State expects an ‘unprecedented’ $90 million surplus in the education fund

School tax rates likely to decrease

By Peter D’Auria/VTDigger

This spring, Vermont lawmakers may have a welcome question on their hands: what to do with a $90 million surplus in the state’s education fund.

State tax officials unveiled the projected surplus in the “December 1 letter,” a series of financial projections that the tax commissioner is required to send to lawmakers every year.

The anticipated windfall is mostly due to “higher-than-expected performance” from a number of revenue sources, including meals and rooms tax, sales and use taxes, vehicle purchases and state lottery taxes, according to officials.

“It’s really unprecedented to have that much money on the bottom line carrying over from one year to the next,” Craig Bolio, Vermont’s tax commissioner, said in an interview. “We’ve never had anything like this.”

In the past few years, the state’s education fund has hovered between roughly $1.6 billion and $1.9 billion.

Because of the surplus, the December 1 letter projects decreases in next year’s school tax bills. If lawmakers use all of the projected $90 million surplus to offset taxes, the average bill would drop about 9%, tax officials said.

The current education property tax rate for primary residences averages about $1.52 per $100 of property value — which works out to $1,520 for every $100,000 of property value. The school tax bill on a $300,000 house would be $4,560. That $1.52 rate could drop to roughly $1.31 with the infusion of surplus cash.

Currently education rates for homesteads in Rutland and Windsor counties range from 1.86 (Norwich) to 1.16 (Mendon). In Rutland City it’s 1.64, in Rutland Town it’s 1.48, in Killington it’s 1.81, in Ludlow it’s 1.62 and in Woodstock it’s 1.79.

There’s generally a slightly higher tax rate for businesses and second homes. In Rutland and Windsor counties this is true for 39 of the 52 towns.

Another complication: A majority of Vermonters are able to pay their property taxes on the basis of their income, rather than property value. With the $90 million surplus, the average school income tax rate would drop from 2.50% to 2.19%.

Even if lawmakers spend all the surplus money elsewhere, officials still expect a 2.5% decrease in tax bills, with projected rates of $1.40 for homestead property taxes and 2.35% for school income tax.

Education spending in fiscal year 2023, which begins next July 1, is expected to rise by about 4.28%, according to the December 1 letter.

But officials warn that the predictions are still very preliminary. Such forecasts have been wrong before: Last fiscal year, officials predicted that the Covid-19 pandemic would blow a $58 million hole in the education fund. Instead, better-than-expected revenue from sales and use taxes created a roughly $18.6 million surplus.

Another key tax metric, the common level of appraisal is set to be released later this month (last year it was on Dec. 21, according to Killington town officials). The CLA ensures that property across the state is being taxed at an equitable rate; with Vermont’s booming property values, this year’s results could push property taxes up, particularly in Killington, where real estate increases have been among the most steep.

Tax officials will also have a clearer picture of the fiscal landscape next month, when they receive updated figures for tax revenue. Local school budgets, which are approved on the annual Town Meeting Day in March, will also affect residents’ tax rates.

“In January, [things] may look different,” Jake Feldman, a fiscal analyst with the state tax department, said in an interview. “Hopefully they still look good. But with a pandemic, I think there’s a pretty high degree of uncertainty.”

But if things go according to the current projections, state lawmakers will have to figure out what to do with the $90 million.

Gov. Phil Scott’s administration proposed using half the surplus to offset property taxes and the other half for “school capital construction costs that will directly enhance workforce development programs,” according to the December 1 letter.

The cash, officials wrote, presents an “opportunity to address some of the ongoing and upcoming education and workforce pipeline issues.”