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Centralization of School Finance and Property Values

Lessons from Vermont

Thomas Downes

June 2010, English

In June 1997 the elected leaders of Vermont enacted Act 60, potentially the most radical reform of a state’s system of public school financing since the changes in California in the late 1970s. Little is known about the capitalization effects of changes like those that occurred in Vermont—which combined redistribution of education spending, a statewide property tax, and limits on property tax liabilities based on the taxpayer’s income. This research closes that knowledge gap by quantifying the capitalization effects of Act 60. Data on property transactions in Vermont are combined with data on Vermont school districts to create a data set that spans the pre- and post-Act 60 period. This data set enables me to use the repeat-sales methodology to determine the capitalization effects of Act 60. The estimates of a standard hedonic specification estimated using all transactions (not just repeat sales) indicate that, while in Vermont property taxes appear to be capitalized into property values, measures of schooling provision are unrelated to property values. The estimates also indicate that finance reforms resulting from Act 60 may have accentuated the gap in property values between districts with relatively high and relatively low spending prior to reform.