By Tiffany Danitz Pache, VTDigger
The Senate Thursday, April 27, gave preliminary approval to a bill that will raise property taxes.
The proposal transfers $8 million of the state’s annual contribution for teachers’ retirement from the general fund to the education fund.
That shift frees up money for child care, state colleges and the mental health system, under the Senate budget plan. But it also raises local property tax rates.
If the bill passes as is, the commercial property tax rate will go up by 3 cents this year. Lawmakers plan to use one time money to ameliorate the impact on homestead property tax rates this year, but residential rates could go up as much as 3 cents to 4 cents in fiscal year 2019.
Sen. Jane Kitchel, D-Caledonia, chair of the Appropriations Committee, said the idea that her proposal will raise property tax rates was just “rhetoric.”
“The tax rates for homestead property taxes will remain unchanged from 2017 to 2018. There is no change in the rate,” she said.
Sen. Mark MacDonald, D-Orange, said Kitchel’s comments were “misleading” because the homestead property tax rate is fixed at $1 but the yield changes and that is what makes taxes go up or down.
“A couple years ago, the Legislature made the property tax rate for homestead homeowners fixed — it doesn’t change anymore — that doesn’t mean there is no change in what homeowners pay,” MacDonald told lawmakers.
The yield is lower under the Senate proposal, “which means homestead property will pay a little bit more to pick up the cost of the transfer of teacher retirement to the ed fund,” he added.
Sen. Dustin Degree, R-Franklin, said he supported transferring of retirement costs to the Education Fund, but only if it could be done without raising property taxes.
“I believe there is a third way, that we could fund that transfer and support the transfer,” Degree said. He offered an amendment before the third reading Friday, April 28.
Gov. Phil Scott’s budget moved $35 million in teacher retirement obligations from the General Fund to the Education Fund. Lawmakers rejected that proposal early in the session.
In recent weeks, Scott has insisted that the Legislature use $26 million in projected savings from teachers’ health care to lower the statewide property tax rate. His proposal is contingent on a statewide teachers’ contract for health care benefits. Democratic lawmakers have said the plan interferes with collective bargaining at the local level.
At a press conference this week, Scott reiterated he would not sign a bill that would raise taxes.
Jeff Fannon, head of the Vermont NEA, said the state teachers’ union opposes moving the state retirement obligation to the Education Fund. The union also vehemently rejected Scott’s statewide health benefit contract.
“There have been many proposals over the years to transfer general fund items to the ed fund and we typically oppose those because it increases property taxes,” Fannon said.
The new yield for homestead property tax will be set at $10,015 under the Senate proposal. The nonresidential property tax rate will be $1.563.
The statewide tax rate is $1. If your town spends $10,015 per pupil — the same as the yield rate set by the Legislature – then your taxes will be $1 for every $100 of assessed property value. Any spending above the statewide yield rate is picked up by local taxpayers. Average spending per pupil will be $15,380 in fiscal year 2018.
Lower yield rates correspond with higher local property tax rates.
Earlier in the session, the House approved yields of $10,077 for the homestead rate and set the nonresidential rate at $1.55. Last year, lawmakers agreed to a property yield of $9,701, and a nonresidential rate of $1.535 for fiscal 2017.
The Vermont Legislature set up the teachers’ retirement system in 1947. In 2009 and 2006 attempts were made to move the obligation from the General Fund to the Education Fund. Both attempts failed.
Over the course of a decade, the Legislature underfunded the teachers’ retirement system. At this point the amortized liabilities are $83.8 million.
The $8 million that would be transferred to the Education Fund pays for current retirees. The long-term obligation will be left in the General Fund.
The $1.6 billion Education Fund relies heavily on property taxes, but also absorbs money from the General Fund, sales and use tax, lottery profits and some other sources.