Education groups drop lawsuit against tax commissioner

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(Host intro) A coalition of education groups has dropped its lawsuit against Tax Commissioner Tom Pelham.  The coalition was upset that Pelham didn’t recommend a statewide property tax rate for next year, as required by law.

Pelham has now complied by recommending a two-cent cut in the residential rate. But the battle over education funding is expected to be a key issue in the 2009 legislative session.

VPR’s Bob Kinzel reports.

(Kinzel) This is a story about the Douglas administration’s desire to keep all of its options available in a very difficult budget year. It also involves the administration’s ongoing effort to reduce local school spending.

Earlier this month, Tax Commissioner Tom Pelham determined, based on a number of factors, that the Education Fund would record a $20 million surplus next year.

But Pelham says he didn’t recommend a tax cut because he thinks the Legislature and the governor need flexibility as they deal with a major budget crisis this winter.

(Pelham) “This is an extraordinary period. It should not be a business-as-usual discussion. And the Senate leadership and the House leadership and the governor need to have the flexibility and freedom to make the best decisions that they can."

(Kinzel) That decision didn’t sit well with the Vermont School Boards Association – one of the groups that sued Pelham.  Executive Director John Nelson says any money raised for education should stay in the local community:

(Nelson) “This $20 million is $20 million that local communities voted for a specific purpose. That is to support their schools. And so it’s important to them that if it’s not used to support their schools that they essentially get it back and that it not be used for something else."

(Kinzel) Commissioner Pelham also says that he didn’t recommend a tax rate reduction because he’s worried that local school boards will view the tax cut as an opportunity to increase spending.

(Pelham) "School districts are at least at this point discussing budgets with very steep increases in spending and so the lower the rate reduction, the more capacity there is to spend."

(Kinzel) But School Boards’ director Nelson says it’s likely that overall education spending will be less this year because a controversial new law, known as Act 82, is going into effect this winter. It requires towns that spend more than the statewide average per student, to hold two votes if their proposed budget exceeds 4.9 percent. 

The first vote would include spending up to the 4.9 percent threshold, the second vote would include all spending above it.

(Nelson) "The reason that they want to avoid it, I think, is that it’s a very confusing process and boards know that it will be difficult if they’re in that situation where they might need to go ask the voters for a second vote. That’s going to be a very difficult process and they simply want to avoid it if they can."

(Kinzel) The Education Fund is financed through the statewide property tax and several other state taxes, including a portion of the sales tax and the motor vehicle purchase and use tax.

While lawmakers and the governor aren’t allowed to use an Education Fund surplus to directly finance other state programs, there is talk of removing some of these other taxes from the Education Fund to help bolster the General Fund or the Transportation Fund. The projected surplus would then be used to fill the funding gap.

It’s a plan that’s expected to generate heated debate at the Statehouse.

For VPR News, I’m Bob Kinzel in Montpelier.

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