Editor’s note: During the current political season some lawmakers have proposed repealing the current law for funding schools and creating some new funding system with the goal, proponents say, of providing property tax relief. We took a look at the impact of Act 68 in one Addison County school district to provide some data that would be useful in debate over that proposal.
By ANDY KIRKALDY
VERGENNES — In 2002, the last year before the passage of Act 68, the Vermont school financing law that raised the state sales tax to provide property tax relief, Addison Northwest Supervisory Union residents sent almost $10.4 million to Montpelier in school tax payments.
Four years later taxpayers in Addison, Ferrisburgh, Panton, Vergennes and Waltham are writing checks for a collective amount of roughly $11.37 million, a figure that translates to an average annual increase of a modest 2.4 percent a year between 2002 and 2006.
The path between those two points has been far from straight, however. According to Vermont Department of Taxes and ANwSU figures, the five union towns have seen dramatic dips and spikes in their individual tax rates as their student counts in union schools moved up and down and, in the case of four towns, their property was reassessed. (See chart.)
And that district-wide average increase of 2.4 percent a year includes significant overall decreases from 2002 to 2003 and from 2003 to 2004, and then major bumps back upward in each of the past two years.
In 2003, when the effects of Act 68 were first felt, the collective tax bill for ANwSU taxpayers dropped by almost $1 million, from $10.356 million in to $9.39 million.
The next year saw ANwSU property tax collections drop by another $423,507 to almost $9 million.
Those lower tax bills were not the result of lower spending. In the school year that began in 2002 ANwSU budgets totaled about $12.6 million, and by 2004 spending at the four ANwSU schools — Vergennes union elementary and high schools and Addison and Ferrisburgh central schools — reached $13.7 million.
Then in 2005 ANwSU tax collections started moving in the other direction, jumping by roughly $850,000, from almost $9 million to about $9.8 million.
That upward trend gained momentum the following year. Projected 2006 ANwSU tax bills are up by more than $1.5 million to almost $11.4 million.
Officials said that they expect the dramatic increases to slow down, however, as fast-rising property values, which affect tax rates, slow down along with the real estate market.
“Those should see some leveling off,” said ANwSU business manager Donna Corcoran.
The ANwSU tax figures do not account for tax rebates, which have run up to 20 percent of the total ANwSU tax bill.
In 2004, the most recent year for which rebate and prebate data are available, 1,551 ANwSU households shared about $1.9 million in tax relief, while paying $9.4 million in taxes.
Also, households with incomes of $47,000 or less have all their property taxes — supporting both town and school spending — capped at 5 percent of that income.
SPENDING AND TAXES
Certainly, higher ANwSU spending played a role in the district tax hikes of the past two years. Corcoran said special education, health insurance and energy spending have all risen quickly, although most other spending increased at typical inflationary rates.
Also, Corcoran said, an accounting change in the way a large portion of vocational tuition is handled added more money to the budgets in 2005 even though the Department of Education still picked up the tab for it.
Regardless of the factors, between 2004 and 2005 ANwSU spending rose from roughly $13.7 million to about $14.9 million.
But spending alone does not explain the tax increases. As taxes increased by $1.5 million in 2006, ANwSU spending rose by just about $200,000.
Corcoran and William Smith, the state tax department’s tax policy statistician, said much of that increase is tied to the four recent reappraisals in ANwSU towns. Panton completed a reappraisal in time for the 2004 tax year, Ferrisburgh and Waltham did the same for 2005, and Addison’ new town-wide property valuation took effect this year.
In Panton, Ferrisburgh and Waltham tax collections all spiked upward the year after reappraisals were completed. (See chart.)
“There’s a huge bounce-back,” Corcoran said.
Smith spoke more cautiously about that bounce-back effect, which he said happens when property rises in value quickly the year after a reappraisal. A town’s “common level of appraisal,” or CLA, drops dramatically, which in turn causes tax rates to increase.
Smith said the legislature could change the law to take care of that problem, but that change could trigger different problems, and thus far lawmakers have not agreed on how to tinker with Act 68.
Smith said other factors — including local spending, student counts, and further property appreciation — could continue to push ANwSU tax collections higher.
But he said the upward tax-rate trend in the ANwSU towns that reappraised in 2004 and 2005 should slow.
