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Decoupling in action

Many decades back, there was a New Yorker magazine cover which showed, in artistic conception, the view from east of the Hudson River of all the less-significant rest of the U.S. west of Henrys riverine discovery. The cover art was drawn to illustrate the same dismissive attitude as the modern phrase fly-over country, once true only of important Gothamites, but now extended northward along the east bank of the Hudson. Now that so many former Manhattanites have migrated north into the Green Mountain State (count a former governor in that number), and have brought that New Yorker mindset with them, its predictable that theyre not particularly interested in the protocols of the western states in managing their property taxes. Howard Jarvis Proposition 13, adopted in California in 1978, established a propertys value for tax purposes at its purchase price; the move was met with a bored yawn back east. A dozen or so years after Prop 13, when a brief nationwide real-estate slump necessitated some downward reassessments in those west-of-the-Hudson states which actually follow the earlier, and still more common rule, that assessment must accurately reflect current value, Vermonts movers and shakers decided otherwise: a leading Middlebury political figure (whom I wont identify here except for her gender) dismissed any such thoughts of a potentially revenue-reducing downward reassessment with the paraphrased comment, Our schools simply couldnt afford any cuts. Now theres another nationwide real-estate slump underway. States and localities have again responded in predictably different ways. At one extreme is Vallejo, Calif., where property market-value devaluation has triggered downward reassessments and an ensuing municipal fiscal crisis severe enough to trigger a bankruptcy filing. Not since East Rutherford, N.J., briefly went belly-up during the Great Depression has there been anything comparable ( I dont include Orange County, Calif., whose Treasurer Robert Citron was playing the municipal bond market in 1994 and proved less skillful than necessary for that sort of leveraged speculation) in the usually stolid world of tax-and-spend governmental finance. At the other extreme is Vermont, which hasnt reassessed downward for a far better reason than last time: this time, the state (which, thanks to Act 60 and Son-of-60, Act 68, now runs a statewide property tax assessment and rate-setting bureaucracy) hasnt had to drop assessments becausefor reasons which were the subject of my speculation in last weeks columnreal estate values in this state havent dropped as they have in 48 others North Dakota, for a different set of reasons, shares this remarkable value-stability with Vermont; taking the assessment-at-current-market-value responsibility seriously, the midwest state has begun its own downward reassessment process, and is facing up to the resulting revenue shrinkages. Because values havent dropped, state government hasnt had to face the test the 251 towns failed last time, when values dropped in the early 90s and assessments didnt because, as one political figure explained to me the schools couldnt afford the cuts. Now with assessments legally decoupled from rates, the state can choose to reassess or notas it pleasesand to hold the rates or change them, again as it pleases. Thats been the pattern with the last few relatively tiny drops in rates as assessment have increased by percentages up into the 40 percent range. It was a legislative decision, motivated by the same urge as previous decouplings from the original design of Vermonts income tax system as a percentage of the federal: as the feds have reduced or eliminated some items, ranging from marginal rates to estate taxation, Vermont hasnt chosen to follow along because it claims it cant afford the cuts. And there was the classic case, under former Tax Commissioner Joyce Errecart, when Vermont decided it couldunlike the other 49 statesblithely disregard constitutional issues and tax the earnings from federal obligations. Yes, indeed: decouplings redux. Former Vermonter Martin Harris now lives in Tennessee.

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