Politically Thinking: Income sensitivity rule must evolve

<p>By April 15, more than two-thirds of Vermont households will have filed an application for an income sensitivity adjustment to their property taxes. The income sensitivity program is one of the fastest growing parts of the state budget, and probably cannot be sustained in its current form much longer.</p><p>Income sensitivity allows homeowners with incomes of up to $90,000 to pay an education property tax of no more than 1.8 percent of their household income on their house and up to two acres of land. When the program started, the maximum eligible income was $75,000. In 2007 and 2008, the maximum eligible income was raised, first to $85,000, then to $90,000. </p><p>In 2009, 66 percent of Vermont households were eligible for income sensitivity. With the decline in the economy over the past year, nearly 70 percent of households are estimated to be eligible for the program in 2010. In high-spending school districts such as the towns in the Addison Central Supervisory Union, the income sensitivity adjustment can represent a property tax savings of $1,000 to $2,000 a year for a household owning a home valued at $250,000.</p><p>Income sensitivity payments in fiscal 2011 are projected to be $26 million higher than in fiscal 2010, and to increase at a comparable rate for fiscal 2012. There is no other program in the state budget that will have increased by $50 million over two years. Indeed, close to half of the statewide increase in homestead education tax revenue from this year to next is projected to go to the income sensitivity program, rather than to K-12 education itself. </p><p>There are several approaches to restraining the growth of the income sensitivity program. One approach, which has been proposed by the Douglas administration, and has been reluctantly accepted by some legislative Democrats, is to cap the assessed value of homes eligible for the program at $400,000. For example, if a household eligible for income sensitivity owns a home valued at $500,000, it would pay the full education property tax on the last $100,000 of assessed value, and would receive the income sensitivity adjustment on the first $400,000. </p><p>The effects of this change would be particularly great in towns such as Norwich and Stowe that have a large number of high-value homes. In these towns, households earning $80,000 to $90,000 can receive income sensitivity adjustments of $5,000 or more.</p><p>A second approach to changing income sensitivity, which Gov. Douglas also proposed earlier this year, is to reduce the size of the adjustments for households with incomes of $60,000 to $90,000. The administration has proposed leaving the current 1.8 percent cap in place for incomes up to $60,000, and raising the cap to 2.25 percent for incomes from $60,000 to $75,000, and to 3.5 percent for incomes from $75,000 to $90,000. </p><p>If these changes were made, a household earning $76,000 could see its school property taxes increase by $1,200 to $1,500 annually, if no other adjustments were made in school budgets. Legislative Democrats strongly oppose raising the caps for income sensitivity. They point out that Vermont’s annual average wage is $38,000 per year, and that a household made up of two earners, each of whom earns the state’s average wage, should not have to see its school property taxes go up by well over $1,000 per year. </p><p>Fundamental disagreements between the legislative and executive branches over the future of the income sensitivity program may well represent one of the biggest obstacles to a timely adjournment of the Legislature later this spring. </p><p><em>Eric L. Davis is professor emeritus of political science at Middlebury College.</em></p>

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Addison County Independent

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