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Woolf: Property Tax Dilemma

12/10/09 7:55AM By Art Woolf
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(HOST) Economist and commentator Art Woolf sees some good economic news on the horizon, but that won't be enough to solve Vermont's continuing property tax problem.

(WOOLF) The good news is that most economic indicators are bottoming out and, after two years of relentlessly dismal economic news, the national and state economies will soon begin to improve.   The bad news is that growth, especially job growth, will be slow and uncertain.  The most recent state economic forecast predicts that the state won't regain the 12,000 jobs we've lost over the past two years until 2013.  Housing values, which grew at double digit rates earlier this decade, are no higher today than they were two years ago and prices are likely to be flat for many years to come.

This affects all of us, not least because of how it affects Vermont's fiscal situation and the taxes we pay.  The state economy this year will only generate as much tax revenue as it did five years ago, and that's just for the state's general fund.  The state's education fund, used to pay for K through 12 education, is also facing unprecedented problems, but of a different kind.  

We've recently heard that for the first time since Act 60 was passed in 1997, the statewide residential property tax rate will have to be raised in order to balance the education fund.  Should we be concerned about that?  

It's hard to simplify something with as many moving parts as Act 68, Vermont's school spending mechanism, but let me try.  

For most of this decade house values rose so much that the state could lower the statewide property tax rate and still receive more tax revenues to pay for higher school costs.  A house worth $200,000, for example, would pay $2,000 in property taxes with a $1.00 tax rate.  If the house rose in value to $250,000, its tax bill would rise to $2,500 with the same $1.00 tax rate.

We're entering a new period, one with stable home values, which means higher tax rates will be needed to generate the revenues we need to pay for education.

The only difference between the future and the past is that legislators do not like to actively raise tax rates.  They prefer the automatic increases that result from a rising tax base.  But for the first time since Act 60 was passed, legislators will soon have to vote for a property tax rate increase in order to have sufficient revenues to balance the state's education fund.  

What's the solution to rising property tax bills?  It's not to look for other revenue sources, like the income tax or the sales tax, to pay for schools.   The solution has to be on the spending side.  Vermont, an average income state, spends more to educate each student-over $14,000-than almost any other state in the nation.   Education is, of course, essential, but Vermonters spend extravagantly for what they receive.

Instead of looking for more money, our challenge should be to figure out ways to improve educational quality while spending less.  In these difficult fiscal times, and with the austere budgets facing Vermont, it is our only responsible solution.

(TAG) You can find more commentaries by Art Woolf on-line at VPR-dot-net.
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