Vermont ranks 4th in the U.S. in per pupil spending, but what does it get us?
CLOVER WHITHAM/FREE PRESS
Twenty years after Vermont radically restructured its system of education finance, there is one thing just about everyone can agree on: Our property tax system is extremely complicated.
In its 1997 Brigham decision, the Vermont Supreme Court ruled that the way Vermont financed its schools violated the state constitution. That decision led the legislature to enact Act 60 which was later modified by Act 68.
Over the past two decades, Vermont’s education finance system has become ever more complex and the recent agreement hammered out between the Scott administration and the legislature on paying for teacher’s health insurance has added to that complexity.
Without going into the details of that agreement — or even a summaryof a summarythat makes my head spin — it’s probably fair to say that its impact won’t be noticeable to any taxpayer. School district budget officials will likely figure out creative ways to get around the new regulations but even if there are some budgetary savings, they will likely be only a one-time event.
Even if the full $13 million in projected savings does materialize it amounts to 1.2 percent of education property taxes and an even smaller percentage of the more than $1.6 billion we spend to educate about 85,000 students. If your property taxes are $3,500, you might save $40 next year.
The big savings that taxpayers are already realizing are due to Act 60’s income sensitivity provision, which some people still refer to as the prebate. Income sensitivity means that most people’s education property taxes are based on a percentage of their income which has nothing to do with the value of their house, even though we still refer to it as a property tax bill.
Because of income sensitivity, two-thirds of Vermont homeowners pay for education with an income tax, not a property tax. Vermonters who earn up to $140,000 are eligible for income sensitivity, although most of the tax reduction payments go to people earning a lot less than that. Still, the $185 million cost of the program has to be paid for, and it is—by other people’s property taxes being $185 million higher than they otherwise would be.
Some say that is a fair way to pay for schools and that richer people and non-residential property owners should subsidize lower income homeowners. But income sensitivity reduces education taxes for people who earn nearly twice the median family income. That’s not my definition of a low-income homeowner.
Nearly every Vermont family at some time in their lives has children in school, which means that government-provided education benefits everyone, including the middle and upper middle-class Vermonters who have their taxes reduced through income sensitivity. Anytime the government subsidizes the middle class it is going to be expensive, since most people are in the middle class.
Subsidizing a program that benefits the middle class by lowering their property taxes is not only expensive, it also gives those same people an incentive to spend more on education. Education taxes are the price we pay for education. And like any price, when it goes down, people buy more it. When income sensitivity lowers the cost of education, we buy more of it by having more teachers and staff in our schools. That explains why Vermont has the lowest student-teacher ratio in the nation and the fourth highest spending per student—$18,000 compared to the national average of about $11,000.
People may not understand how Act 60 or Act 68 works, or how and why their “property” tax is what it is, or how the new health insurance agreement works, but they do respond to the incentives built into Vermont’s education finance system.
There is a case to be made for helping lower income Vermonters by giving them a break on their school taxes. But that case doesn’t include giving $1,400 to the average homeowner who earns $70,000 or $80,000 a year.
Art Woolf is associate professor of economics at the University of Vermont.
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