Win-Win Compromise Appears to End Vermont's Act 60 Wars

On May 28, 2003, the Vermont Senate overwhelmingly passed a bill revising Act 60, which codified the state's school-funding formula. The bill awaits approval from the House, which worked with the Senate to craft this compromise measure, and Governor Jim Douglas has said he will sign it. With both sides feeling that they have won an important victory--a hated Robin-Hood recapture clause was removed, and state per-pupil aid will be $6,800 for the 2004-2005 school year--the often contentious debate over Act 60, which began almost as soon as it became law in 1997, seems to be at an end.

Act 60, which the Legislature passed in response to the pro-plaintiff verdict in Brigham v. State, Vermont's "equity" case, originally replaced local property taxes with a statewide property tax and provided a guaranteed tax yield on local taxes above the statewide level. This considerably equalized school funding across the state, but, while most Vermonters saw their property taxes decrease, residents of the so-called "gold towns," property-rich communities with large numbers of vacation homes, paid higher property taxes. Residents of the "gold towns" objected even more to the statewide sharing pool, which forced the wealthy towns to send some of their property-tax revenue to the state to be disbursed to lower property-wealth areas.

Attempts to chip away at Act 60 have increased as the years have passed, and significant portions of the 2001 and 2002 legislative sessions were consumed by debates over the law, although no changes were approved. The legislature and governor aimed again in 2003 to provide property-tax relief, but proponents of Act 60 feared that this would lead to the elimination of the state property tax and, therefore, to Act 60's primary means of reducing substantial school-funding disparities across the state. On May 22, however, three House members and three Senators announced that a compromise had been reached that would retain the statewide property tax and the guaranteed tax yield, provide $49.5 million in property-tax cuts in 2005, eliminate the sharing pool, and raise per-pupil aid to schools.

Under the deal, the statewide sales tax will increase from 5% to 6% beginning in October 2003. By the 2004-2005 school year, this extra percentage point, along with a few other, smaller, taxes, will raise $50 million more for education spending and thus make up for the reduced property-tax revenue. The statewide property tax will remain, with one major change: property will now be split into two categories, with each paying a different minimum tax. Residential property will be taxed at a minimum of $1.10 per $100 of assessed value, and all other property--including businesses and second homes--will be taxed at $1.59 per $100. Towns may choose to tax themselves over this minimum if they want to spend more than $6,800 per pupil, and in that case they would get equal yield for every penny above the minimum rate. Last year, when state per-pupil aid was at $5,400, almost every school district in Vermont chose to tax itself above the minimum.

With this hard-fought compromise producing a win-win situation, it was hardly an exaggeration for Chief House negotiator Dick Marron to say, "We have really come up with a plan that ends the divisiveness of Act 60."

Prepared May 29, 2003