Funding Public Education in Vermont
Understanding public education funding in Vermont is not easy, but it is not impossible. Parts of it require looking at the taxing system from a different perspective.
The Big Picture
A State-wide Funding System
Vermont has a state-wide education funding system. Individual towns do not fund local school budgets. That is one of the more difficult concepts for Vermonters to understand. Why is that so hard to understand? Because: at Town Meetings voters vote yes or no on local school district budgets; yearly tax bill comes from the town treasurer; checks for property tax payments are made out to the town, not the state; and school board members are elected locally. All that leads one to think that local property taxes fund the local school system. But they do not.
All public education in Vermont is funded by the state's Education Fund. Why that is so is another story, but throughout the year the state manages the flow of money in and out of this fund. Funds flow in as various taxes are collected and flow out as school districts and supervisory unions receive payments. Local property taxes are just one of several sources of revenue for the Education Fund. The first step in understanding public education funding in Vermont is understanding the Education Fund.
The Education Fund
How much money is needed?
Each year at town meetings voters approve or reject local school budgets for the coming school year. Rejected budgets are reworked, submitted again for a vote and eventually approved. By combining all the approved town budgets, the state determines how much money is needed in the Education Fund for the next fiscal year (July to June). As early as December of the previous year the administration and the Joint Fiscal Office (JFO) produce a Consensus Education Fund Outlook. This report estimates, among other things, how big the Education Fund must be.
Though that amount is not known for certain until all school budgets have been approved, an even more accurate estimate can be made in late January when school boards vote to approve budget numbers for the March Town Meeting ballot. Some budgets will fail and need revision, but most will pass.
Funding the Education Fund
Property taxes are not the only source of revenue for the Education Fund. That Consensus Education Fund Outlook report also details the various sources. In fact, homestead property taxes provide a little over a third of the cost of public education in Vermont. Non-Homestead property taxes provide about 40%. But those amounts can, and do, change.
The Dynamics of the Education Fund
Currently 100% of what the state raises by the sales tax goes into the Education Fund. If people buy more products more money is collected in taxes and more money flows to the Education Fund. A portion of the state lottery revenues also go to the Education Fund. Big lottery prizes attract more buyers and therefor more money to the Fund. If those other sources of revenue swell, less is needed from property taxes; tax rates can be lower. Property tax rates are set after projections for all the other sources of revenue are locked in. The revenues from the property taxes fill the gap between what the non-property tax sources fill and the total needed. This is one reason why there is not a direct correlation between changes in school budgets and changes in tax rates. Your local school budget may go up by 2.5% but because of changes in the state's economy your tax rate might go up more or less than that amount.
Property Tax Rates
Vermont property owners are subject to two property tax rates.
- Homestead Property Tax Rate - The rate property owners pay for the house they live in and the property upon which it is located. That's your legally-defined homestead. This rate varies from town to town.
- Non-homestead Property Tax Rate - Also called the nonresidential tax rate. The rate for commercial property, second homes, etc. In other words, property that is not homestead property. This rate is the same throughout the state.
Some property is exempt from property taxes.
Homestead Property Tax Income Sensitivity Adjustment
Homestead Property Tax payers can reduce their taxes by filing for an Income Sensitivity Adjustment. The amount of that adjustment and the specific qualifications are set by law. Currently, if your household income is less than $136,000 you may be able to receive the Income Sensitivity Adjustment.
Setting Property Tax Rates
As stated above, the Homestead Property Tax varies from town to town. However, the goal in setting each town's tax rate is not to bring in enough money to fund that town's school budget. Instead, there are two goals:
- fully fund the property tax portion of the Education Fund
- confirm to the requirements of the Vermont State Constitution
- "substantial equality of educational opportunity throughout Vermont."
- "substantially equal opportunity to have access to similar educational revenues"
What the State Constitution Requires
Vermont's Supreme Court's 1997 Brigham vs. State of Vermont decision set forth two tests for whether or not the state's education funding system is consistent with the state's constitution.
- The state must ensure "substantial equality of educational opportunity throughout Vermont." This does not mean that every student gets the same education, but the opportunity must be substantially equal. The definition of substantially equal is open to interpretation.
- The state must also ensure that every student has a "substantially equal opportunity to have access to similar educational revenues." This is trickier and yet, more specific. The Education Fund provides a common benefit to the citizens of Vermont. Like a state park, it is available to all. And like a state park, admission charges cannot discriminate: a citizen from Stowe cannot be charged more than someone from Wolcott. A common benefit must be equally accessible by all. Some may choose to buy a two-day pass, and pay more. But anyone who buys a two-day pass must pay the same.
To continue the state park example, a single ticket buys a day's visit to the park. Let's say that 10 hours and the ticket costs five dollars. That's 50 cents and hour or two hours for a buck. It would be perfectly fair, and constitutional, to charge at a rate of two hours per buck. If someone wanted to spend 7.5 hours in the park the charge would be 7.5 / $2.00 or $3.75.
Similarly the portion of the Education Fund that must be provided by property taxes can be divided into equal portions.
Determining the Homestead and Non-Homestead property tax rates is not simple for three reasons:
- A Vermont Supreme Court decision. The Brigham vs. State of Vermont decision determined that every Vermont student must have equal access to the benefits of the Education Fund. Vermont's property tax calculations must guarantee this.
- The desire to not overburden those below a certain income level. That's the Income Sensitivity Adjustment.
- The need to be fair. The Common Level Of Appraisal (CLA) variable in tax calculation is an example.
Vermont public education is funded by the state through the Education Fund. School district budgets are set by local votes. Vermont, therefor, has a hybrid education funding system with both state and local considerations. As a result tax rates are complex and not directly related to local budgetary decisions.
School budgets are built without a precise knowledge of the tax rate implications. Though fairly accurate predictions are provided by the state, there is no real certainty until all the numbers are encoded in law in May. That's several months after town meeting votes on proposed budgets.
- November - January: School district administration and school board work on budget.
- December 1st - State provides Consensus Outlook for Education Fund with estimates of revenues and expenditures for the next tax year.
- December 15th - Agency of Education finalizes pupil counts for all districts.
- Mid January - State report on non-property tax inputs to the education fund. These are the numbers that will be used to calculate the tax rate if there are no changes in law.
- Late January - Most school boards approve a budget for presentation to voters at March town meeting. The state can then calculate how large the education fund must be.
At this point local school boards can provide reasonably accurate estimates of what the tax rates will be if there is no change in law. However, the legislature is in session and laws do change.
- Early March - Town meeting votes on school budgets
- Mid May - Legislature encodes in law the numbers to calculate taxes.
- July 1st - Tax year begins
Both the complexity of the tax calculation and the timing involved make it difficult for voters to feel comfortable about how their taxes are calculated and spent. Understanding the problem helps.