School districts grapple with last-minute changes to Act 127 and the effect on local tax capacity

Data courtesy state of Vermont, map by VTDigger
Map shows how school districts throughout the state have been effected by the new changes in tax capacity as a result of Act 127’s most recent updates in calculations.

By Erin Petenko/VTDigger and Polly Mikula

Rural areas of the state stand to gain the most from a new law that has changed the way students are counted for the statewide education fund, according to new Agency of Education data presented to lawmakers earlier this month.

However, in Rutland and Windsor County the four largest school districts: Rutland City, Slate Valley, Springfield and Otter Valley also all saw positive percent changes, meaning an increase to their share of the statewide total “weighted pupil” count and thus an increase in their “tax capacity” — a measure of what the statewide education fund will provide to a district for a given tax rate.

The local districts that lost the most capacity were Norwich at -19%, Rutland Town at -17% and Pittsfield at -8%.

For school districts and homestead property tax payers, Act 127 goes into effect for the first time this coming fiscal year — with votes for district budgets on many Town Meeting Day ballots, Tuesday, March 5.

Act 127, passed in 2022, is intended to even the playing field between districts by giving more weight to low-income students, English language learners and students at rural schools, on the understanding that these groups are more expensive to educate. 

Every year, towns in Vermont send money raised through property taxes to the state education fund. The fund in turn distributes money back out to school districts to pay a large portion of the annual school budgets approved by each school districts’ voters.

The Agency of Education recently provided data to legislators on how every school district’s share of weighted pupils statewide has changed as a result of Act 127. 

It’s complicated, but this change in weighted pupil share directly impacts homestead property taxes.A school district’s budget drives the homestead tax rate up or down in a given year based on the district’s education spending per “weighted pupil,” a count arrived at by multiplying the weights assigned to certain categories of students by the district’s number of students in those categories. (For non-homestead properties, a category that includes properties owned by businesses, rental units and second homes, this is less relevant. That’s because the Legislature sets one tax rate — before a town-level adjustment called the Common Level of Appraisal (CLA) —  to meet the remaining education spending needs.)

The new pupil weighting system in Act 127 means that for almost every district, its share of the total weighted pupils statewide has changed. Towns that have increased their share of the statewide total “weighted pupil” count now have higher tax capacity, and those that have had their share reduced now have lower tax capacity.

A gain in tax capacity means that school districts will receive more funding for the same tax rate — or a lower tax rate for the same funding level. Decreased tax capacity means districts will need a higher tax rate to receive the same funding level or will receive reduced funding for the same tax rate.

Act 127, when it was originally passed, had contained a provision intended to make the phase-in of these changes more gradual by capping the amount that any district’s homestead tax rate could go up each year at 5% for the next five years. But a large jump in staff health care costs and the loss of Covid-19 pandemic-era federal funding, among other factors, has led all school districts in the state to propose budgets that increase education spending by an average of almost 15% over the current year. 

Due to these unique circumstances, every district in the state would exceed the cap, according to recent calculations by the Agency of Education. As a result, if the cap remained in place, tax rates for non-homestead properties would skyrocket.

In recent weeks, lawmakers have raced to repeal the 5% cap and put a new transition mechanism into law. The House approved a bill, H.850, to do that on Feb. 14, then Senate passed it on Feb. 21, and the governor promptly signed it on Feb. 22.

The new mechanism will provide a 1-cent discount on a district’s homestead tax rate (per $100 in property value) for every percentage loss in its share of statewide weighted pupils. The discount would be reduced by 20% over each of the next five years. Only tax rates for residents of school districts that lost weighted pupil share due to Act 127 will receive the adjustment.

So, for example, the Norwich school district in the Upper Valley is among those that lost the most tax capacity, with a 19% loss in its share of the state’s weighted pupils. The new transition mechanism would reduce that district’s pre-CLA homestead property tax rate by 19 cents this year, 15.2 cents next year and so on.

The impact of these changes will be blunted somewhat for the roughly two-thirds of homestead property taxpayers with annual household incomes below a limit, set this year at $128,000. Those taxpayers are eligible for a property tax credit of up to $8,000 depending on their income and the value of their property.

The law also now allows school districts to revise their budgets and push back their annual meetings, in which they are considered by voters, until April 15, if necessary.

Ethan Weinstein and Kristen Fountain from VTDigger contributed reporting.

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