The Douglas Administration just blinked.

Not that that it gave up much. It surrendered but one point, and did it as belligerently as possible. Expect it to return to the fray wide-eyed and armed with fact (or at least its version thereof) and rhetoric for what looms as Vermont’s biggest battle of 2009-Gov. Jim Douglas’s fight to reduce spending on public schools.

Yes, the word was ‘reduce.’ Not just ‘hold down the increase,’ or ‘restrain growth,’ but ‘spend less,’ as in, spend less next school year than this one.

Douglas himself hasn’t yet put it quite that bluntly, though it’s hard to see what else he meant when he contrasted  the spending cuts being forced on most state agencies with the projected increases in school spending.

But one of his senior administration officials, Tax Commissioner Tom Pelham, said in an interview that he thought there should be an actual cut in school spending, and that he was trying to make that case in one of the two letters he sent to the leaders of the Legislature.

The other letter was the blink. Monday afternoon, a day before a Washington County Superior Court judge was going to hear arguments on a lawsuit trying to force Pelham to recommend a two-cent tax decrease in next year’s statewide education property tax rate, the tax commissioner did just that.

“I hereby recommend a two-cent reduction,” he wrote.

That’s what he refused to recommend on December 1, in defiance of a law. The law is something of a technicality-Pelham doesn’t set the tax rate; the Legislature and the governor do-but the State School Boards Association and four school districts went to court over it.

Pelham called the suit groundless and another administration official called it “frivolous,” but on further review, as they say in the National Football League, Pelham decided, “it’s not worth fighting over,” perhaps because he might well have lost.

So the lawsuit is off. But the battle is on, and it’s a little confusing. The administration, which wants to cut school spending, resisted making the recommendation to cut the tax. The School Boards Association,  which usually wants more revenue for schools, insisted on it, painting itself as the taxpayer’s friend. What’s going on?

Part of the explanation lies in the simple fact that there’s a difference between a property tax rate and the amount of revenue collected. If the total value of taxable property goes up, even a lower rate can bring in more revenue.

That’s what’s happening, Pelham said, arguing that the rate should go down even more.

“The value of the equalized grand list (that’s the value of taxable property) is going to grow 6.9 percent,” Pelham said.” That’s not conjecture. That’s fact. With the grand list value growing almost seven percent and tax rates only going down by two cents , that leaves the School Boards Association and their constituencies in the position of having millions more to spend.”

Pelham said he thinks the schools have been spending too much for years. Decrying a “spending expansion,” he pointed out that even as “Vermont’s school enrollment has dropped by almost 10,000 students since 1977, school staffs have increased by 3,500 positions, or 22 percent.”

In his letter to outgoing House Speaker Gaye Symington and Senate President Peter Shumlin, Pelham specified that “a two percent reduction…”results in a $31.2 million property tax increase,” a result “Vermonters will not welcome.”

“I don’t know what he’s talking about,” said School Boards Association Executive Director John Nelson. “It’s just baloney. He’s trying to say it in a way that makes the reader think this two-cent reduction will be responsible for a $31 million  increase. It doesn’t give (schools) more to spend. It gives them $20 million less.”

Can they both be right? Sure. Cutting the residential property  tax rate from 87 cents to 85 cents per hundred dollars of assessed value, and the non-residential rate from $1.36 to $1.34, would bring in some $20 million less than not cutting them. But even the lower rate would bring in more money when applied to a higher base.

Calling that a “tax increase,” as Pelham did, is technically accurate, but misleading if people interpret it to mean their taxes will go up. The grand list rises largely because of development; houses and stores built on empty lots, rooms or garages attached to existing homes. Most home-owners would probably end up paying less if the rate is cut by two cents, even as the total take goes up.

Making the argument politically more difficult for Douglas, Pelham et al. It’s harder to get taxpayers upset if their own taxes aren’t actually going up. The argument that  keeping the rate at 85 cents is the functional equivalent of a tax increase because a steeper cut might mean that many a  homeowner’s property tax would actually go down, is not frivolous. But it lacks the punch of screaming against an actual tax hike.

Politicians who put pressure on schools to cut costs have another difficult challenge: figuring out how to do it.  Nelson said that neither Douglas nor any of his associates have  “indicated in any respect where they think reduced spending ought to happen. They have not had one idea.”

About a year ago, Nelson said, he and his board of directors asked to meet with Douglas  to talk about ideas for reducing school costs.

“We said if you can’t come to us we’ll come see you. His office called and said, ‘we have your invitation and we’re going to decline.’”

The combatants here seem far from a meeting, much less a meeting of the minds. The fight goes on.–Jon Margolis

One would think by now that Vermonters-and especially Vermont news organizations-would know better than to take the Tax Foundation seriously.