“In the data I have seen on towns that have reappraised … after the second-year effect the CLA will change at a rate that is consistent with market appreciation,” Smith said, adding that, “Coming out of a reappraisal cycle for all those towns there, things should become less volatile for the CLA factor.”
MANY IN VERGENNES AREA ALREADY GETTING TAX RELIEF
While the debate rages around Vermont about property tax relief, more than 1,500 Addison Northwest Supervisory Union households received between roughly $1.77 million and $1.92 million in rebate and prebate checks in 2002, 2003 and 2004, the most recent years in which income sensitivity date is available. (See chart.)
Bill Talbott, the Vermont Department of Education’s chief financial officer, said statewide about 26 percent of residential property taxes collected have been returned to homeowners under Act 68, the education finance law passed in 2003.
That law changed overall tax collections in ANwSU in the past few years, at first lowering them from about $10.4 million in 2002 before they rose to roughly $11.4 million in 2006. In all, the amount of taxes collected in ANwSU rose by about 2.4 percent a year since 2002.
But officials said tax collections do not tell the full story of education finance in Vermont. In some cases households who make as much as $110,000 a year qualify for a limited amount of school property tax relief, while more is available for households with incomes of $85,000 or less.
And while many politicians continue to talk about the burden on the elderly and other taxpayers with fixed incomes, a provision of the 1998 education funding law Act 60 still in effect under Act 68 caps all property taxes — those that support town as well as school spending — for households with incomes of less than $47,000.
Bill Smith, the tax policy statistician for the Vermont Department of Taxes, said households with incomes ranging from $25,000 to $47,000 do not pay taxes in excess of 5 percent of their income. Households that earn less than $25,000 pay less on a sliding scale.
Smith said about 30,000 Vermont families have had their property taxes capped every year.
For example, a family with an income of $30,000 has its property tax liability capped at $1,500, while a family earning $40,000 will never pay more than $2,000 regardless of the value of its home or the town’s tax rate, he said.
“For all the rhetoric out there, if your income is under $47,000, your property taxes are 5 percent of your income regardless if your town is raising taxes,” Smith said. “That particular population of about 30,000 … is not affected by any increase seen to their total property taxes, because they pay based on their incomes … It is one of the best programs in the country, if not the best.”
In 2004, 443 ANwSU households used this homeowner rebate program to cap their property taxes: 84 in Addison, 133 in Ferrisburgh, 18 in Panton, 181 in Vergennes and 27 in Waltham.
Another 1,108 ANwSU households received school property tax relief checks in 2004. Between the two programs that year ANwSU taxpayers received about $1.9 million in tax relief.
That figure equals almost exactly 20 percent of the $9.4 million the state collected in education taxes for the 2004-2005 school year.
SCHOOL TAX RELIEF
School property tax relief calculations are more complex, and the rate of money returned varies with per-pupil spending in each town. Essentially, the state gives a smaller percentage back depending on how much a town is spending over the base per-pupil rate of about $7,300.
Smith said Panton’s rate of tax money give back is almost exactly at the state average for the percentage of property tax returned.
In Panton this year a family earning $50,000 will receive a school-tax rebate of $866 if they live in a home assessed at $150,000.
The same family would get a check for $1,587 if they lived in a home assessed at $200,000, or for $146 if they lived in a $100,000 home.
Smith said in most cases families in homes with more value than their income would normally support — if they live in an expensive home that was inherited, for example — will get more relief. If their incomes are in line with the value of their home, they will receive less.
“If you’re in an expensive house you inherited, you’ll get a lot of assistance,” Smith said. “If you’re in a home that is consistent with your ability to get a mortgage … then your prebate payment is not going to be very high, if you get one at all.”
ANwSU business manager Donna Corcoran provided the Independent with estimated prebate information for residents of each of the five union towns for different income levels and home values. A link to that information is available at www.addisonindependent.com.
One change will take effect next year in the income sensitivity provisions of Act 68. As per Act 185, which the Legislature approved last winter, the state will not send out checks to taxpayers, but instead instruct towns to lower tax bills by an amount equal to rebates.
Smith said the state’s doing so will allow homeowners to make a more direct link between tax bills and tax relief.
“The entire intent of that legislation (Act 185) was to make very clear what that connection is between your school property taxes and your income sensitivity assistance,” he said.