MONTPELIER — Vermonters who turned out for a public hearing at the Statehouse on Wednesday aired concerns that a proposed education finance model would hike state income taxes, disproportionately hit low-income people and sow confusion if rushed.
More than a dozen school board members, advocates and residents testified to the House Ways and Means Committee about a proposal legislators are working on that would slash homestead property taxes in half and would implement a new school income tax.
Under the new model, the homestead property tax rate would be reduced by 48 percent, and the income sensitivity program would be eliminated.
The nonresidential tax formula will not change and will be set at $1.591 this year. In addition, money from the state budget — $323 million — would no longer be transferred to the education fund.
To make up the difference, the House proposes to assess a tiered school income tax that would be applied to wage earners, business owners and people with investment income.
Renters would also pay the tax and would be eligible for rebates.
The panel will decide by the end of this week whether it will move forward with the proposal this year, according to the chair of the committee.
It would be the most significant reform to the state's education finance system in two decades.
It was a relatively small turnout for a hearing on one of the most contentious issues under consideration this legislative session.
During less than an hour of public feedback, many people raised concerns over the economic impact of raising education revenue through an income tax.
Matt Stover of Woodstock said the proposal would increase Vermont's marginal tax rate so that the state would have one of the highest in the country.
"If you're facing a raging forest fire, don't start another one in your backyard," Stover said.
David Logan, president of Autumn Harp, said the proposal would have a significant impact on the taxes on his business. He estimated the taxes on his company, which employs about 200 people, would increase by 24 percent.
The company recently invested $11.5 million to expand its facility, Logan said. If they knew that such a tax increase was coming, he told the committee, "we would not have made that expansion."
According to Tax Commissioner Kaj Samsom, non-residents who hold shares in some types of corporations would see a 20 percent increase under the proposal.
Several speakers were supportive of lawmakers' goals in revising the education finance system. However, they urged the committee to slow down its work and take up the initiative next year.
Geo Honigford, president of the Vermont School Boards Association, said the group is open to the proposal, but is concerned about rushing the timeline for a "monumental" shift in policy.
School districts will be taking their budgets to voters on Town Meeting Day in less than two weeks, and many school board members will not be prepared to answer voters' questions about the proposal on the table in Montpelier, he said.
"We're not opposed to this happening," he said. "Let's slow it down for this year."
Meanwhile, some speakers encouraged lawmakers to reform aspects of the education system, such as the state's longstanding program that funds tuition to any public or private school for students in towns that do not have a public school.
Several people objected to the proposal because they believe it would have a negative impact on low- and middle-income Vermonters.
Daniel MacArthur, of Marlboro, said he believed the changes would "exacerbate the rich town, poor town paradox."
He said the elimination of the income sensitivity provision in Vermont's current law would be a big hit to many households.
"Many working Vermonters have been able to keep their lands in part because of the income sensitivity, and I hope that they are not now being put into a situation where they are either forced to sell their land or move," MacArthur said.
Allen Gilbert, the former executive director of the Vermont American Civil Liberties Union and a key player in the 1997 court decision that laid the foundation for the state's current education finance system, also raised concerns about the elimination of the income sensitivity provision and the impact it would have on economic inequality in Vermont.
The hybrid income and property tax proposal the committee is weighing would be complex, and there still would be upward pressure on property taxes, he said.
"It would be much better to have one system that uses one form of tax," he said.
Gilbert encouraged lawmakers to move away from an education finance system rooted in property taxes and consider a system that is based entirely on income tax.
Ways and Means Chair Rep. Janet Ancel, D-Calais, noted the "consistent" message that school boards are concerned about is the timing of the bill. She also expects the committee will revisit the proposal to evaluate its impact across economic strata.
Ancel said the committee will decide by the end of Friday whether they want to move ahead with the proposal this year. They still need to complete the annual yield bill, which sets statewide education tax rates for the next fiscal year.
"It'll be something with reform in it, or it will be the basic yield bill that we do every year," she said. "But we're going to have to make a decision one way or the other."
Samsom, who heads the Tax Department, sat in on the hearing.
He noted that several speakers raised a concern over a point that the Scott administration is also worried about: that middle-income people, who make around $60,000 or $70,000 a year, would be particularly impacted.
People in that range tend to benefit from the income sensitivity program under the current model, but they do not have any form of sensitivity under the proposed model.
Samsom also said the administration believes the changes to the tax rates are "really hitting at the heart" of multi-state tax competitiveness. Companies that operate across state lines may be driven to do business in other states as a result of the changes.
He said the administration appreciates "the efforts to think outside the box," but they hope lawmakers will consider the ideas outlined in a memo that Administration Secretary Susanne Young sent earlier this year.