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Vt. Officials Ponder 'Radical' Changes in School-Finance System

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Goaded by a property-tax burden that has reached "crisis proportions,'' Vermont officials appear to be moving toward a fundamental reworking of the state's school-finance system.

A state panel appointed by Gov. Howard Dean is scheduled to issue a report early next month advocating a long-term scheme that would remove property taxes as the source of local school funds.

The plan by the Governor's Blue Ribbon Commission on Educational and Municipal Financing Reform is expected to recommend that the state move toward a uniform property tax, which would go into state coffers, and local income taxes to pay the district share of school budgets.

The Vermont proposal marks a growing trend in school-finance debates, as state decisionmakers look to comprehensive reform of overall state tax structures in order to decrease the traditional reliance on local property taxes, which are at the root of inequities in school spending.

"This is a radical change,'' said David S. Wolk, the chairman of the commission and chief of policy for Gov ernor Dean. "But the property-tax dilemma is reaching crisis proportions in Vermont.''

Relying on Local Funding

Property taxes are a particularly difficult subject in Vermont, because the state combines a heavy reliance on local funds for K-12 education with a relatively high level of school spending in comparison with personal income. The result has been that many small communities in the mostly rural state have been forced to impose painfully high property levies on residents who are also struggling to cope with the sluggish economy.

In fiscal 1992, property taxes accounted for $366 million of the state's $587 million K-12 budget.

Compounded by wide variations in property value, the current system creates wide differences in districts' spending power. State records indicate that the wealthiest districts have a property-tax base for each student that is 100 times larger than that of the poorest district.

State officials have long introduced legislation to revamp the tax system or reform school funding. But conflicts between interest groups have allowed only one major modification of the funding formula to pass since the 1970's.

Officials last week predicted, however, that the work of the Governor's panel and a separate commission due to report to the legislature this month will prompt leaders to rethink state-funding issues.

'A Historic Compromise'

Officials in the Governor's office and the legislature expect a comprehensive debate to begin in the next few weeks and stretch into the 1994 legislative session. Some participants predict big changes, while others are unsure that a complete change is either practical or wise.

Much of the fodder for the upcoming school-finance debate will come from Mr. Wolk's commission, which includes both lawmakers and representatives of most of the state's most powerful lobbying groups.

The group voted 15 to 1 this month to propose interim steps that include local-option taxes on sales, lodging, and food to boost local school budgets and a minimum property tax on vacation homes.

The panel called for greater study of converting residential-property taxes to a local school income tax, creating a state tax on nonresidential property for school funding, and eliminating property taxes on undeveloped land.

Further, the panel is expected to recommend a long-term tax system that would shift local school taxes to an income tax, institute a statewide property tax to help pay the state share of school funding, and base general state aid to school districts on aggregate income per student and the local tax burden.

Such a plan, its proponents argue, would create a level playing field for school districts by eliminating disparities in property-tax rates and factoring local income and tax effort into a funding formula.

"This is a historic compromise for Vermont, where groups like the League of Cities and Towns were always unwilling to give up property taxes while the state was not willing to offer any alternative,'' Mr. Wolk said. "Up until now, there had never been an effort like this to try to compromise.''

Broad Support Sought

Indeed, officials have insisted on strong support before attempting to push the plan. Mr. Dean refused to endorse his commission's work late last year after six members initially voted against its recommendations.

"It was important to get a broad consensus because we haven't ever been able to get the sides to agree on these issues,'' Mr. Wolk added.

Observers say the strong final vote to endorse the plan and the broad composition of the task force speak well for the proposal's prospects.

"We're pleased they had the courage to deal with a very political issue--to take it out of the hands of politicians and put it in the hands of all Vermonters,'' said Marlene R. Burke, the president of the Vermont-N.E.A. "It was a diverse group and the beauty of it is that they all saw the need to make a change.''

Ms. Burke said many officials around the state have begun to feel the urgency of the issue.

"This is an opportunity this association has been working for for years, and they've restored my hope,'' she said. "One of the things people liked about this was that they spent six months looking at the whole rather than the parts. They lobbied each other well and significantly to propose these kinds of changes.''

Mr. Wolk acknowledged that while the panel worked to keep its focus on principles and substance, it is inevitable that the plan will be dissected to determine winners and losers when the debate moves to the legislature.

"We've tried to avoid the 'printout of the week,''' Mr. Wolk said. "But now that the legislature has to deal with the issue, I understand people will want to take a closer look at it.''

Legislative leaders, meanwhile, are finishing work on their own school-finance commission. While members are still not sure what direction the debate will take, a co-chairman of the panel said he did not favor the measures proposed by the Governor's commission, of which he is also a member.

Legislature Seen Skeptical

"They're coming at it from a taxpayer-equity point of view, not a student-equity point of view or how the money is spent,'' said Sen. Jeb Spaulding, the chairman of the Senate education committee and a co-chairman of the Education Finance Commission created by the legislature.

Mr. Spaulding, who did not vote on the final interim measures offered by the Governor's panel, said he does not support either the local-option taxes or the second-home property tax. Many lawmakers will be skeptical about any plan to replace property taxes with an income tax, he added.

"It's a pretty controversial matter, because there are so many points of view,'' he said. "It's not feasible to largely eliminate the property tax and still provide education funding.''

The legislative panel is expected to recommend that the state shoulder a greater funding burden, raising the current level of less than 30 percent to 50 percent. At the same time, its taxation reforms would be more modest.

Mr. Spaulding said that rather than abolishing the local property tax, officials might aim instead to broaden tax bases beyond the boundaries of the state's many small school districts.

'A Two-Year Process'

In addition to rethinking property-tax boundaries, the legislature's panel may call for revamping the state's property-tax-rebate program, which is based on income. Other steps being considered include rewarding school district performance through state education funding, requiring district-improvement plans, and dedicating more money to teacher preparation and training.

"The most effective and simplest way to make school funding more sensitive to income would be to change the rules of our rebate program,'' Mr. Spaulding suggested. "It seems questionable to some of us to almost double the income tax to do away with property taxes.''

No matter the legislature's direction, though, Mr. Spaulding and others agree that school-finance and tax matters will be at the top of the state's priorities in the months ahead.

"I hope eventually that we can tie together what the Governor's commission is doing and what our commission is doing, because there is some overlap,'' Mr. Spaulding said. "This allows the legislature to start with some proposals, and it could be that we would talk about it this session and have hearings over the summer and work on it in 1994.''

"If we're going to make radical changes, we don't want to rush through them,'' Senator Spaulding added. "We're looking at a two-year process if we're going to do something significant.''

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