ACT NO. 60
Equal Educational Opportunity Act of 1997
This act is the "Equal Educational Opportunity Act of 1997" which reforms the method of financing public education in the state, provides for equal educational opportunity for all students, and revises provisions for educational quality. Its major provisions are:
I. Payments and Distribution of State Aid to School Districts
A. The block grant
1. The block grant amount and its determination:
The amount of the grant is set by statute. In FY 1997, the amount per equalized pupil would have been $5,000.00. It includes a general state support grant which is given to each school district based on its equalized pupil count, a mainstream block grant for special education which is based on a per pupil count and an essential early education grant (EEE). Thereafter, the block grant will be adjusted upward each year by the annual price index for state and local government services.
2. The pupil count, weighting and equalizing:
Long-term average daily membership (ADM) is weighted to reflect (a) primary/secondary students, (b) poverty (including students not on food stamps for whom English is a second language), and (c) English as a second language (0.2). Once weights are added, the number of students is "equalized" back to the original unweighted statewide student count in proportion to weighted students per district; therefore, the number of equalized pupils in a given school district will probably not be the same as the original ADM in that district.
B. Categorical Grants
1. Special Education
For FY 1999, the state will reimburse school districts for 60% of all special education expenditures. The mainstream block grant will increase, the extraordinary deductible will be $50,000.00, and intensive funding will be calculated as a flat percentage of remaining allowable costs. The Department of Education is given a Fiscal Reviewer who will review spending in districts with high special education costs and try to find ways to help them decrease this expense. The Reviewer will also study low spending districts to determine if they use cost-effective strategies that could be replicated in other districts. Current law is repealed on July 1, 1999. The Commissioner of Education will recommend a new formula.
2. Technical Education
Repeals the current technical education state aid law beginning in fiscal year 1999. Postpones recommendations for changes pending a report on restructuring of Vermonts workforceeducation system in January 1998 from the Human Resources Investment Council and State Board of Education.
3. Capital Construction Aid
Extends the moratorium on state participation in school construction projects for an additional six months from January 1 to July 1, 1998. Grandfathers state construction aid grants for existing projects. Appropriates $9,675,000.00 from the general fund for FY 1998 for school construction to bring total state aid for school construction to $17 million for fiscal year 1998. Beginning FY 1999, changes the formula for state grants for approved school construction costs to 30%.
4. Capital Debt Service Aid
Debt service aid for existing projects to be paid under existing statute through fiscal year 1999. Guarantees that a district will not have to raise its tax rate to pay debt service on existing projects beyond the tax rate it would have set in FY 1997 to raise the amount due in any future years, until the debt is paid.
5. Transportation Aid
Beginning in fiscal year 1999, each school district will receive a transportation reimbursement grant of 50% of allowable transportation expenditures which includes only one trip per day to and from school for regular classroom activities. The total amount of these grants are capped at $10,000,000.00 with an annual escalator, and if the cap is exceeded, the grants are prorated. Allows a district to apply for reimbursement of extraordinary transportation expenses, as defined by the Commissioner of Education.
C. Education Fund
1. Fund Structure
Establishes an Education Fund and an Education Fund Stabilization Reserve as separate state funds similar to the Transportation Fund. All state and local revenues for education go into the fund and all disbursements are made at the direction of executive branch officials. Block grant and equalization payments will be made on September 1, January 2, and March 30. All other categorical aid items, except for capital construction aid, are also paid from the fund.
2. Fund Revenues
Education property tax revenues, local property tax revenues from those districts which adopt budgets in excess of the general state support grant and which are able to raise more than the equalized yield amount; general funds appropriated by the General Assembly and revenues from state lotteries.
II. Revenue Sources
A. Statewide Education Property Tax
1. Tax Rates
Sets one rate on both homestead and nonresidential property at $1.10 for FY 1999 with limits on adjustments. Homestead owners pay local share tax directly to the state. Tax is due the following April, and is adjusted for income sensitivity at that time.
2. Adjustments to Equalized Education Property Tax Grand List
(a) Business machinery, equipment and inventory are exempt.
(b) Tax Stabilization Agreements
Exempts property subject to prior agreements entered into or voted prior to June 30, 1997, or relating to NEPCO property on the Connecticut River warned prior to September 1, 1997. Allows exemption of future agreements for public purposes if approved by Act of the General Assembly.