It is, after all, the outfit responsible for the patently false assertion that Vermont is the highest-tax state in the nation.

But the other day, when the Foundation came up with a report about property taxes by county, there it was in the papers and on the teevee: Some outfit says Vermonters pay a lot in taxes.

The “median Chittenden County property tax bill” was $3,809, as the Burlington Free Press accurately reported the Foundation’s finding, making it the 61^st highest in the country. Windham, Addison and Windsor Counties were also in the top hundred.

None of this is exactly wrong. Nor is it exactly right. Mostly, it is meaningless, another way of saying it is not news.

First consider the source. The Free Press described the Tax Foundation as “a nonprofit tax research group based in Washington, D.C.,” which is accurate, but misleading. The Tax Foundation is a 50-year-old, corporate-funded, very conservative advocacy group. It is, or at least was, affiliated with Citizens for a Sound Economy, another very conservative outfit founded with money from the Koch family of Koch Industries, the privately held oil and gas firm regularly at war with environmental regulation and progressive taxes.

To give the Foundation folks credit, their report-based on figures from the Census Bureau’s American Community Survey-expressed no value judgment about the counties that ranked high or low on the property tax scale. But there’s little doubt that they hoped for the interpretation they got, especially from Vermont news organizations, which is that being in one of the high-tax counties was a sign of being over-taxed.

Could be. What defines over-taxation is debatable. Less so is that all the high-tax counties on the Foundation’s list are among the most desirable places in America to live: Westchester County, New York; Lake County, Illinois; Bergen County, New Jersey; Fairfield County, Connecticut. All these places have high median incomes and low poverty rates.

As does Chittenden County.Its median household income in 2007 was $57,957, almost $10,000 above the national median. Its poverty rate was 7.2 percent, more than five percent below the nation’s. Addison and Windsor Counties were both richer than most of America, too. Windham’s median income was slightly below the national figure. All four counties, like those wealthy, high-taxing, suburbs in the other states, also rank among the top spots in the country when it comes to health, education, and the various indices that define quality of life.

The lowest tax counties are in Louisiana. They have low per capita incomes and high poverty rates.

Could these taxes be buying something valuable?

Again, debatable, so let’s stick to empirically testable fact, which leads to the conclusion that in real life those property tax payments are less than met the Tax Foundation’s eye.

In Vermont, property owners with incomes under $90,000 can get some of their property tax payments back from the state. The higher their tax, the more likely the rebate, and the higher it will be.

In every state, taxpayers can deduct their property tax payments from taxable income on their federal tax returns, a revenue sharing system in which property owners  effectively get some of their property taxes refunded by the feds. The richer the taxpayer, the greater the subsidy, both because the wealthy taxpayer is in a higher marginal tax bracket, and because he or she probably lives in a more expensive house, paying higher property taxes. A family with $200,000 in taxable income, putting them in the 33 percent marginal tax bracket, and a $10,000 property tax bill ,would cut its federal tax bill by $3,300 thanks to the property tax deduction.

Another possible problem with the Tax Foundation report is that it uses median figures for taxes and income throughout. This is defensible, but perhaps misleading. “Median” does not mean “common” or “typical.”

For instance, one finding of the report, based on median property tax payments and median incomes is that Chittenden County homeowners pay five percent of their incomes in property taxes, more than in all but 58 other counties.

This does not necessarily mean most Chittenden County homeowners pay five percent of their incomes in property taxes.

Or maybe it depends on how the payment is figured. A very helpful Chittenden County realtor who wished to remain unidentified came up with the example of a South Burlington house selling for $259,900. The property tax would be $4,183 a year. On a conventional, 20 percent down, 30-year mortgage, total monthly payments would be $1,497.08.

On the assumption that prudent consumers wouldn’t buy this house unless they earned at least $5,988 a month (four times their payments), or $71,860 a year, their property taxes would be more than five percent of their income.

Except that the property taxes save them  $374 on their federal income taxes, and this family may well get a few hundred dollars rebate from the state, bringing it down to roughly $3,600, or just about five percent.

Is that too much? Well, that’s  up to them, isn’t it? Along with their neighbors and fellow-citizens who, if they thought the taxes too high, could organize, oppose school budgets, defeat incumbent state legislators and the like.

They haven’t.

At least not very much.

Maybe, just maybe, their apparent acceptance of the status quo can be explained by the figures in another report by the same Census Bureau agency, the American Community Survey. This one-the  Median Monthly Housing Costs for Owner-Occupied Housing Units With a Mortgage-figures costs by state, not county, and it’s only for 2007 (the Foundation report used a three-year average).

This Median Monthly cost survey measured the relative costs of mortgages, property taxes, insurance fees, utilities, fuel costs, and, where appropriate, condo fees and mobile home park charges.

