Property Tax Reform for School Funding - Should VT Go Hybrid?

 

Rethinking Vermont's School Funding Approach

Vermont currently funds K-12 education through a mix of statewide and local property taxes. About two-thirds of the $1.6 billion yearly total comes from homeowners via tax rates and formulas set at the state level. This convoluted system aims to equalize spending across districts, but creates confusion on how increasing revenues tie to per-pupil funding and outcomes.

Property tax bills also provide income-based credits for affordability, but these credits lag behind current year taxes owed. This mismatch leaves many families unaware of what drives changing tax burdens. As wages and budgets feel squeezed by taxes going up faster than incomes, public trust in the school funding model has eroded.  Click here for the Joint Fiscal Office Brief on Property Tax Credit

There are better approaches. Several states predominantly allocate operational funding to   schools through state income or sales taxes. Others leave most taxation and spending control with local districts.

Vermont could chart a balanced course by keeping facilities funding local while equalizing broader expenses.

Avoiding Property Tax Spikes

One of the most destabilizing aspects of the current system are the dramatic property tax rate increases that can hit homeowners when education costs outpace income growth. Double-digit property tax spikes in a single year are not uncommon, causing financial whiplash.

Under the proposed hybrid model, the bulk of education operational spending would transfer to a statewide income tax. This steadier revenue stream would avoid spikes, with rates able to increase incrementally and predictably from year-to-year based on funding needs.

On the property tax side, separating out only facilities costs provides households with far more certainty. A 3-4% increase to cover rising construction costs, maintenance or voter-approved projects feels far more manageable than the 15-20%+ spikes currently experienced with operations baked into the same bill.

Steadying the choppy waters of erratic revenue sources may be an under-appreciated but crucial benefit of hybrid funding model alignments. Families can better plan for small, predictable changes rather than fearing the next trough of a property tax tsunami annually.

Local Facilities Funding

Districts retain authority to issue construction bonds paid for via property taxes, ensuring community oversight and alignment for capital projects. With proper planning and budgeting, the state could provide loans or grants for districts supporting large capital improvements (new buildings, sports fields, etc).

Equalized Operational Funding

A 3% statewide income tax surcharge raises $1 billion annually for per-pupil operational funding, distributed evenly to districts based on enrollment. This allows stable teacher pay and reliable annual state budgeting tied (and visible to) directly to Vermont taxpayers.

This hybrid model maintains connections between schools and communities supporting them financially, while creating needed consistency in operational expenditures across the state. And it provides simpler ties connecting taxes paid to classroom spending for taxpayers each year.

The path forward on education finance reform won’t be easy. But with better balance between local and state funding streams, Vermont can uphold educational quality and fairness for all students into the future.