(c) Current use program property
Enrolled property is in grand list at current use value. Repeals the sunset in current law. Allows retroactive enrollment for those who missed enrollment dates in 1996. Increases land use change tax penalty to 20% of fmv (fair market value) of changed property, and allows withdrawal without penalty before September 1, 1997. Values farm buildings at 30% of fair market value, beginning in 1998. Allows enrollment of land in conservation management program. Provides for full reimbursement to municipalities for loss of property tax revenue in FY 1998 and appropriates $5,519,234.00 for this purpose (an additional $9.8 million is in H.526). However, for FY 1999 and beyond, provides for reimbursement to municipalities only for loss of municipal property tax revenues (education revenue effect is addressed by the new equalized property tax system). Also changes the composition of the Current Use Advisory Board, establishes a prohibition on fee hunting on enrolled land, and directs a study to incorporate capitalized income value.
(d) Tax classification authority
Explicitly provides that the statewide education property tax and the local share property tax is to be levied on the education grand list using tax classifications in those municipalities (e.g., Burlington and Winooski) in which tax classifications are currently authorized by law.
(e) Other education grand list major exemptions
Provides for transition in taxation of certain electric generating plants in FY 1999 and FY 2000, and exclusion of those electric generating plants from definition of taxable nonresidential property beginning in 2001. Also provides for hydro-electric property subject to conservation easements or purchased by the state on or after January 1, 1997. Also directs that a study be made of all current statutory exemptions from the property tax to determine their equity and appropriateness under a statewide property tax system.
(f) State-owned property and PILOT
Establishes the PILOT Program. Appropriates $1,000,000.00 for FY 1998. ThereafterPILOT program is funded from 40% of local option tax revenues (see Part E).
B. Local Share Property Tax
Allows discretionary spending above the block grant and provides for equalization of ability to raise funds for this spending. Portions of local budgets paid for through these funds are referred to as the "local share."
1. Equalized Yield System for Determining Local Share Property Tax Rates
School districts which vote a budget in excess of the general state support grant are authorized to levy an equalized local share property tax. The tax rate is determined as a percentage of statewide property tax liability. Homestead owners pay local share tax directly to the state. Tax is due the following April, and is adjusted for income sensitivity at that time. The municipality may contract with the department of taxes to collect its delinquencies. The municipality is allowed to retain 1/2% of the amount collected by the municipality and remitted to the state, as a collection fee.
The rate of the tax is equalized using an equalized yield system. This system ensures that each point of the tax rate will raise the same amount of revenue per equalized pupil in every school district. Therefore, if the equalized yield amount is $40.00 per equalized pupil, and the school district wishes to spend $80.00 more than the general state support grant per equalized pupil, the tax rate would be two percent of statewide property tax liability. Those school districts actually able to raise more than the yield amount will pay the excess into the education fund and those unable to raise the yield amount will receive the difference from the education fund. The equalized yield amount is determined each year so that districts able to raise more than the yield amount will pay enough into the education fund to pay for those districts unable to raise the yield amount.
2. Adjustments to Equalized Education Property Tax Grand List
Local share property tax is assessed on the same grand list values as those used for statewide education property tax. See Sec. II.A.2. for adjustments to grand list.
C. Income Sensitivity Provisions for Residents
Homestead Property Tax Adjustment. Homestead owners pay statewide property tax and local share tax directly to the state by April 15. At time of payment, owners with household income of $75,000.00 or less pay the lesser of 2% of household income, or the statewide tax based on the homestead value minus $15,000.00. Local share tax is then determined as a "municipal percent" of state tax; municipal percent is determined by the municipality's percent of spending above block. In addition, homeowners and renters with household income of $47,000.00 or less are entitled to credit against income tax for property tax or rent constituting property tax in excess of a portion of household income .
D. General Fund Taxes
1. Meals and Rooms Tax
Increases to 9% for meals and rooms, beginning October 1, 1997; leaves alcoholic beverages at 10%.
2. Sales and Use Tax
Repeals the sunset to 4%; leaves rate at 5% indefinitely. Exempts sales of certain building materials in excess of $1,000,000.00 beginning July 1, 1997.
3. Gasoline Tax
Increases to 19 cents August 1, 1997. Reduces rate to 18 cents if January 1998 revenue estimate increases by more than $3.3 million.
4. Purchase and Use Tax
Repeals the sunset to 4%, leaving rate at 5% until August 1, 1997, when rate increases to 6%.
