PAI: Education funding can be fairer, simpler

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PAI: Education funding can be fairer, simpler

Fri, 03/02/2018 - 12:26pm -- tim

by Jack Hoffman Public Assets Institute While it includes some useful changes, the House bill to reform education funding fails in its stated objective, which was to “simplify the funding process” and “strengthen the connection between voters and the cost of supporting local schools.”

First the good news.

  • The plan would impose a new education income tax surcharge that would shift some education costs away from the property tax and onto a tax that is based on Vermonters’ ability to pay. For the first time, taxpayers in the upper income brackets would be required to pay a progressive income tax directly to the Education Fund.
  • It shifts some costs from the Education Fund back to the General Fund. Though nominally connected to education—for example, Community High School of Vermont for prison inmates or adult basic education—these programs should be supported with broad-based taxes other than the property tax.

These improvements, however, are overshadowed by a restructured funding formula that is far from simplified and likely to leave voters even more bewildered than they are now. For a funding system to “strengthen the connection between voters and the cost of supporting local schools” voters need to easily understand the tax consequences of their spending decisions. This plan does the opposite—it makes the system more complex.

The new plan maintains the major pieces of the current system: a uniform, non-residential property tax, and a homestead (or residential) tax this is based on property values or household income at the taxpayer’s choice. These homestead rates vary from town to town, depending on per pupil spending, and it is estimated that the averages—both on property and income—would come down in fiscal 2019.

But the new plan changes the formula for calculating the variable homestead rates, putting in place a system that is more complicated for voters to grasp. Now, tax rates increase in direct proportion to spending per pupil increases. If any town spends 10 percent more per pupil, its tax rates are 10 percent higher. That proportional relationship between spending per pupil and tax rates would be eliminated with the new plan. In fact, tax rates increasing disproportionately faster than per-pupil spending would become a permanent feature of the new system.

A fair school funding system doesn’t need to be more complex than the current system. The Legislature could make the funding system much simpler for voters by doing away completely with school property taxes on a primary residence and up to two acres of land. All we need to do is extend the current income-based homestead tax to all residents, regardless of income. It would be easy for everyone to understand, and all Vermonters would be contributing to the support of our schools based on their ability to pay.

What could be simpler or fairer?

Source: Public Assets Institute 3.2.2018