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Determining the Residential School Tax Rate|
The residential school tax, levied on every primary residence and its contiguous land, is the only school revenue source that local voters can control. The property values are those on the equalized grand list prepared by the Vermont Tax Department's Property Valuation and Review Division, which adjusts local property values reported by town and city listers to reflect current fair market value. Local voters approve their local school budget.
The local residential school tax rate is based on the district's spending per equalized pupil. Equalized pupils are the number of pupils in a district's two-year Average Daily Membership (ADM), weighted by grade level: 0.46 for pre-K, 1.0 for K-6, and 1.13 for 7-12.
The weighted ADM numbers are then normalized so that for the entire state, the number of equalized pupils equals the actual number of pupils in ADM. The effect is that districts with a greater proportion of high school students will appear to have more equalized pupils than the same size district with a greater proportion of grade school students.
Each year the legislature specifies a Base Education Spending Amount per equalized pupil ($8,544 in fiscal 2011). If a district happens to spend exactly that amount (or less), then the residential tax rate within that district will be the statutory minimum ($0.86 in fiscal 2011). However, all but four school districts spend more than this amount.
If voters vote to spend more than the Base Education Spending Amount, their rates increase proportionally. If a district votes to spend 10 percent more per equalized pupil than the base amount in fiscal 2011 ($9,398 instead of $8,544), its residential school tax rate will be 10 percent higher than the statutory minimum ($0.946 instead of $0.86).
Act 60 also introduced a mechanism to address a common criticism of the property tax: that it is not based on ability to pay. The mechanism, known as income sensitivity, allows qualified residential taxpayers to pay their school taxes based on their income instead of their property valuation.
If a taxpayer's total household income is less than $90,000, the taxpayer may pay an income-based school tax rather than property taxes on the primary residence and up to two acres of land, which is the housesite. Currently, the base income tax rate is 1.80 percent of household income. However, as with the residential property tax rate, the rate increases if local voters choose to spend more per pupil than the Base Education Spending Amount. In 2010, the Legislature voted to require households with incomes of less than $90,000 and a housesite valued at more than $500,000 to pay property taxes on the housesite value above $500,000. Those homeowners will pay a school tax based on their income plus property taxes on the value of their housesite in excess of $500,000.
Taxpayers with household incomes of $90,000 or more can pay school taxes based on income, too. However, the taxpayer must also pay property taxes on the housesite value above $200,000 as well as any acreage beyond two acres.
In 2010, about 65 percent of Vermont resident homeowners paid school taxes based on income. They paid about $142 million less in school taxes than they would have if they had paid solely on the value of their property.
There is much more fine print in the education finance statutes (32 VSA Chapter 135), but this is the basic explanation: The more school district voters vote to spend per equalized pupil, the higher the residential school tax rates for both property and income in their town.
Other K-12 Education Spending
Special education for children with disabilities is financed by state and federal funds. The Education Fund pays each district a percentage of the additional costs for special services. The money for these payments comes from a specific state appropriation and is distributed by a formula. Federal funds are distributed by a separate formula.
The Education Fund also makes payments to the school districts for a fraction of school capital construction costs. The fraction is generally 30 percent of the annual amortization payments.
The "Two Vote" Provision
The controversial Act 82 of 2007 provided that for certain high spending school districts, voters will face two school budget questions. The first vote is to approve a budget authorizing spending of the district's previous year spending per equalized pupil, increased by a state-set inflation factor. The second vote is to approve any proposed excess over that amount. This provision took effect for the first time in 2009. Only one town (Rockingham) voted in 2009 to approve the basic budget, and rejected the excess portion.
Anyone who has read this far will appreciate that education finance is complex and difficult for anyone but an expert to comprehend. This capsule summary necessarily omits numerous details that may become important in their effects on a given school district and taxpayer.
Five salient facts to bear in mind:
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