New education tax law unfair at best

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By Jack Hoffman

In addition to pushing up property taxes in many towns, the education reform bill passed in the closing days of the legislative session violates a fundamental principle of fairness in Vermont’s education funding system: Towns with the same education spending per pupil have the same homestead tax rates. Before Gov. Peter Shumlin decides to sign the bill into law, he might want to check whether the tax penalties it contains also violate the Vermont Constitution.

In 1997, the Vermont Supreme Court found the state’s previous funding system was unconstitutional because of the disparity between towns’ access to money for their children’s education. Some communities could spend thousands of dollars per student with relatively low tax rates, while other communities spending much less per student suffered truly burdensome tax rates. In Brigham vs. State of Vermont, the court concluded that the system was unfair and violated the state constitution because it deprived Vermont children of equal access to funding for their education.

The Legislature responded to Brigham by creating a system that allows local voters to decide how much to spend on their schools, but it also gives all communities substantially equal access to education funds. Vermont homeowners who live in towns that vote the same education spending per pupil — regardless of the value of property or amount of income within the town boundaries — have the same homestead property tax rates. The system also allows homeowners to pay school taxes based on their income, and the same principle applies. Taxpayers in towns with the same education spending per pupil have the same income-based tax rates.

Ostensibly to force communities to cut or at least slow the growth of their school budgets, the Legislature passed a reform bill last week that imposes penalties on towns that exceed prescribed growth rates in per-pupil spending. But if towns trigger the penalties, it will mean they no longer have equal access to education funds. Their tax rates will be higher than other towns that don’t trigger the penalties but have exactly the same education spending per pupil.

According to data from the Agency of Education, Brattleboro would be allowed to spend $15,779 per pupil in fiscal 2017 without paying a penalty. Using next year’s base rates, the homestead tax rate would be $1.65 if Brattleboro stuck to its prescribed spending limit. However, if Barre City, with an allowable limit of $11,228 per pupil, wanted to spend the same amount as Brattleboro, it would be hit with a penalty. The homestead tax rate for Barre City residents would be $2.08 — 26 percent more for the same education spending per pupil.

Members of the House, especially, appeared to be frustrated all session at their inability to bring Vermont voters to heel on the matter of school spending. This plan for tax penalties emerged just days before adjournment and didn’t get the scrutiny required for such a major system change.

The governor now has the time to review the bill and weigh its implications. To preserve the basic fairness of Vermont’s education funding system is reason enough for the governor to require the Legislature to reconvene and remove the tax penalties. And if the legal experts conclude the penalty system is unconstitutional, the governor may have no choice but to demand revisions.

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Jack Hoffman is senior policy analyst at the Public Assetts Institute, a Montpelier-based non-profit.