Our education finance laws (Act 60 and Act 68) have provided a stable and equitable method for raising the revenues needed for today’s educational challenges, and VCF is committed to keeping that equity as policy makers struggle with the stresses in the system.
The Education Fund—the keystone of Vermont’s funding system—was set up by the Legislature in 1997 to pay for public schools. The money comes into the Education Fund from the statewide property tax, from a transfer from the General Fund, and from other taxes, including a portion of the sales tax. It is a dedicated fund to be used solely for education.
Over 60 percent of the revenue for the Education Fund is from property taxes and this percentage is growing each year. Since property values have risen steadily in recent years, the Education Fund has had surpluses greater than its required reserves, and this is a tempting source of revenue for education-related functions.
The legislature will be facing the increasingly pressing issue of what is the proper use of Education Fund dollars and of how to prevent a growing shift to the property taxes within the Education Fund.
In 2003, the legislature passed a major revision to Vermont’s education funding law Act 68. (1)
The system is built on three key principles:
• School district voters set the level of school spending based on their individual budgets for their children’s education.
• Higher spending per pupil in a district results in higher residential taxes in that district.
• Any two districts in the state that spend an equal amount per pupil will have equal tax rates.” (2)
Act 68 set the statewide property tax rates at 1.10 base rate for homestead property, 1.59 fixed rate for nonhomestead property (businesses and second homes) and 2% of household income if a household chooses to pay the education tax based on income. (3)
Act 68 provided a procedure for annual review and adjustment of these rates to ensure that the Education Fund keeps enough reserves while allowing for a mechanism to lower the tax as property values rise. Property values have been increasing in the state. As a result, each year since the new law took effect the legislature has lowered the rate from the base rate. (4)
Note: The Vermont Children’s Forum, with Public Assets Institute, has produced A Citizen’s Guide to School Funding: Vermont’s Act 68—a concise booklet that explains the basics of Vermont’s School Funding system.
* Reduce reliance on the property tax for Vermont residents by moving toward a progressive income tax to pay for public schools, while strengthening the current “income sensitivity” provisions in Act 68.
* Prevent use of Education Fund dollars to pay for General Fund programs to prevent increasing reliance on the property tax.