De-Coupling Redux 
By Martin Harris 

Many decades back, there was a New Yorker Magazine cover which showed, in artistic conception, the view from East of the Hudson River of all the less-significant rest of the US lying West of Henry’s riverine discovery. It was drawn to illustrate the same dismissive attitude as the modern phrase "fly-over country", once true only of important Gothamites but now extended northward along the East Bank of the Hudson. Now that so many former Manhattan-ites have migrated north into the Green Mountain State (count a former Guv in that number) and have brought that mind-set with them, it’s predictable that they’re not particularly interested in the protocols of those lesser, Western, States, in managing their property taxes. Howard Jarvis’ Proposition 13, adopted in California in 1978, which established a property’s value for tax purposes at its purchase price, was met with a bored yawn back East. A dozen or so years later, when a brief nationwide real-estate slump necessitated some downward re-assessments in those West-of-the-Hudson States which actually follow the earlier and still more common rule that assessment must accurately reflect current value, Vermont’s movers and shakers decided otherwise: a leading Middlebury political figure whom I won’t identify here except for her gender dismissed any such thoughts of a potentially revenue-reducing downward re-assessment with her own: "our schools simply couldn’t afford any cuts". Now there’s another nationwide real estate slump. States and localities have again responded in predictably different ways.

At one extreme is Vallejo, CA, where property market-value devaluation has triggered downward re-assessments and an ensuing municipal fiscal crisis severe enough to trigger a bankruptcy filing. Not since East Rutherford, NJ, briefly went belly-up during the Great Depression has there been anything comparable ( I don’t include Orange County, CA, whose Treasurer Robert Citron was playing the municipal bond market in 1994 and proved less skillful than necessary for that sort of leveraged speculation) in the usually stolid world of tax-and-spend governmental finance.

At the other extreme is Vermont, which hasn’t re-assessed downward for a far better reason than last time: this time, the State (which, thanks to Act 60 and Son-of-60, Act 68, now runs a statewide property tax assessment and rate-setting bureaucracy) hasn’t had to drop assessments because, for reasons which were the subject of my speculation in last week’s Eagle column, real estate values in this State haven’t dropped as they have in 48 others (North Dakota, for a different set of reasons, shares this remarkable value-stability with Vermont) many of which, taking their assessment-at-current-market-value responsibility seriously, have begun their own downward re-assessment processes, and are facing up to the resulting revenue shrinkages.

Because values haven’t dropped, State government hasn’t had to face the test the 251 Towns failed last time, when values dropped in the early 90’s and assessments didn’t because, as one political figure explained to me "the schools couldn’t afford the cuts". Now, of course, with assessments legally de-coupled from rates (unlike the time-honored traditional rule, whereby, unless spending goes up, a rise in assessment value causes a drop in tax rates) the State can choose to re-assess or not, as it pleases, and to hold the rates or change them, again as it pleases. That’s been the pattern with the last few relatively tiny drops in rates as assessment have increased by percentages up into the 40 percent range.

It was a legislative decision motivated by the same urge as previous de-couplings from the original design of Vermont’s income tax system as a percentage of the Federal: as the feds have reduced or eliminated some items, ranging from marginal rates to estate taxation, Vermont hasn’t chosen to follow along because, of course, "it can’t afford the cuts". And there was that classic case, under former Tax Commissioner Joyce Errecart, when Vermont decided it could, unlike the other 49 states, blithely disregard the constitutional issues and tax the earnings from federal obligations. Yes, indeed: de-couplings redux.
 

Martin Harris is a former Chairman of Citizens for Property Rights