Lawmakers move to replace controversial property tax cap with targeted ‘discount’

Late change affects formulas for all school district budgets, rates

By Habib Sabet/VTDigger

Lawmakers are fast-tracking a bill that would replace a controversial 5% cap on homestead property tax rates with a new tax “discount” on those rates for certain school districts.

The bill, H.850, would scrap the blanket 5% property tax cap originally included in Act 127 and instead give districts a 1 cent discount on homestead property for every percent decrease in their “tax capacity” resulting from Act 127. The discount, only available to districts whose tax rates are adversely affected by that law, would be phased out over five years.

Legislators in the House Ways and Means Committee, where the bill was written, voted unanimously on Friday, Feb. 9, to sponsor the measure, which now heads to the House Committee on Appropriations for review. An unusual Monday committee meeting is scheduled for a possible vote, so the bill may see a floor vote early this week.

Act 127 was meant to direct education funding toward schools with students who often require more resources to teach, such as English language learners and low-income students. Lawmakers hoped the shift in pupil weighting would result in a more equitable funding structure. But, seeking to soften the blow on other districts, lawmakers also included a cap limiting increases to the homestead property tax rate for any district to 5% for the next five years. 

The push to replace the cap comes amid concerns that it has had unintended consequences that have added to other inflationary pressures that increased proposed education spending statewide by almost 15% this year. Those increases are in turn expected to cause skyrocketing property taxes, which latest estimates indicate could go up by 20% on average next year.

“By doing this we will be able to make further action toward lowering property taxes this year,” Rep. Emilie Kornheiser, D-Brattleboro, chair of the House Ways and Means Committee, said before Friday’s vote. “Without doing this, we really have no levers in place to continue to support districts in making tax rates more reasonable this year.”

The repeal of the cap at this point of the year could have unintended consequences of its own. School districts have already crafted their budgets based on the original 5% cap, and some would likely have to scramble to revise their budgets accordingly.

Acknowledging that the measure would amount to “changing the rules of the game mid-session,” Kornheiser said it’s “definitely not a great situation, but better than the alternatives.”  

Speaking before the committee Thursday, representatives from the Vermont Superintendents Association and the Vermont School Board Association said that both organizations were “not in a position to either support or oppose” the legislation.

“This work is happening fast with varying levels of understanding on the part of everyone involved,” said Amy Minor, president of the Vermont Superintendents Association. “And among our members, there are concerns about the pace and the process associated with that work.”

To allow school districts time to make changes, the bill would let districts delay their budget votes, which traditionally occur on or before Town Meeting Day in March, until no later than April 15.

In addition, the measure would appropriate $500,000 from the general fund for the purpose of offsetting election costs incurred by districts that may have to revise their budgets and reschedule their votes.

With all of the uncertainty, it remains unclear just how many districts will choose to reopen budgeting and how many may have to delay their annual meetings. For those that do, the process may also require initiating layoffs for the next fiscal year, which generally requires a notice date built into union contracts that, for some districts, occurs in March.

“Our budgets are 90% people, right?” Flor Diaz-Smith, president of the Vermont School Board Association, told lawmakers Thursday. “So the only way to reduce our budget is to reduce staff.”

Diaz-Smith implored lawmakers to adequately communicate with districts about changes under consideration and to do everything in their power to find alternative revenue sources for the education fund to soften the blow for individual districts.

“Once we sort of make this mechanism change, we can do more to face the unprecedented pressures this year, and then really begin the constructive work to think about next year … and the years out in partnership with all of you,” Kornheiser said. “I know that you have great ideas for what we can do going forward.”

After Friday’s vote, the committee turned to talking about additional non-property tax revenue sources that could add resources to the education fund this budget cycle and what longer-term funding and spending changes need to be made in future years. 

“Everything that’s happening this year in the education fund will likely happen next year, too, unless we do something,” Kornheiser told her committee. “So I’d rather not be in a crisis every year. And I think we know that Vermonters, that level of property taxes is not sustainable for most Vermonters.”