Governor: 18.5% increase in property taxes is ‘unacceptable’
Projected hike is driven largely by a likely unprecedented 12% increase in education spending
By Curt Peterson and Peter D’Auria/VTDigger
The Vermont Dept. of Taxes is projecting a whopping 18.5% increase in residents’ property tax rates, a spike that Gov. Phil Scott quickly seized on, calling for lawmakers to address the state’s “affordability crisis” as soon as the information was released, Nov. 30.
That eyebrow-raising forecast is not set in stone. Lawmakers generally set property tax rates in the spring, and as more information about school budgets and tax revenue emerges over the coming months, those projections are likely to change at least slightly.
But the new figures, released in the Thursday letter by Tax Commissioner Craig Bolio, are still likely to unnerve taxpayers.
“For Vermonters and policymakers concerned about property taxes, housing affordability, or overall tax burden, this letter should sound a major alarm,” Bolio wrote.
Bolio told the Mountain Times there is actually a gang of elements putting upward pressure on education tax rates. That expected increase is due to several factors, Bolio said in the letter: inflation, the expiration of federal pandemic aid, and a roughly 16% increase in health care costs and payments on school construction or renovation projects.
One piece of good news is that sales tax revenue, which helps fund education, is expected to increase over last year. But because it’s not considered “sure” revenue until in-hand, it can’t be used in figuring the probable education tax rate, Bolio explained.
According to the letter, for every $100 of property value, the actual average homestead property tax rate is expected to climb from $1.54 in the current fiscal year to $1.80 in fiscal year 2025, which begins July 1, 2024.
The average non-homestead rate — which covers properties that do not serve as an owner’s residence — is expected to climb from $1.60 in the current fiscal year to $1.86 for every $100 of property value. The homestead rate varies from town to town, depending on local spending on school districts. The non-homestead rate is not pegged to local school budgets but does reflect local property value appraisals.
About two-thirds of Vermont homestead taxpayers receive an income property tax credit, meaning their homestead property tax rates are based on income, rather than the value of their property. The average income tax rate is expected to increase from 2.33% in the current year to 2.67% in the upcoming fiscal year.
If the projections come to pass, property taxes on a $250,000 home would increase by about $650 in the next fiscal year, the letter said.
The estimated tax increases are due largely to a projected 12% jump in education spending, a figure that Bolio said he believed to be unprecedented. “I do not believe that in the history of the December 1 Letter there’s ever been anything as large as 12%,” he said.
In an interview, Bolio added another factor, Act 127, a law passed last year that is intended to direct more funding to school districts that need it more.
That law is expected to push up education spending statewide, although its exact impact remains unclear. The law includes a provision stipulating that year-over-year equalized tax rate increases (meaning increases before a property value appraisal system is factored in) are capped at 5%.
The tax department expects most of the school districts in the state to hit that 5% increase cap, meaning the rest of the money will be made up from the districts that don’t hit that limit.
The “equalized pupil” formula that formerly meant more students could bring the cost per pupil down and avoid “over-spending penalties” by the Agency of Education. There is a current cap of $15,554 per equalized pupil. The cap under the new law will be $9,452.
“I struggle to understand it,” said Jim Fenn, director of finance and operations for Mountain Views Supervisory Union, “but the bottom line is, the benefit from extra students has gone away.”
“Our FY2025 budget proposal is 10.7% higher than last year’s,” Fenn said in a recent interview. “And the biggest driver of that increase is the cost of health insurance, which went up 16.5%. That alone adds $840,000 to our budget.”
Fenn said that since the state took over negotiations for state-wide health insurance for school districts five years ago, the cost has risen 88%. Consolidating school employees under one insurance plan hasn’t provided hoped-for savings.
Bolio said there may be some ideas for resolving this dilemma floating around the statehouse, but nothing has yet been formally proposed.
In a statement released along with the letter, Gov. Phil Scott said the projected tax increase was “not acceptable” and called on the legislature to take action.
“Put simply, a nearly 20% property tax increase would hurt Vermonters and our economy, and we cannot let it happen,” Scott said. “At a time when housing costs and interest rates are elevated, higher property taxes will make our housing and workforce crises worse.”
