• Skin in the game
    February 08,2014

    The school funding debate is particularly toasty this town meeting season. With some reason. Most observers agree that our per-pupil education costs are among the highest in the nation. When compared with inflation or portion of the gross state product, however, the increases are much more modest.

    In the political tumble, some basic facts get overlooked. The most important is that local taxpayers decide how much they want to spend and they pay taxes in direct proportion to what they vote. The second is that the projected base statewide tax (which is figured to increase to $1.01), is well below historical levels. In the first year of Act 60, the rate was $1.10. The Legislature and the citizenry enjoyed year-after-year reductions in the statewide property tax rate before the recession, the enrollment drops and the grand list decline reversed the trend.

    This year’s slogan is “skin in the game.” Critics contend that taxpayers who are “income-sensitized” ($99,000 or less in household income), are shielded from the increased tax effects of their local spending decisions. As this theory goes, middle-class and lower-income people are free to run up the education tab because somebody else is paying for it. Well, that isn’t exactly true.

    The burden of spending increases falls on that town’s taxpayers 200 times more than it does on the rest of the state’s taxpayers. There’s a shred of truth to free-riding, but only a shred. The overwhelming weight remains on the local town. If the free-rider myth were true, we would expect to see lower-income towns spending higher amounts than their more affluent neighbors. Instead, they consistently spend less. (The perverse irony of repeating the free-rider myth is that it inadvertently encourages excessive spending.)

    Some critics propose rolling back or eliminating this income sensitivity feature. However, this obscures its purpose, which is to make the regressive property tax less painful. And it is doing exactly what it was designed to do. When Act 60 was passed, a different definition of “skin in the game” was in play. That is, the only way to keep the progressive nature of this feature politically viable was to make sure most Vermonters benefited from the system. Unfortunately, the percent of Vermonters who are advantaged by this system has fallen from almost 90 percent to between 60 percent and 65 percent.

    All things being equal, rolling back or eliminating income sensitivity would be a direct shift of tax load from the relatively affluent to middle- and low-income taxpayers, and a shift of the burden to the property tax.

    This does not mean that the income sensitive feature should not be fixed. It should be readjusted, and the percentage of eligible taxpayers should be increased. One of the problems is that the benefits taper off between incomes of $90,000 and $99,000. Unfortunately, it is more of a cliff than a gentle taper. This function needs to be smoothed.

    To get control of tax rates, it is necessary to understand what is causing the increases. The “skyrocketing” per-pupil spending is not exclusively due to school budget increases. A decline in the grand list, a reduced state share going to the education fund, and a smaller number of students combine to drive up the tax rate. Education spending actually went down in 2012 and 2013. Inflation-adjusted education spending fell almost 5 percent between 2009 and 2012. Meanwhile, the independent Picus report shows Vermont’s funding system is one of the fairest and most equitable in the country. Nevertheless the tax rate is going up.

    One of the cost-saving measures being touted is supervisory union consolidation. There may be some merit to scaling up some of the larger school support functions and centralizing the administration of state and federal mandates. But since central offices consume only 2.4 percent of spending, any financial gains from this action would be small.

    As school spending is approximately 80 percent personnel driven, any significant savings would have to come from staff adjustments. Staffing declines follow student declines in a much slower and lumpier pattern. While the reasons for maintaining the most favorable staffing ratios in the nation are as varied as each individual local context, the taxpayers have shown a fierce loyalty to their local schools and have consistently approved more than 90 percent of their budgets year after year. There’s not a simple answer.

    William J. Mathis, of Goshen, is the managing director of the National Education Policy Center. He served as a Vermont superintendent of schools and taught education finance at the University of Vermont.

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