5. Corporate Income Tax
Adds to each rate an additional 1.5%, and raises minimum tax to $250.00, beginning with 1997 tax year.
6. Bank Franchise Tax
Increases rate to 0.000096 of monthly deposits, August 1, 1997.
7. Telecommunications Service Sales Tax
Establishes a sales tax on telecommunications services at rate of 4.36%, with an annual maximum tax of $10,000.00 and a monthly credit of $20.00 per line, effective September 1, 1997.
8. Brokerage Fees
Increases securities registration fees to minimum $400.00 and maximum $1,250.00, creates a filing requirement for securities offerings subject to Federal Securities Act of 1933, and imposes fee, with minimum $400.00 and maximum $1,250.00.
9. Lottery Revenue
Earmarks all lottery revenues to education beginning July 1, 1998.
E. Local Option Taxes
Allows cities, towns and incorporated villages to enact a 1% meals and rooms tax, and a 1% sales and use tax, or both, if the municipality has a 1997 education property tax rate of less than $1.10 and levies the tax by July 1, 1998. Sixty percent of the revenue is retained by the town and 40% of the revenue goes to the new state PILOT special fund. Local option authority sunsets July 1, 2001.
III. Transition to New Funding System
A. Equalized Yield System
Beginning in fiscal year 1999, each district will receive a block grant and categorical aid under the new system. However, the equalized yield system does not begin until fiscal year 2001.
In fiscal year 1999:
In fiscal year 2000 the General Assembly will set the equalized yield amount and the statewide property tax rate in a way that provides maximum equality of access to educational revenues while easing the transition for districts that will see a substantial increase in tax rates.
B. Statewide Property Tax
System is phased in over three years beginning in FY 1999, with full implementation in FY 2001.
No change to current tax system.
Municipality with 1997 equalized education property tax rate of $0.20 or less is subject to statewide tax of the 1997 rate plus one-third of the difference between $1.10 rate and their 1997 rate. Any other municipality with a 1997 rate below $1.10 is taxed at the lesser of $1.10 or the 1997 rate plus $0.30. A municipality with a 1997 rate greater than $1.10 but less than $1.15, pays $1.10. And any municipality with a 1997 rate greater than $1.15 pays $1.15. No municipality is required to set a combined municipal, local share and statewide rate which is more than 40% higher than its combined FY 1998 municipal and school tax rate, unless its municipal budget grows by more than 10% over FY 1998.
The rate is determined by the General Assembly.
Statewide education property taxes are fully implemented at $1.10.
IV. Educational Policy Provisions
1. Adds to the state board of education the following new duties: developing standards for student performance and a means of assessing performance, establishing an information clearinghouse for successful educational programs, reporting annually on the condition of education on a statewide and local basis, developing guidelines for use of funds for technology, developing sample ballot language for local voting, and periodically evaluating the effects of Vermonts education finance system on the equality of educational opportunity.
2. Replaces public school approval standards with standards of quality which are more performance-based (while retaining some of the current resource-based standards). Thestandards include a requirement that schools develop and implement action plans to improve student performance, that the schools use the statewide assessment methods to measure student performance and that the schools report on their students performance to their communities annually. Every two years, the commissioner shall evaluate each school to determine if students are being provided a substantially equal educational opportunity to that provided in other schools. If a school is not meeting the standards of quality, the State Board may, after a hearing, take action as it deems necessary to improve performance.
3. Requires independent schools accepting publicly tuitioned students to assess these students, using the State Board of Educations student assessment system, to see if they are meeting performance standards.
4. Requires the State Board of Education to adopt, by July 1, 1998, a statewide strategic education plan to help local schools and school boards improve student performance. This plan shall be revised every five years.
5. Establishes Challenge to Excellence program to provide matching grants to schools for planning and implementing programs to create educational opportunities for all students. Gives priority to schools having trouble meeting quality standards. Appropriates $175,000.00 for fiscal year 1998.
6. Requires the State Board of Education, in collaboration with the Agency of Human Services, to develop a plan for services for early education to ensure that all children will read by the end of third grade and directs public schools to offer early reading instruction as well as intervention when necessary.
7. Directs the Commissioner to develop a list for special education services and recommend reasonable rates as a guide for school districts. The Commissioner and the Secretary of AHS will explore and implement methods and policies that will enable draw down of Medicaid funds.