The result? Vermont’s a pretty cheap place to own a home. It’s the 22^nd most expensive state, with a median monthly cost of $1,391, almost $100 less than the national median.

Don’t tell Gov. Jim Douglas, but here is evidence that living in Vermont is downright affordable.

Yes, most of the more expensive states are also richer. But not as much richer as they are more expensive, at least for housing. Neighboring New Hampshire, for instance, had a median monthly housing cost of $1,830. That’s more than 30 percent more expensive than Vermont. New Hampshire isn’t 30 percent richer.

Funny how these results didn’t show up in any Tax Foundation report.

Well, not so funny. There are two lessons to be drawn here. One is that tax rate comparisons in general are pretty close to meaningless. The other is that  data from the Tax Foundation should be put in the waste basket, not in the newspaper.-Jon Margolis

To begin this final week of this momentous year, a couple of observations based in part on comments and/or questions from readers .

Observation One:  A post last week about how the University of Vermont seemed to be the only state university in captivity serving more out-of-staters than its own residents should have pointed out that in some ways this situation helps young Vermonters and their parents.

UVM doesn’t have a huge endowment, and the money it gets from the state adds up to barely ten percent of the cost of running the joint. More than many quality universities, then, UVM depends on tuition.

That means it depends on out-of-staters, who pay more than twice as much as Vermonters to attend UVM. In-state tuition is  (in UVM’s Fiscal Year 2009) $11,048 a year, and a great many Vermont students don’t pay that much. Almost 900 of them pay nothing at all (though everybody pays the $1,796 in student fees, bringing the total cost for an in-state student to $12,844, plus room and board).

Undergraduates who are not from Vermont, whether they live as close as New Hampshire or as far away as Kenya,  pay tuition of $27,886. And as far as the university is concerned, most of them are really paying that much. Many may be getting student loans or Pell Grants or some other kind of assistance. But they’re funneling it right into UVM’s treasury.

The outsiders, then, are  subsidizing the state residents. If there weren’t as many out-of-state students, there might not be enough money to finance a quality university for anyone, residents or not.

Nor does there seem to be a major shortage of openings at the school for qualified Vermonters. State Senator Donald Collins, the outgoing chairman of the Senate Education Committee, said he recently checked into complaints that Vermont students were having a hard time getting into UVM and found that “most high schools thought their students were getting fair treatment, that qualified Vermonters were getting in.”

UVM’s dependence on tuition raises the question of why the state doesn’t offer the university more support. Only one or two states pony up a smaller percentage of the cost of public higher education, and those are much poorer states. Is Vermont a higher ed .cheapskate?

Maybe, but a little perspective is due. Some state university systems have sources of income other than the taxpayers. In Texas, oil and gas production on more than 1 million acres of the Permanent University Fund Lands helps support the state university system. As a condition of joining the union, several other Western states had to set aside “school trust lands” to help support education.

If only maple syrup were as essential as motor and heating fuel, Vermont might have gotten in on that act, too. As it is, our only major source of public money is taxation. As has been noted, life isn’t fair.

That East is East is West is West and the twain aren’t exactly alike brings us to Observation Two, and helps answer a question from the reader who wondered at the statement in a recent post that “the lay of the land” helped explain why elementary and secondary education in Vermont is so expensive.

The reference was to both the physical and the cultural lays of the land. Vermont is the most rural state in the Northeast.  Maine and New Hampshire have more wild country, but in both states, more folks live in urban/suburban settings. By and large the Northeast is more expensive than most of the rest of the country, and rural can be expensive, too, especially decentralized rural, which is what Vermont is.

The other rural states are in the South or on the Great Plains. They have wide open spaces, not a town every few miles where most people like to maintain their own school. Those states also have county school systems, meaning far fewer administrators per pupil than Vermont, where there are 61 separate supervisory districts for 311 schools, some of them very tiny.

In some sparsely settled Western counties there is only one school-or one school complex with an elementary, middle, and high school all together-in the county seat. The school district does not always provide transportation for children who live far from town. Parents drive their own kids to school. Or mothers rent apartments where they stay with their children from Monday morning until Friday afternoon, when they head back to the ranch. Others board children with relatives or friends in town during the week. More expensive for these parents; cheaper for the school district.

Vermonters could consolidate schools or districts, but they don’t seem to like the idea. When former Education commissioner Richard Cate proposed trimming the number of districts a few years ago, he got his head handed to him. Consolidation, it seems, violates the concept of “local control.” Local control can be expensive.

Does this mean Vermont can’t do anything to hold down school costs? Of course not. It does raise the question of whether these state-by-state cost comparisons are at all useful.–Jon Margolis.