Shumlin: Reform Property Tax
Vt. Governor Cites Inequity in System
Montpelier — Gov. Peter Shumlin is joining the call for structural reforms to an education financing system that he says has “inoculated” many property owners against the financial consequences of voting to increase local school budgets.
In a meeting Thursday with the editorial boards of the Rutland Herald and Times Argus, Shumlin lent his voice to a growing chorus of Democratic politicians pushing for changes to a school-funding system they’ve spent years defending against Republican attack.
Shumlin said he still believes Vermont enjoys the “most elegant financing system in the country.” But he said the system might be doing too good a job at protecting lower-income homeowners from the financial sting of rising public school costs.
“And my own view is that if there’s a weakness in the funding formula right now, it is that when we make spending choices at Town Meeting … the folks who qualify for income sensitivity are inoculated from property tax increases,” Shumlin said. “And I think that’s something we need to look at.”
The “income sensitivity” provision in Vermont’s education-funding law limits the tax exposure of households with incomes of $92,000 or less. That means that non-income-sensitized households end up shouldering the brunt of rising education costs.
The consequences of that funding formula are forecast to become especially pronounced in fiscal year 2015. According to the more recent education funding outlook, a 3.8 percent increase in education spending statewide in fiscal year 2015 will mean a 10 percent rate hike, on average, for homeowners whose salaries disqualify them for income sensitivity.
Between fiscal year 2009 and fiscal year 2014, the portion of education tax revenue paid by homeowners who don’t qualify for income sensitivity has grown from less than 26 percent to nearly 30 percent.
“When property taxes go up right now, you have a very small percentage of the population that’s actually paying the increase,” Shumlin said.
Republicans have long criticized this aspect of the school financing system, and say the formula removes for most residents the financial disincentive that might otherwise compel them to vote against proposed increases in local school budgets.
Income sensitivity limits eligible taxpayers’ bills to a percentage of their income, no matter the value of their home. Former Gov. James Douglas spent much of his eight years in office seeking reforms to the provision.
Current law limits education property tax bills to no more than 1.8 percent of household income, for people living below the $92,000 threshold. Douglas in 2010 proposed increasing that exposure to 2.25 percent for people with household incomes of between $60,000 and $75,000, and 3.5 percent for households pulling in between $75,000 and $90,000.
His proposal was rebuffed by a Legislature in which Shumlin served as president pro tem of the Senate.
House Democrats last year passed legislation that would have increased tax exposure to 1.9 percent of income; the measure stalled in the Senate, where some lawmakers voiced concerns about a provision that would increase the tax burdens of middle-class workers who have seen wages stagnate since the Great Recession.
Darren Allen, communications director for the Vermont-NEA, said Thursday the progressiveness of the education funding system, called Act 68, is among its greatest strengths.
Redistributing obligations in ways that fall more heavily on Vermonters of more modest means, Allen said, would erode the tax fairness that drafters of Act 68 had sought.
“If you are in a position to pay more, you should pay more,” Allen said. “We don’t understand the annual gnashing of teeth about the purported unfairness of a progressive method of taxation.”
The Shumlin administration has called for a “symposium” in early January to discuss the issue. Shumlin said he’ll be reluctant to discuss the issue in depth until he has a solution to offer, something he said he lacks right now.
“I’ve found in the past people tend to complain about the system we have without a solution in their pocket, and I don’t want to join that club,” Shumlin said.
But he said he hopes the event in January will yield answers.
“I’m not sure there’s an easy solution to it,” Shumlin said. “So what I’m going to do is work together with the Legislature to work with outside experts who can help us look at our system, and see if there is a solution.”