Vermont Eyes New Methods of Paying for Schools

By Peter Schmidt — December 13, 1989 4 min read

Faced with a slowing economy and voter unrest over property taxes, Vermont policymakers are pondering major changes in the way the state pays for its schools.

Even a white Christmas and a booming ski season this winter--with the resulting influx of sales-tax revenues--would not be enough to resolve the state’s school-finance and property-tax woes, education officials say.

After several years of prosperity that funded significant increases in education spending, the state is falling prey to the same regional economic problems that have produced fiscal chaos in neighboring Massachusetts. (See Education Week, Oct. 18, 1989.)

Voters in the Green Mountain State, moreover, have been voicing displeasure with their property-tax burden by rejecting a substantial number of local school budgets.

When it reconvenes early next month, the legislature will have to reconcile widespread demands for increased state education spending to provide local property-tax relief with a projected state revenue shortfall this year of $25 million to $30 million.

“We’re sort of in a double crunch here,” said John A. Nelson, associate director of the Vermont School Boards Association.

“Our economy appears to be slowing down, so the ability of the state to keep up its level of aid to education this year appears to be in question,” Mr. Nelson said. “That is putting local budget administrators, who were already under pressure, under a great deal more.”

Meanwhile, the state education department’s proposed $55.7-million budget 3, which covers operations and grants but does not include general state aid, is $9 million over the state’s target.

“I have an obligation to make some serious cuts,” said Commissioner of Education Richard P. Mills, “but there is no way to make close to $9 million in cuts without pushing costs onto local school districts, and without walking away from commitments we have made in the past to special education and state aid.”

“I am not willing to do that,” Mr. Mills added.

School Budgets Rejected

Of Vermont’s 277 school districts, 14 percent saw their budgets defeated this year after they were put to a public vote, as required by state law.

An education department analysis based on comments from officials in the districts where budgets were rejected last year found that the largest number, 16, cited voter backlash against property taxes as the driving force behind school-budget defeats.

Property taxes collected by localities increased by a statewide total of about 12.5 percent between 1988 and 1989 and 11 percent the year before, according to Bill Hayden, state director of property-tax valuation and review.

Cited as playing a role in about 10 budget defeats was community resentment of teacher strikes or a perception that teacher salaries are too high. Since 1982-83, average teacher salaries have climbed from a ranking of 49th among the states to 28th this year.

All but one of the defeated school districts succeeded in getting voters to approve reduced budgets in subsequent special elections.

Even so, the initial wave of rejections has caught the attention of lawmakers.

“With 39 towns turning down budgets one or more times, that is a clear indicator to the legislature that property taxes are perceived to be a problem,” said Barbara L. Grimes, a Democrat from Burlington who chairs the House Education Committee.

“What comes out over and over again is that property taxes are considered regressive and unfair,” Representative Grimes said. “People want income taxes as a bigger factor.”

Increase in State Share Sought

To help prevent future budget rejections, the Vermont affiliate of the National Education Association and the Vermont League of Cities and Towns each have offered legislative proposals for property-tax relief.

The Vermont Superintendents Association and the Vermont School Boards Association together submitted a third proposal last month.

Currently, local schools receive a total of $137.1 million, or about 37 percent of their total costs, from the state.

The proposal offered by the administrators and school boards calls for the state to raise the sales tax to 6 percent from 4 percent, thus generating an additional $70 million and enabling an increase in its participation in educational funding to 50 percent. The proposal also seeks to shift more of the property-tax burden to nonresidents, and urges districts to hold annual growth in operating costs to 7.5 percent.

The cities’ and towns’ plan also calls for the state to increase its funding to 50 percent of local costs. It proposes a variety of local-option taxes, the revenue from which would be shared by communities, as well as a shifting of the tax burden from local property taxes to optional local income taxes.

The Vermont-n.e.a. package would provide for property-tax relief through a homestead exemption allowing homeowners to deduct $50,000 from the assessed value of their primary residence.

It also calls for decoupling the state’s income tax from the federal tax, thereby closing loopholes created by federal laws. In addition, it proposes “piggyback” taxes on commercial property and second homes in districts where local property-tax rates are below the state average.

No one tax plan clearly has the most support, Representative Grimes observed, adding that “there is no rhyme or reason” to the way in which legislators appear to be dividing among the various proposals.

“It really comes down to how somebody’s town makes out on the proposal,” Ms. Grimes said. “The bottom line is that we are each elected by our constituents.”

A version of this article appeared in the December 13, 1989 edition of Education Week as Vermont Eyes New Methods of Paying for Schools