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Property tax: Reform or repeal?

By Shay Totten | Vermont Guardian

Posted March 7, 2007

MONTPELIER — Lawmakers used their Town Meeting Day break to tell voters what they’ve been doing in Montpelier since January, and, in turn, expected to hear what voters want them to be doing.

Property tax reform and curbing the steep rises in education spending will be two such topics.

Days before the break, Republican Gov. Jim Douglas chided lawmakers coming up with few ideas that he believes will curb education spending and lower property taxes.

In a quick response, leaders of two key House committees issued a report to the full Legislature outlining what they have reviewed in the past two months, and what changes are to be proposed once lawmakers return from their break.

The four-page report issued March 2 by Rep. Janet Ancel, D-Calais, chairwoman of the House Education Committee, and Rep. Michael Obuchowski, D-Rockingham, chairman of the House Ways and Means Committee, keyed in on 11 major areas ripe for reform — from spending controls to school governance — in Vermont’s $1.2 billion education system.

In some areas, the committees are prepared to introduce legislation, while in others, more work remains.

For example, the Ways and Means Committee plans to recommend capping at $6,000 the amount a single taxpayer can receive in property tax rebates — down from a current $10,000 — but will continue to examine whether additional tax breaks can be given to farmers.

The House Education Committee, meanwhile, will propose that the Education Commissioner be required to examine high-spending special education school districts — those who spend more than 20 percent above the statewide average. Ancel said lowering costs in these districts could save $5 to $6 million annually. However, it sidestepped the issue of restructuring school governance.

The committees will hold a joint hearing from 2:30-4:30 p.m. Wednesday in Room 11 of the Statehouse to hear from lawmakers, and then hold a public hearing that same evening from 6 to 8:30 p.m. in the House chambers.

On March 1, Gov. Douglas announced that he would hold a half dozen “accountability forums” in the coming weeks so Vermonters can offer ideas on how to lower education spending, and make Vermont a “more affordable place to live.”

The first of these forums was held March 7 in Lyndonville. Others will be scheduled in the coming weeks.

“I have become increasingly concerned that this general assembly does not appreciate the affordability agenda or the people who support it,” Douglas said. “In two months there has been no progress on reducing the oppressive burden of the property tax.”

In response, top Democrats countered that the governor is mischaracterizing the work of these two key committees.

“If there were an easy way to do this, or a simple way to control the growth in spending, someone would have done it before,” said Ancel. “We’re working with a very large, complicated system.”

Earlier this session, Douglas, along with House Speaker Gaye Symington, D-Jericho, and Senate Pres. Pro Tem Peter Shumlin, D-Windsor, agreed to a framework of how to tackle education spending and ease the property tax burden.

In their letter, Ancel and Obuchowski said the goals of this framework were to:
• Support the excellence Vermonters expect of their schools;
• Maintain Vermont’s commitment to equity in public school financing;
• Examine what Vermonters expect of their schools and how to more effectively deliver those education services;
• Lower the rate of growth in public school spending, making it more affordable for taxpayers; and,
• Finance schools in a way that makes more transparent budgetary decisions on property taxes, and collect those taxes more efficiently.

Douglas said he saw the agreement as a pact to not criticize individual proposals, not to agree on a two-year approach. He added that the options he has been shown by legislative leaders are laudable, but he doesn’t believe they will do enough to provide tax relief. He again said he believes a property tax cap, and other changes he has proposed, would provide immediate savings of $30 million or more per year.

“Frankly, nothing that I’ve seen will do anything to reduce Vermonters’ property taxes this year or next year,” said Douglas.

While Douglas may be concerned, Ancel noted, she has not seen members of his administration in her committee room much, if at all, this year.

Other than Secretary of Administration Mike Smith and Tax Commissioner Tom Pelham, both of whom spent one hour with the committee to testify, no one has been present in the room.

“In fact, the only way we got the governor’s proposal at all was because I wrote a letter” to them, said Ancel. “Other than [Smith and Pelham], the administration has not stepped foot in our committee room.”

By comparison, Ancel noted, when she served on the House Health Care Committee last session there was someone from the administration in the room nearly at all times, even if it was only to take notes.

In their letter, Ancel and Obuchowski said the committees had three concerns with Douglas’ spending cap proposal, which would have capped spending growth by 4 percent in the first year and 3.5 percent in each of the following four years.

Those concerns were:

• The proposal would hit the lowest spending schools the hardest;
• Districts that tuition all, or most, of their students, have little control over the tuition they are charged and cannot affect spending growth; and,
• Special education costs can dramatically fluctuate in one year, especially in small schools, and his proposal did not address that.

Ancel added that the Joint Fiscal Office estimated that Douglas’ proposal would save only $14 million, not $30 million. That figure, she said, came from increasing the income sensitivity in law from 1.8 percent of income to 2 percent.

“It was really a cost shift,” said Ancel.

Rather than Douglas’ proposal, the committees recommend modifying the current high-spending threshold in law. Under current law, when a school district spends more than 25 percent above the statewide average, the district is required to pay a higher rate for the spending above the threshold. The committees believe the threshold should be lowered to 15 or 20 percent above the average.

“This threshold does seem to work as there are only eight school districts in that zone and we have heard testimony that school boards and voters pay attention to that threshold, so we’re recommending that we move it down,” said Ancel.

The committees are also going to further study the overall cost drivers of education spending — personnel, student-teacher ratios, and classroom size. The study would focus on the overall efficiency and effectiveness of the education system. The committees will continue to determine the impact of state and federal mandates, as well as special education expenses, on local school budgets.

School budget defeats are being measured by some as a barometer of whether people are dissatisfied with the current education funding system.

Steve Jeffrey, the executive director of the Vermont League of Cities and Towns, was not expecting widespread defeats of school budgets, and said there were no major issues facing towns this year.

“I’m interested to see what happens with school funding, but so far it doesn’t seem like a lot of budgets are going down to defeat,” said Jeffrey early on Town Meeting Day. “If everyone is complaining about the property tax and budgets are being passed I don’t know what that means.”

One observer isn’t sure that budget defeats told the whole story last week, when lawmakers were home on break.

“It’s not just about today, but all week. This is a pretty important week in terms of engaging people about what’s happening in the Legislature — people talking with their legislators so they know what they are thinking,” said John Nelson, executive director of the Vermont School Boards Association.

Rep. Rick Hube, R-Londonderry, and a founder of Revolt & Repeal, a statewide movement aimed at repealing the current education funding system, said he believed lawmakers heard plenty from voters about changes needed this year to help stave off rising property taxes.

While many Vermonters only pay a portion of their income toward property taxes, many also own camps, second homes, and business properties — or more than two-acre homesteads – all of which are exempt from income sensitivity. Those individuals do not get a reduction on property taxes.

“We’re always looking for a silver bullet or a magic potion, but I don’t think there is one,” said Hube. “But, I don’t think we have a good handle on what are driving up our school costs. We are told that everything under the sun is driving up costs, but we haven’t really quantified those numbers. I think it’s time that we do that, and determine where we can find some savings.”