselves to win back their lost pupils.

It’s not realistic, any time soon, to wean public education from the Act 60 property taxes.  But movement toward universal parental choice and broad provider competition would likely spur educational innovation, increase customer satisfaction, restrain property tax costs, and produce better results over time.

The hard part is turning that corner.

John McClaughry is vice president of the Ethan Allen Institute 

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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