Act 127 Fix (H.850) - H.850 was taken up on Wednesday with a walk-through from Senator Cummings on behalf of the Senate Finance Committee. She notified Senators that she would “be a little longer than I normally would because this bill is trying to solve confusion as to what was happening out there with property taxes and school spending… and why taxes were being capped and uncapped.”

She reminded Senators that Act 127 introduced a new system of weighting students for the education financing formula purposes. The re-weighting of the formula created “winners and losers” in the system - districts who gained or lost taxing capacity. She acknowledged that they knew this at the time of passage. They put in place a 5% cap on property tax rate increases to lessen the blow to districts who would lose taxing capacity under the new weighting formula.

When the December letter came out from the Tax Commissioner (this is an annual letter that estimates property tax rates for the following year) it showed average spending increases of 15% from school districts for a variety of reasons. “You cannot cap revenue at 5% and put your spending up around 15% and expect the Education Fund to stay in business very long,” she quipped. This bill removes that property tax cap and replaces it with a different mechanism as “the 1^st step.” However, she noted that “we still have schools that are spending at an unprecedented rate… and it is unsustainable, and we know we have to do further work.”

Cummings then went on to explain the mechanisms of the bill, which repeals the problematic sections of Act 127. It replaces the 5% cap with a mechanism that phases in the impacts of the new weighting factors over a five-year timeframe by offering a tax rate discount that steps down 20% every year. The amount of the discount scales based on how much a district was impacted by the weighting changes.

Cummings added that they “understand that by telling schools this is not the way it is (you are not capped at 5% anymore) you are going to need to go back and redo your budgets.” They included $500K to the Secretary of State to help schools cover the cost of re-warning their budgets.

Senator Kitchel reviewed the bill for Senate Appropriations Committee, explaining that the testimony they took incorporated lots of discussion about the spending issues regarding re-votes and so they supported the $500k appropriation to help districts re-vote their budgets.

Senator Hardy added the Senate Government Operation Committee also looked at the legal and procedural mechanics of the re-votes and supported by consensus along with the School Boards Association and Superintendents Association, who provide some “good guidance” documents posted on the website for assisting schools through this adjustment.

Senator Ingalls observed that with $2.2B in overall spending and per student cost of $25,000 “towns shouldn’t be as confused as they are. I cannot even believe that at this point in time, we as a government have allowed this to be in the situation. I don’t think anyone has done this nefariously, I think that Act 127 was really well thought out and a lot of people put a lot of time into it. It’s hard to comprehend how something… really kind of failed so miserably and caused so much confusion.”

He concluded that “I just think we need to be better at government… we ought to be able to have a plan for how we are going to finance our student’s education.”

Senator Sears wondered what was next after this bill, saying “can you fill us in about the next steps we can expect?” Cummings explained that “we have a unique school system that maintains our tradition of local control… the Supreme Court mandates that we equalize spending… so we are the only state that has that kind of diverse system.” She believes they need to talk about the whole system of delivery and how it isn’t the most efficient. “It is definitely one of the most expensive,” she added.

Senator Brock commented that “this is to all of us a bit of a history lesson… (back to 2009 tax study) and we recognized we have a tendency in this body and in the other, to fool around with taxes and to make changes year after year after year… and every time we make a change it doesn’t just affect the tax we change, it affects the whole revenue collections mechanism and schedule.” He noted that they had created the Blue-Ribbon Commission to look at how the various taxes can all work together. However, they only reported on two (2011) income and consumption taxes. They promised themselves they would get back to the property tax next… but they didn’t deal with it.

He believes they need to reboot that study and “do it right, take a look at all the taxes in a logical way so that we have something not just that makes sense but something that works. Right now we have a tax system as far as education funding… I defy you, any one of you to get up and truly explain it to the voters at Town Meeting Day. Because when you have a tax system that is as convoluted, as difficult to understand as ours… that uses the ‘co-efficient of dispersion’ and terms like Yield that have no meaning to most Vermonters including, frankly, many of us.”

He continued that “we need to make it so that every Vermonter can understand how we raise revenue for spending in a logical way… and in a way that doesn’t have an adverse impact on all the other taxes and revenue sources that we have. We have to do this once and do it right! This time we need to finish it!”

Senator Chittenden spoke next, saying that funding is only half the conversation and “we have centralized the education funding in the state with decentralized spending decision making… we see the value in the communities knowing what they need to spend their money on… we have lots to work to…  get better metrics to compare apples to apples across all of our districts… to ensure all our kids have access to educational opportunity and not just taxpayer equity in our funding formula…”

Senator Baruth thanked the House body for the work they did to send them H.850, noting that “Act 127 created a perverse incentive to spend over 5% but under 10%.” He added that “local spending decisions drive our budgets and drive our budgets… that is a decision that this legislature has stood behind for decades... local control, local budgets.” Referencing Act 46 and forced mergers, he noted “all through that process it was clear no one wanted regional budgeting, no one wanted state budgeting… so people should look to their school boards, with this new opportunity and ask, if they think their tax rate is too high, why are we not re-warning the budget with a lower number?” He agreed this is a first step and the second is to address cost containment.  He adds “this year we need a discussion on how to reduce budgets and how to reduce those long-term costs…”

The motion was called, and the bill passed on a voice vote. It will now be sent to the Governor.