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Act 60 architect John Freidin pans school funding plan

MIDDLEBURY — One of the architects of the state’s current education finance system is not very impressed with the House-passed alternative, H.911.
H.911, among other things, proposes to raise roughly $59 million through a new “school income tax surcharge” on homesteads (a house and two acres). That surcharge would be offset by a commensurate reduction in property taxes, according to boosters of the bill.
Former Rep. John Freidin, a Democrat now living in Middlebury, was candid in his criticism of the Legislature’s latest effort at an Act 60 makeover.
“In short, it is difficult to understand why the House developed and signed this bill,” Freidin said, noting more than 96 percent of the school budgets throughout the state won voter approval on Town Meeting Day under the current education finance system.
“The House missed an enormous opportunity to base school taxes directly on household income,” he added.
The House approved H.911 by an 85-54 margin. The bill now reposes in the Senate Finance Committee. A favorable review by the state’s highest chamber is not likely to make much difference, however, as Gov. Phil Scott has already put the bill on his veto list.
“Without reforms to continue to improve efficiency and right-size our system, this bill does little but change the pocket Vermonters are paying from, while increasing the capacity to raise taxes even more significantly and unsustainably in the future,” Scott said.
As recently reported by VTDigger, H.911 would change how property taxes are calculated, beginning in fiscal year 2019. An income tax surcharge would be collected through paycheck withholdings retroactively, starting Jan. 1, 2018. Other income would also be taxed. About $60 million would be collected from the surcharge to bring down the average property tax rate by 15 cents — or about 10 percent. The initiative would also end the current general fund transfer to the education fund, thereby creating direct tax revenue streams to education.
The full text of H.911 can be found at tinyurl.com/ybjt4w4w.
Freidin believes lawmakers could have pursued a more basic change in school funding that would have more of an impact.
“Ironically, many of the provisions of H.911 that make it confusing and problematic could have been solved by eliminating the education property tax on primary residences and leaving in place a 100-percent income-based system for residents,” he said. “That would end the problems with the school property taxes on homes and the Common Level of Appraisal, would be simple and easy to understand, would be based on ability to pay, would directly connect voters to the decisions they make when voting on school budgets, and would ensure that everyone paid an equitable share of education Vermont’s children while continuing to provide all students with equal access to resources.”
Freidin was one of the chief architects of Act 60, the state’s landmark education finance law. Enacted in 1997, “The Equal Education Opportunity Act” was developed by the Vermont Legislature in response to the Vermont Supreme Court’s ruling that the state’s prevailing school funding system was unconstitutional. That previous system allowed towns with greater property values to raise more money per pupil on their respective tax rates than communities with lower property values.
Act 60 — which was later adjusted through Acts 68 and 130 — essentially combined the state’s education resources into a single fund and gave all school districts equal opportunity to access that funding.
Freidin argued that while H.911 is “slightly fairer” than the current system in that it relies a “little bit more” on income taxes than the current law does,” it would also cap income sensitivity adjustments at $400,000 of house site value. That’s $100,000 less than the $500,000 cap reflected in current law.
“That is a move away from taxation on ability to pay,” Freidin said. “And the continuing reliance on property and sales taxes in H.911 continues to make the system regressive.”
Freidin also took issue with those who claim H.911 is easier to understand than current law.
“It is part property tax and part income tax, but even those terms are confusing,” Freidin said. “Is an ‘income-sensitized’ education property tax a property tax or an income tax?”
Current education funding rules include three education tax rates, according to Freidin: A homestead property tax, a non-residential property tax on all other land, and an education income tax that two-thirds of Vermonters pay that is “unrelated to school spending.” Freidin noted H.911 creates a fourth education tax: An income tax surcharge, unrelated to school spending, that all would pay.
And H.911, according to Freidin, would require all school districts to pay additional taxes if they spend more than a “base spending amount” set by the state. That base amount would have been $11,916 in fiscal year 2019, according to Freidin. He said three Addison County school districts are due to spend more than $5,000 over that base spending amount per pupil in FY 2019.
Were it ever to be implemented, Freidin doesn’t believe H.911 would result in a trend of lower school spending in Vermont. Proponents of the law point to an initial, 15-cent decline in districts’ education tax rates under H.911. Freidin subscribes to the theory that school budget architects will use that savings as justification that their districts will be able to afford more educational amenities.
Still, Freidin applauded H.911 for relieving the state Education Fund from its obligation to pay for adult education and literacy programs ($3 million), the “Flexible Pathways Initiative” that readies high school students for post-secondary studies ($7.3 million), the Community High School of Vermont that delivers education to those in the corrections system ($3.3 million), and the education tax portion of the renter rebate program ($7.9 million). That totals $21.5 million.
But the net savings would be only $13.8 million, according to Freidin, because of a new financial responsibility that would be assigned to the Education Fund.
“H.911 increases the obligations of the Education Fund by making it responsible for the payment of each district’s annual portion of the teachers’ retirement ($7.7 million), in spite of the fact that districts have no say in the cost or terms of the teachers’ retirement,” Freidin said.
Passing H.911 would also not bode well for sweeping education finance reform, Freidin believes.
“If H.911 does become law, it is likely to set back for several years the need to improve current law,” Freidin said. “Legislators will contend that they’ve done their job to ‘fix’ the current system, and state and local educational administrators will be tied up figuring how to implement the law and understand its impacts.”
Reporter John Flowers is at [email protected].

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