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Eric Davis: Bill seeks income tax to fund schools

The House Education Committee’s bill to eliminate approximately 80 percent of Vermont’s school districts by consolidating their number from 273 to about 50 has been the subject of considerable debate in recent weeks in the Statehouse, in the education community, and in the press.
The consolidation bill, which is now before the House Ways and Means Committee, faces an uncertain future in Montpelier. Another bill, which has already been passed by the House, may end up having far greater impact on the structure and financing of K-12 education in Vermont. H. 889, in addition to setting the statewide education property tax rate for 2014-2015, makes several significant changes in the education finance system.
First, the bill requires school budget articles presented to the voters to include the following wording: “It is estimated that this projected budget, if approved, will result in education spending of $____ per equalized pupil. This projected spending per equalized pupil is ___ percent higher/lower than spending for the current year.”
In many Vermont school districts, per-pupil spending is increasing faster than the overall budget, because enrollment is declining. By requiring this information to be presented to the voters, H. 889 would increase the burden on school boards seeking to maintain, or slightly increase, spending at a time when the number of students in dropping.
Second, H. 889 would phase out, over a three-year period beginning in 2018-19, the additional state grants that have been provided to small schools. These grants have gone to school districts with a total enrollment below 100 students. The Vermont Education Department’s web site indicates that nine districts in Addison County — Addison, Bridport, Cornwall, Leicester, Ripton, Salisbury, Shoreham, Weybridge and Whiting — qualify for the small school grants.
While the effect of these grants on the tax rate varies from district to district, eliminating the small school grants entirely could mean an increase in the tax rate of approximately 5 cents — or about $125 per year for a home assessed at $250,000 — in a district whose school board kept spending intact in spite of the elimination of this additional state aid. Small districts with high per-pupil spending would also find it more difficult to avoid tax penalties for excessive spending without the small school grant funds.
Finally, H. 889 includes a provision that “By Jan. 1, 2017, the General Assembly shall transition to a tax system for financing education in Vermont that incorporates an education income tax.” While one Legislature cannot tie the hands of its successors, the intent of H.889 is to reduce substantially the share of education spending in Vermont that is funded by the property tax, to eliminate the income sensitivity component of the property tax entirely, and to institute an education income tax in place of most of the property tax.
The effects of this change will depend on the details of the education income tax. Lawmakers will have to be careful that home owning households with incomes below $90,000 — most of whom now benefit from the income sensitivity program — will not see their tax burdens increased by the introduction of an education income tax.
If H.889 makes its way through the Senate, and is signed by Gov. Shumlin, the 2015-16 Legislature would have two huge items on its agenda: substantially restructuring the way K-12 education is financed, and approving a financing package for the Shumlin Administration’s plan to begin Green Mountain Care — a single-payer health care system — in 2017. Whether the legislators to be elected this November can rise to these challenges remains to be seen.
Eric L. Davis is professor emeritus of political science at Middlebury College.

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