Late changes pushing school tax rates higher

ADDISON COUNTY — When Vermont residents cast their ballots on local school budgets on most Town Meeting Days, they have a pretty good idea of how that spending will affect their property tax bills.
That has been the case even though lawmakers in Montpelier sometimes have had to tweak funding formulas in April and May once they know how much statewide school spending residents have approved.
But this year, with recent changes to Vermont education funding laws and legislative procedures, school districts have been frustrated trying to provide accurate estimates of tax rates.
Voters cannot rely on estimates published in many town and school reports because the Legislature changed provisions in the state’s new education funding law, Act 46, too late for town meeting publication deadlines.
Then lawmakers realized that the statewide homestead education tax rate of $1 and the 2 percent rate at which homeowners are taxed who pay based on their income, rather than the value of their homes, would not raise as much money for the Vermont Education Fund as they had expected.
That fact will place more of a burden on local tax rates to make the Education Fund whole, meaning that even estimates updated after the tweaks to Act 46 are wrong — specifically that they are too low.  
House Education Committee Chairman Rep. David Sharpe, D-Bristol, acknowledges that local homestead tax rates will be higher than originally thought, but by how much lawmakers cannot pin down yet.
Districts expecting big tax cuts will probably still see them, Sharpe said, while districts expecting level tax rates will face increases.
“I’d say yes,” Sharpe said. “Many districts were projecting … as much as a 6 percent tax cut. So maybe it will be a 3 percent tax cut.”
Districts such as Addison Northwest Supervisory Union, for example, have found the situation frustrating. ANwSU had to send out reports in late January that stated, because Vergennes Union High School spending would be over the original Act 46 threshold, tax rates would increase.
Then, after lawmakers tweaked Act 46, ANwSU officials spent a week recalculating tax estimates using the best information possible and announced rates would go down in four of five towns, significantly in two and by less than a cent in two.
Now, it looks like rates could rise in three of five ANwSU towns. Superintendent JoAn Canning said the situation, no doubt similar to others across Vermont, has made it virtually impossible to communicate effectively with district residents.
“It wasn’t just business as usual. We were all trying to respond to a law, and then the actual bill got changed early in the session. This was after all the budgets had been published and communicated. And then to have another change, and we’re about to head into March 1st?” Canning said. “It’s been extremely challenging to chase the information and get as accurate as possible information out to people.”
Sharpe said final rates have never been known until later in the spring.
“They have changed every year I’ve been in the Legislature. We try to have a preliminary one out of the House before Town Meeting Day, and then the Senate, based on actual votes made on Town Meeting Day, does a modification of those, and then the bill is passed and then signed by the governor,” he said.
But Sharpe also agreed this winter has been different.
“It is a more complicated session because of the thresholds in Act 46,” Sharpe said. “And also we changed the methodology.”
The basic differences have been two-fold, Sharpe said. The first is softening of Act 46 threshold penalty provisions that changed some funding rules after local budgets were adopted.
The second, he said, was that now the $1 homestead rate and 2 percent income-payer rate are fixed. Previously, lawmakers would tweak those rates after the session to raise enough money to cover local spending approved on Town Meeting Day.
Now, Sharpe said, if those rates do not yield the expected amount, the Education Fund must be made whole from other sources, local property taxes among them.  
“The Education Fund pays every voted budget no matter what. We write the check,” he said.
In December, Sharpe said, the tax commissioner reported those rates would be adequate.
Since then, he wrote in an email, “This amount has been amended several time due to various realities regarding how much the Education Fund could support in base amounts. Part of that is the expected penalties resulting from school districts exceeding the spending thresholds in Act 46. In addition, with the relaxing of the thresholds and the efforts of local school boards to stay under the spending thresholds we have seen a reduction in the yield.”
With the homestead and income-payer rates fixed, Sharpe said in an interview, lawmakers’ conversation has turned instead to the “amount of money (local) tax rates will raise to support local budgets.”
Districts and schools under the Act 46 threshold limits, such Addison Northeast and Addison Central supervisory unions, will still see tax rate increases, Sharpe said, but no changes will threaten their threshold standings.
But the uncertainties will persist. As is the case every year, final rates are months away.
“They may yet change again after town meeting when we see what communities actually vote,” Sharpe said.
And tweaks to the overall system could also be in the works. Sharpe said lawmakers might take another look at this winter’s practice of fixing the statewide tax rates in advance.
“It’s not exactly working the way we figured, and we may have to revisit it again,” he said.
Sharpe also noted the lawmakers used $20 million “over and above the required reserve in the state Education Fund” to reduce rates for the upcoming fiscal year, and lawmakers heard that many local districts used fund balances and reserve funds to dodge Act 46 threshold penalties while adopting budgets.
He expects the Legislature and local boards to have to make more tough choices for Fiscal Year 2018.
“We expect that amount of revenue will not be available in FY18,” Sharpe said, “and it will require some very difficult decisions in FY18.”
Andy Kirkaldy may be reached at [email protected].

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