Battling the Tax Monster 
By John McClaughry

Vermonters are distressed over the rising cost of public education. The focus of their outrage is the state's residential education property tax.

The most common political response to this distress is to try to shift the property tax bill to some other revenue source. The only sufficiently large source is the income tax. Abolish the tax on homesteads and raise the income tax to make "the rich and the big corporations" make up the loss!

The legislature has already gone a long way toward effecting this shift. The Act 60/68 income sensitivity payment program now offers income-based residential education property tax discounts to 62 percent of Vermont's home-owning households. Further increasing the income tax rates - already featuring the highest tax bracket of any state in the union - is a non-starter because of the certain negative effect on the state's economy.

Another approach is to put a legislative-determined cap on local education expenditures. This has been a favorite of Gov. Douglas, who has sought a requirement for a 60% vote to approve school budgets that increase by more than the rate of inflation plus one percent over the previous year's spending.

That proposal didn't fly, but in an unexpected last-minute convulsion the 2007 legislature adopted a similar proposal by Sen. Vince Illuzzi. If a district spends above the statewide average, and its proposed budget increases by more than an inflation index plus one percentage point over the previous year's, the voters would vote first on a budget with an "average" (approximately four percent) increase, and then on the excess amount over
that level.

This provision became Act 82. It also became the immediate target of the Vermont-NEA teachers union, which never saw a spending increase it didn't like. The union correctly sees that angry taxpayers would be very likely to vote down the excess spending component in a two-vote system.

The House Education Committee, bowing to intense VT-NEA pressure, has now voted out a bill to repeal this provision before it takes effect next year. The Senate leadership appears to be resisting, at least for the moment.

Meanwhile Sen. George Coppenrath came up with a shrewd proposal to replace the "two vote" requirement with a different deterrent to runaway local spending. Under his bill (S.264), whenever a district's spending reaches the current penalty threshold (more than 125% of the statewide average per equalized pupil cost (less eligible construction expenses) in the prior fiscal year), the district must offer parental choice to its pupils, financed by the amount of the excess spending.

The bill is based on the fact that the most ardent advocate of increased educational spending, and thus higher residential property taxes, is the teachers' union. And the thing the teachers' union hates more than anything is not higher education taxes - far from it - but the prospect of parents having the power and the means to choose to send their kids to independent (non-union) schools more suitable to their needs.

So when a district's spending starts creeping up to the penalty threshold, the union will be forced to join angry taxpayers to put on the spending brakes. Otherwise they will face the ultimate horror: opening the presently barred door to parental choice.

Given the anti-choice complexion of this legislature, the prospects for Sen. Coppenrath's bill can only be described as grim. If there is no economically feasible way to further shift the cost of education away from the property tax, and no politically feasible way to impose high barriers to excessive spending, what then?

Voters and taxpayers will have to recognize that a state-controlled monopoly public educational system, with its large and politically organized union always demanding more spending to pay for higher benefits for its members, will inevitably demand ever-higher tax resources - even if, as has happened over the past decade, the number of pupils is decreasing.

Governments don't raise education taxes just to prove they can do it. They raise taxes so they can spend the money on the public school system.

Ultimately the only answer to ever-rising residential property and other taxes for education is to end the protected monopoly that demands and lobbies for the money.

This doesn't mean that towns would no longer be allowed to operate schools. It does mean that government schools would have to adapt to parental choice and provider competition. No other plan of attack holds any realistic promise for taming the Tax Monster.
 

John McClaughry is President of the Ethan Allen Institute