Education Spending - April 5, 2024

The Senate Finance Committee convened on Friday to hear from Julia Richter (Senior Fiscal Analyst, Joint Fiscal Office)) about the current state of the Education Fund. She noted that the most recent data they have is from March 27th. The Education Fund Outlook shows a projected education spending of roughly $1.9B and an average property tax bill increase of 17.7%.

Chairwoman Cummings asked how many budgets were still outstanding. Richter wasn’t sure, but Senator Chittenden noted that the South Burlington budget had went down the day before and a re-vote was scheduled for two weeks out.

Chittenden asked what type of buy down we would need to meaningfully change the tax rate. Richter had done modeling showing that a $30M in new spending and found that it brought the average bill down 2.6%. She also reminded them that there is a lag for income sensitivity so relief for those people would not necessarily be immediate.

After some discussion about the education trends over the past decade, Cummings stated that “we are spending more than anyplace other than New York… Our test scores are not great and they are trending down… many people can’t afford it and we’re not getting the results we should get.” She really wanted to better understand what the cost drivers are.

Chittenden brought them back to the excess spending penalty, saying that “without this over the next five years I don’t think this is a blip.” Cummings agreed, saying that with “the number of adults in the building.

Senator McCormack voiced that he thought we had “a high-cost problem” that is driving spending. Essentially that local districts didn’t have control over their budgets because of the state and federal mandates placed on them.

NOTE: There is probably some truth to this.

Brock questioned whether we had a good apples-to-apples comparison with other states. McCormack brought this back to unfunded mandates, suggesting that the state find funds for the universal school meals program, which current costs around $24M.

The Committee had a robust discussion about taxing capacity and whether or not wealthy towns had an easier time passing budgets and therefore more access to spending. They seemed to think that they did.

NOTE: Many of these towns lost taxing capacity under Act 127 so it’s unclear how true this is. We know they tend to be high spenders today but we don’t know how their spending has changed over time within the Act 60/68 framework.

Craig Bolio joined the Committee to discuss how to target second homeowners with tax policy. Senator Bray had a question out of the gate about whether or not we had a definition that could capture a homeowner from out of state versus someone who owns a family camp on a lake somewhere. Not actually an easy answer here, but Bolio noted he would get into it in his presentation.

His presentation, titled “Why it Isn’t Easy to Tax Second Homes” profiled a study the Department did in 2021 on trying to more granularly categorize the grand list. There is also a larger report due in December (specifically on second homes), but he stressed that this is not as easy as it might seem like it should be.

One of the challenges is distinguishing, with a common definition, a camp or mixed-use property (such as a multi-unit building where an owner might use one of the units as a vacation property) from a secondary residence. There are fifteen grand list categories, nine have potential residential uses. Similar properties might be categorized in any one of these. The example he gave was a luxury vacation home that happened to be sitting on historic farmland might be categorized as farm instead of residential. Additionally, with existing grand list tools it might also be difficult to separate out rental properties (as they currently fall in the non-homestead segment of the grand list).

He suggested that occupancy certificates could be a way to get towards this. Senator Ram Hinsdale suggested they use the new rental registry as a tool here. Basically, this would treat any property that was categorized as residential as a second home unless a homestead declaration was made or they had filed for a rental certificate. Members of the Committee thought this might have added benefits because it would incentivize people to become VT citizens (make a homestead declaration) or rent out their property while not in use which would help to address the housing shortage.

Bolio also warned that they could not explicitly target residents of other states, that would likely not be found constitutional. Chittenden stated that he would like to discriminate against “non-occupancy” as opposed to owners from other places.

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