H. 187 - Education Funding as Passed by Senate

February 26, 2003

1. FY 2005 Simplification of Education Funding

Simplification:

• Sets the base payment at $7,000 and the property tax rate at $1.38. The rate moves proportionate with the spending (see example on back).

• Eliminates the sharing pool. No above block spending or local share tax.

Maintains Equity:

• Towns with equal spending with have the same tax rate.

Maintains Income Sensitivity:

• The base income sensitivity threshold is set at 2.5% of household income. (This percentage is proportionate to the $1.38 education property tax rate.) This base threshold is adjusted by the school spending ratio in the same way that the education property tax is adjusted in each district (see example on back).

• Taxpayers with household incomes under $75,000 continue to have the option of: (a) paying an income-sensitized tax; or (b) taking a $15,000 exemption on the value of their homesteads.

• The renter and homeowner rebate programs remain unchanged.

Maintains Predictability:

• Commissioner of Education sets the base grant and base tax rate each fall, so school boards can develop budgets responsibly

2. Property Tax Relief

• Mitigates the impact of grand list growth (and the CLA) by allowing the $1.38 rate to be adjusted downward on a one-year basis for any year where undesignated surpluses exist above the 5% reserve. e.g. FY 2005 estimate is for a $1.35 base tax rate and a $7,000 base payment.

• Limits sharing for districts with high property value per pupil by: 1) capping grand list wealth per pupil at the 85th percentile yield which reduces the amount that high wealth communities need to raise during a 5-year transition; and 2) reduces the pressure to fundraise by increasing the base payment to $7,000 at $1.38. Fundraising is allowed to reduce the tax rate down to the base.

• Low spending towns will pay the lesser of existing law or this new law during the 5-year transition; $1.10 is the minimum tax rate for low spending towns.

3. Cost Containment

• Clear relationship between spending and tax rate: tax rate increases proportionally as spending increases

• All categorical aid dependent on the block grant support level are held harmless

• Study on Cost Containment and Grand List Growth Issues (including CLA)

4. FY 2004 Transition Provisions

• $16.1 million in property tax relief for all Vermonters

• $1.2 million tax relief for working farmers; eliminates all taxes on farm buildings

• Increases the block grant by $159 to $5,810 per pupil

• Reduces school tax rates by 3.9 cents

• Reduces income sensitivity by 0.07% of household income

• Maintains the Education Fund Stabilization Reserve at a full 5.0% or $23.3 million

Tax Rate Calculation Example:

Base rate = $1.38

Base payment = $7,000

District A: spends $5,600: $5,600 / $7,000 = 80% x $1.38 = $1.10

District B: spends $6,300: $6,300 / $7,000 = 90% x $1.38 = $1.24

District C: spends $7,000: $7,000 / $7,000 = 100% x $1.38 = $1.38

District D: spends $7,700: $7,700 / $7,000 = 110% x $1.38 = $1.52

District E: spends $8,400: $8,400 / $7,000 = 120% x $1.38 = $1.66

Income Sensitivity Calculation Example:

Base income sensitivity = 2.5%

District A: $5,600 / $7,000 = 80% x 2.5% = 2.0%

District B: $6,300 / $7,000 = 90% x 2.5% = 2.25%

District C: $7,000 / $7,000 = 100% x 2.5% = 2.5%

District D: $7,700 / $7,000 = 110% x 2.5% = 2.75%

District E: $8,400 / $7,000 = 120% x 2.5% = 3.0%

Attachments (PDF Format):

• Education Fund Outlook (85K)
• Simulated FY2005 Equalized Education Tax Rates (89K)
• Senate Proposal of Amendment to H.187