Property taxes slashed in proposed school funding overhaul

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Speaker of the House Mitzi Johnson has launched a public campaign for an overhaul of education funding — and a drastic reduction in property taxes for Vermonters — that she hopes will take effect as soon as this coming fall.

The bill would cut education property taxes in half and make up some of the gap through a graduated income tax and shifting 100 percent of sales tax revenues to schools.

The plan is certain to meet stiff resistance from Gov. Phil Scott, who has said he will only approve a new education funding package that includes sufficient cost containment measures.

There is incentive in the proposal for communities to spend less on school. The House Education Committee will take up the legislation next and consider Scott’s laundry list of potential cost-cutting measures.

Johnson, D-Grand Isle, said she was still hopeful that the package would be approved during this legislative session and implemented as soon as this fall.

The key feature in the bill is a drastic reduction in the homestead property tax, which would be reduced by 48 percent per payer, from $1.594 to 83 cents per $100 of assessed value, on average.

“It fundamentally changes the way we pay for education,” Johnson said.

It would be the most significant change to school funding in 20 years. Vermont’s property taxes operate on an income sensitivity scale, but remain among the highest in the country, which Johnson said was among the reasons the state is struggling to attract new residents.

“The fact that this is drastically lowering property taxes makes it more viable for people at all income ranges to invest in Vermont, invest in property in Vermont and put down roots here,” Johnson said. “It makes it much easier for young families, and I think the biggest piece is it dramatically improves the transparency and simplicity.”

The new proposal diversifies the base for education spending — reducing reliance on property taxes and increasing contributions from income and sales tax.

“You don’t want a forest of all ash trees because when the ash borer comes around it would devastate it, nor do you want an all pine forest because needle disease could take it out,” she said, adding that a healthy forest has a mix of trees.

Homestead property taxes, which this year contribute $634.1 million in school funding, will be cut to $234.9 million, according to projections released with the new proposal.

The gap created by this cut will be made up largely through a new education income tax, which is projected to generate $172 million, and increasing schools’ share of sales and use tax revenues, from about $144.1 million to $400.9 million, according to the proposal. Revenue from meals and room taxes, none of which currently goes to education, would provide $44.6 million in funding. Contributions to state education from the general fund would cease.

The new graduated income tax would account for about 10 percent of the overall revenue generated for education. Individuals making less than $47,000 would be exempt from the tax. People making from $47,000 to $125,000 would pay a tax rate of 1.35 percent on income above the minimum. For example, people making $50,000 annually would only pay 1.35 percent of $3,000. Anyone making $125,000 to $4 million would pay 1.95 percent on income above $47,000.

About half of school revenues would still come from property taxes, between 25 and 30 percent would come from sales and taxes, and the remaining 10 to 15 percent would come from less significant sources such as lottery revenue.

“You have three significant revenue streams,” Johnson said. “By diversifying, and in that way, you create stability.”

Some school advocates have urged lawmakers to go slow on changes to school funding, and wait until fiscal year 2020 before putting the new formula in place. But Johnson said this year remains on the table.

“There is still a possibility we could make this change for the current fiscal year so that in the fall people could see their property taxes basically cut in half,” Johnson said.

However, during a press conference Thursday afternoon, Scott reiterated his position that education funding reform must include spending cuts.

“Again, I don’t mind having the conversation about a change in the formula, but if we’re not going to have the conversation about the cost containment, it matters little, because it’s still going to come out of someone’s pocket,” he said. “We’re still spending too much.”

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