The annual property tax bill was introduced by the House Ways & Means Committee on March 29, 2023. This bill sets the yield amount for homestead property tax rates (key determining factor in local property tax rate calculations) and also sets the non-homestead property tax rate.
Summary (as passed):
- The homestead property yield is set at $15,443 per student.
- Yields work by indexing local tax rates against this number. If your local district is spending 20% more per student than the yield amount, then your homestead tax rate will be 20% higher than the statewide tax rate of $1.00 (i.e. $1.20).
- The homestead income yield is set at $17,537 per student.
- Income yields work the same as property yields, but use a base of 2% of household income as the basis for the tax rate calculation. In the example where your local spending is 20% than the yield, your income sensitized tax rate would be 2.24% of your household income.
- The non-homestead tax rate is set at $1.391 per $100 of assessed value.
- For FY2024, $13k in the Education Fund is being held in reserve to buy down FY2025 property tax rates. The Tax Commissioner is directed to factor this in when issuing the December letter that school districts build their budgets off of.
Average property tax bills are projected to increase 4.04% across all three property tax categories (homestead - property value, homestead - income, non-homestead) based on the yield amounts and tax rates set in the bill. Surprisingly this number is below the 6.5% inflation rate and half of the 8% increase in education spending that school districts passed in their budgets. This is largely thanks to a surplus from FY2023 and stronger than expected growth in non-property tax sources of revenue. For data nerds, the Education Fund Outlook is a great place to look out how all this works.
Importantly, legislators recognized that the historic surpluses enjoyed during the pandemic are unlikely to continue. This is particularly true with the looming potential of a recession later this year. Prudently, they set aside monies to buy down property tax rates next year in exchange for a moderate (and reasonable) increase this year. This said, while not a result of this bill, the changing housing market and the pupil weighting factors set to go into effect next year do have the potential to significantly impact local and individual property taxes. This is worth noting and keeping an eye on going forward.
Overall this bill presents a great deal for Vermonters who will see, on average, a tax increase below inflation and potentially stabilized tax rates for next year.
Signed by Governor on June 6, 2023.