Vermont's Most Unusual, Most Equitable School Funding System in a Nutshell

Last Updated: January 27, 2012

This article appeared in the January 2012 Rural Policy Matters.

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Vermont’s school funding system is unique, and complicated. The essential elements are these:

  • Each district budget is developed by the local school board and (with only a few exceptions) approved by voters.
  • There is a two-part statewide school property tax. For business and commercial property (including rental homes and second homes, a big part of the Vermont tax base) there is a single rate established each year by the Legislature. For local residences there is a different rate determined by the legislature that annually determines a per pupil level of spending and calculates the residential tax rate needed to fund that level of spending (when added to the revenue raised by the business tax rate).
  • The state property tax is distributed to school districts on a per pupil basis, with some adjustments based on poverty and other cost factors. This base funding level can be increased by local decision.
  • If a local school district wants to spend more than the base funding level allotted to it by the state property tax collections, it has the option to do so by raising local property taxes on residences only.
  • However, the property tax base of all districts that choose to spend more is mathematically combined into a single tax base, and the amount of increased spending desired by these districts is applied across their shared tax base. As a result, property rich towns pay more for the privilege of spending more than do property poor towns. In effect, a penny of increase on the local school property tax raises exactly the same amount of revenue in every school district, rich or poor.
  • There is an “income sensitivity” provision that limits the amount of school property tax that any household with an income below $97,000 must pay. Basically, the limit is about two percent of household income. For the overwhelming majority of Vermonters, the school property tax is really a flat income tax. The revenue lost by this limit is made up from state sales and income tax.
  • Finally, there is a luxury tax on very high spending districts. If a district spends more than 125% above the previous year’s statewide average on a per pupil basis, its property tax rates and income sensitivity limits are doubled for that portion of their budget that exceeds the 125% limit.

Read more from the January 2012 Rural Policy Matters.