Boards Question Tax Use

March 19, 2010

For the second time in as many weeks, Dover officials have fired off a letter to state officials, this time protesting a state plan they say would result in the transfer of $7 million from the state’s education fund to the general fund.

At a special meeting Thursday morning, the Dover School Board and Dover Selectboard issued a joint statement calling on Vermont legislators to vote no on any transfer from the education fund, or the use of statewide property tax money for any purpose other than education. “By doing this we are really looking out for the taxpayers and voters in this state,” said Dover School Board Chair Rich Werner. “We are really doing a good thing here. This affects all towns, rich or poor, and every taxpayer and voter.”

The board referenced an article published in The Rutland Herald last week, which suggested there was abo ut $22 million in savings thanks to a lower than expected increase in school budgets passed at Town Meeting earlier this month. According to the article, $11 million of the total would be realized as a savings through taxes not collected through local education tax rates. The remaining $11 million, collected through the statewide education property tax, would “go to cover other state expenses and into a reserve fund to cover education spending in the future – about $7 million will be transferred into the state’s ailing General Fund and $4 million will go into the Education Fund to boost its reserve.”

In their letter, Dover officials say the move would make the statewide education property tax higher than it should be, and that the governor and legislators would be “breaking faith” with Vermonters by using education property tax money for noneducation expenses.

Board members also note that, under Act 60, the original statewide education funding law, the use of education property tax for payments to “funds other than local school districts or supervisory unions would result in the automatic repeal of Act 60.” Although state education financing has since been reformed under Act 68, board members called on legislators to adhere to the principle in Act 60, and repeal the statewide education funding law if education funds are transferred to the general fund.

The boards also accuse the state of placing school boards in an untenable position. “Because of the complexities of Act 60, et al, many people believe that local government is the cause of high property tax bills. By moving this funding from the education fund to the general fund, the administration and Legislature are … leaving local officials to be blamed for an additional $7 million of education expenses that are not approved or caused by these boards.”

Vermo nt Education Department Chief Financial Officer Bill Talbot confirmed that education spending approved by towns earlier this month was about $22 million less than anticipated in projections made last December. As Talbot explained, tax commissioner Richard Westman must provide an estimate of school spending on December 1, allowing state officials to begin planning their budget. The commissioner must take a number of variables into consideration, including projected revenues. “In December, the tax commissioner estimated school budgets would increase by about two percent, the same as last year,” Talbot said.

As a result of the projected budget increase, the tax commissioner recommended an increase of two cents in the statewide education tax rate, increasing tax revenue to the education fund.

But Mark Perrault, an education finance specialist with the Legislature’s Joint Fiscal Office, says there is no actual “transfer” of education property tax money from the education fund to the general fund. Perrault says that, when the tax commissioner made his original projections he was, by law, counting on $7 million in federal Medicaid money for special education that was slated to go into the education fund. The Medicaid transfer was diverted from the education fund two years ago, but it was slated to make a return for the 2011 fiscal year. But with the state facing a shortfall in general fund revenue, the governor didn’t include the Medicaid money in the education fund, instead putting it in the general fund where it has been for the last two years.

Of the $11 million in statewide property tax scrutinized by Dover officials, Perrault says $7 million will be used to fill the gap left by loss of Medicaid money to the general fund, and it will be used for regular education spending. The remaining $4 million will be used to replenish the education fund’s reserve. “By law we have to have 3.5 to five percent held in reserve as a little extra cushion,” says Talbot. “If there’s a deficit, the reserve picks it up.” Last year, Perrault says, the state had to dip into the reserve fund.

But the governor’s budget hasn’t been approved yet. Although Perrault says it appears the Legislature is likely to approve the change in Medicaid funding, Representative John Moran says the House Appropriations Committee is scrambling to restore a number of expenditures that were cut in the governor’s proposed budget. Moran says he’s still investigating Dover’s charges, but he won’t vote in favor of any transfer of education fund money to the general fund. “I don’t support that,” he said.

Moran says there are a variety of changes to education funding under consideration in the Legislature. A proposal from the governor’s office would reduce the threshold for income sensitivity under Act 68. “The governor suggests reducing it from $90,000 to $75,000 or $60,000,” Moran said. “I see that as another property tax increase. If you have a household with two people earning $35,000, you’re below the median income, but your taxes will go up if the governor’s plan prevails.”

Moran also noted that the House Education Committee passed H.782, the so-called “Peltz bill” authored by committee member Peter Peltz, of Woodbury. Peltz’s bill is one of three consolidation bills circulating in the Legislature, but rather than mandating school consolidation, H.782 would provide incentives for schools to consolidate voluntarily. Moran says the bill could be up for debate on the floor before the end of the week.

Perrault said another proposal that would affect income sensitivity is also under discussion in the House Ways and Means Committee. The proposal would result in a one-cent reduction in the statewide education tax rate by limiting the value of property eligible for income sensitivity to the first $400,000 of property value. The proposal would also reduce the current cap on property tax rebates from $8,000 to $6,000, and end an additional tax bill reduction of $10 per acre, to a maximum of $50, for acreage beyond that included in the two-acre “homestead” exemption. “The proposal is a tax shift away from those earning $90,000 and above,” Perrault said.