DRAFT 2

House Ways and Means Committee

Proposed Plan for A New Education Funding Law, FY 2005

Figures used below based on 2003

GOALS

1. Reduce the reliance on the property tax to fund education, while not substantially shifting the burden of taxation from one group or class of taxpayers to a different group or class.

2. Create a sustainable system that is simpler and easier to understand.

3. Achieve substantial equity without sacrificing local control or cost containment.

4. Eliminate the divisiveness and controversy surrounding our current education funding law.

5. Refocus the discussion of education funding back to education outcomes.

FUNDING

There is a careful balance of property, income and sales tax. The education grand list will be split into two categories.

RESIDENTIAL PROPERTY

Residential property is occupied by a Vermont resident. All land contiguous to a Vermont residence is considered part of the homestead.

Residential property below $320,000 in value will be exempt from the statewide property tax(SWPT). Residents will pay a state education tax based on income (this eliminates the need for prebates). Approximately $100 million will be raised without increasing the current top marginal tax rate. The value of residential property above $320,000 will be subject to a SWPT.

The block grant is set initially at 90% of the current average spending per pupil (indexed annually as in current law). Local spending is spending up to 130% over the block. This local spending is funded by a local property tax levied only on residential property. Most towns will receive state assistance to equalize the local tax rates. But excess spending above that will be discouraged. There is no further state assistance for excess spending and a recapture rate is established for towns with relatively higher residential property wealth. The excess spending tax rate will be separately itemized on local property tax bills.

Hold harmless may be incorporated for approved construction costs and spikes in special education expenses. The state may pay 100% of the cost of special education litigation either by paying the local level costs or by taking over responsibility for the actual litigation. Other ideas for local/state education spending restraints are being explored.

NON RESIDENTIAL PROPERTY

Non-residential property will pay a SWPT--no additional education tax liability. Non-residential property tax will raise approximately $300 million and the rate will be less than the current statewide average rate when it is set.

OTHER REVENUE

Consumption taxes will raise from $100 million to $150 million – the base of the sales tax will be expanded and/or the rate will be increased from 5% to 6%. Continue Act 60 splinter taxes plus General Fund transfer.

RESULTS

This approach will eliminate the SWPT for most Vermonters and reduce our reliance on the property tax by hundreds of millions of dollars.

It increases the block grant so that it more accurately reflects the current statewide average spending.

The education quality policies of Act 60 will be retained.