8. Directs the State Board of Education, in collaboration with other parties, to determine how to promote a statewide system of educator preparation and professional development that can help teachers teach to education standards, improve student performance and improve the quality of a students education.
9.Directs the State Board of Education to study and recommend a plan or plans for organization of public education in Vermont including consideration of reduction in number of school districts.
10.Directs the Commissioner of Education to establish a grant program for two years for schools with less than 100 students and to study the need of continuing such a program beyond that time.
11.Establishes a committee, with two legislative members, to study the effect of the act on school districts that tuition students.
12. Requires that a school board whose budget will change considerably under this act shall include a plan for dealing with this in its action plan.
V. Major Additional Studies and Reports
1. Legislative Oversight Committee on Restructuring Education, to be composed of ten members of the General Assembly, to oversee the implementation of this act, with additional specific study assignments (existing statutory property tax exemptions, effects on mobile home park tenants, effects on economic development) and to review study assignments directed to others (gross receipts tax study, small schools study, special education, and tuition at independent schools), with authority to receive periodic reports from executive agencies relating to implementing this act, additional authority to review proposed administrative rules relating to the act, with a budget for FY 1998 of $50,000.00, and with termination on December 1, 2001.
2. Commission on Quality Property Tax Appraisals and Equalization, composed of eleven members, two from the General assembly and nine others appointed by the governor with special expertise in property tax appraisal and equalization, to review the practices and methods of real estate appraisal and equalization and make recommendations to the General Assembly by January 15, 1998.
3. Gross Receipts Tax Study
Provides $100,000.00 to the Tax Department for a study of the implementation of a gross receipts tax, with a report due to the General Assembly on or before November 15, 1998.
4. Consolidated Balance Sheets for Aid to Localities. Directs the Secretary of Administration to develop a system for consolidated net payments to municipalities and school districts for all state aid to be paid and charges to be assessed for education and all other state programs on a town-by-town basis beginning in FY 1999.
IV. Effective Dates
(a) Repeal of public school approval standards shall take effect on July 1, 1998.
(b) All other education quality provisions take effect on passage, June 26, 1997.
(c) The new system of education finance takes effect on July 1, 1998 except that transitional provisions shall take effect on passage, June 26, 1997.
(d) The statewide property tax shall take effect January 1, 1998, except that provisions relating to homestead declaration shall take effect January 1, 1999 and transitional provisions shall take effect on passage, June 26, 1997.
(e) Provisions relating to homestead property tax adjustment, shall take effect January 1, 1998. Provisions relating to repeal of the property tax rebate program, shall take effect January 1, 1999.
(f) Provisions relating to payments in lieu of taxes, shall take effect July 1, 1997.
(g) Provisions relating to current use shall take effect upon passage, June 26, 1997, except that provisions relating to valuation of buildings at 30% of fair market value shall take effect January 1, 1998.
(h) General Fund Taxes:
(l) Meals and rooms tax shall apply to sales of meals and rentals of rooms on and after October 1, 1997, provided however, that receipts from occupancies and meals reserved pursuant to a written contract entered into prior to May 15, 1997, and occurring prior to April 1, 1998, shall be taxed at the rate of seven percent.
(2) Gasoline tax shall apply to sales and uses on and after August 1, 1997.
(3) Sales Taxes shall take effect from passage, June 26, 1997, and provisions relating to a sales tax exemption for building materials shall apply to sales and uses on and after July 1, 1997.
(4) Corporate income tax shall take effect from passage, June 26, 1997, and apply to tax years beginning on and after January 1, 1997.
(5) Purchase and use tax shall take effect from passage, June 26, 1997, and the provisions relating to the 6% purchase and use tax shall apply to purchases and uses on and after August 1,1997.
(6) Bank franchise taxes shall apply beginning August 1, 1997.
(7) Telecommunications service taxes shall apply to services that are provided on or after September 1, 1997, and are billed in the regular course of the provider's business on or after October 1, 1997.
(8) Brokerage fees shall take effect July 1, 1997.
(9) Dedication of lottery revenues shall take effect July 1, 1998.
(10) Provisions relating to local option taxes and a pilot special fund, shall take effect July 1, 1997.
(11) Provisions relating to studies and reports, shall take effect from passage, June 26, 1997.
(12) Fiscal year 1998 appropriations, shall take effect on July 1, 1997.