H.737 Summary - Setting Property Tax Rates

Every year the legislature sets a yield amount that essentially identifies how much revenue the state expects to generate with a $1 statewide base tax rate. This number is used to calculate local tax rates by adjusting for local spending. According to the Joint Fiscal Office (JFO) projects a decrease for the average homeowner of about 9% from last year.

This year the property tax bill was particularly interesting for two reasons. First, the state went into budgeting for FY2023 with a $95M surplus from the current year (first time anyone can remember this happening) so legislators had some decisions to make about how to spend that money. The Governor wanted to spend half on property tax rebates and the other half on technical education investments.

In furthering our vision of an informed and active electorate, we are providing summaries of key bills considered during the 2022 legislative session. H.737 is one of these.

H.737 Bill Summary

After much negotiation, the bill provides for the following:

Appropriations
- $29M of the surplus was appropriated for universal school breakfasts (lunches are being studied)
  - This was controversial because it was one-time funding used for what is likely to be an ongoing program.
- $22M was appropriated for PCB remediation
  - The legislature was already committee to this because of a bill last year that requires schools to test for PCB's. These funds will be made available for schools that need remediation.
- $15M to Career and Technical Education (one of Governor Scott's priorities, but received 1/3 of what he asked for)
- $7M to teachers retirement, a requirement of S.286.
- The remaining $20M was allocated for stabilization reserves and property tax savings (roughly 1/2 of what Governor Scott asked for).
Yields
- The Homestead property yield rate was set to $13,314.
  - JFO projects that this yield will result in a statewide average tax rate of $1.385 for those that pay based on property value.
- The Income equivalent yield rate was set to $15,948.
  - JFO projects that this yield will result in a statewide average tax rate of 2.32% for those that pay based on income.
- The Non-Homestead property tax rate was set to $1.446 per $100 of assessed value

Yields work by comparing your district's education spending to the statewide yield amount to determine the percentage difference. That percentage, called the local multiplier, is applied to the statewide $1 tax rate. So, if your school district spends 20% above the statewide yield amount than your tax rate will also be 20% higher, i.e. $1.20. There are CLA's, bonds, spending penalties, and other adjustments that are applied as well, but this is how the base calculation works.

Updates From the Last 6 Weeks of the Legislative Session

April 10th Update

Senator MacDonald offered an amendment to H.737 in the Senate Finance Committee this week. The purpose of the amendment is to help people claim their homestead property tax rebates (and income sensitivity). He argued that many people miss out on this tax break as a result of not understanding how to apply. Since more people pay based on their income, he was concerned that we were subsidizing people who pay on property tax given that we have been trying to lower property taxes.

There was some confusion in the Committee over how to address this and they want more analysis to look at the issue. The Joint Fiscal Office ran several simulations to look at how to give a tax break to to roughly the 80% of property taxpayers who qualify. The Committee does not have a lot of time to review this proposal to get it into the budget, and there are a lot of potential moving parts. It seems likely this might get punted to a summer study committee.

May 1st Update

Representative Webb introduce her Committee's version of H.737 to the Senate Finance Committee on Thursday. While they claimed to be cognizant of using one-time funds for ongoing expenses, they prefer to use part of the Education Fund surplus for universal school meals instead of other initiatives. The Senate has already voiced that their preference would be to use these funds for PCB remediation in schools, which will be a one-time cost that the state will need to front over the next several years. However, the House would prefer to wait until the facility reviews are completed and we have a stronger sense of how much remediation will cost. To that end they would extend testing until 2026 instead of the current 2024 deadline.

There are a number of reasons for why universal school meals is valuable, everything from addressing food insecurity to reducing stigma. It was noted that 40% of food insecure children do NOT qualify for income-based aid. This program would help them get access to nutrition during the school day. Rural areas in particular are seeing a spike in child hunger. Hunger Free Vermont has launched a letter campaign targeting legislators on these points.

While school meals may be important, representatives from the Superintendents Association pointed out that school meals will not "generate the panic" that would ensue if PCB's were found in a local school. The results of the testing regime that is already underway could well force schools to close indefinitely, which is simply just not an option.

The Committee seems tempted to take the money allocated for property tax buy-down and fund both programs. However, this is likely to draw an veto from Governor Scott and also contradicts the House's priorities. The House Version of the bill includes $36M in property tax pay-back (about 1/3 of the surplus from this year). The bill also includes $15M for Career and Technical Education facility construction and another $15M in new ongoing teacher pension obligations.

To put some of these moves in perspective. The Governor asked for half of the $95M property tax surplus from FY2022 to be returned to taxpayers and the other half invested in education initiatives, he suggested CTE. Surpluses such as these are very rare, and are best explained as overpayments from taxpayers, meaning that the legislature set the tax rate too high and collected more money than they had allocated. That is why the Governor recommended returning a portion of it and making financially beneficial investments with the rest. We agree this approach makes sense. Both PCB's and school meals fit the bill as worthwhile investments, but the the one-time nature of PCB's make them more appealing for this particular funding source. Likewise is true for the CTE construction funding.

May 8th Update

The Joint Fiscal Office reviewed a new potential category for the current use program with the Senate Finance Committee on Wednesday. The new category would be used to incent preservation of certain types of desirable forest lands that would still require a land use management plan but would be more hands off than the existing current use program. One targeted category of land is old growth forests. The Committee may add this language to H.737.

The Committee came back to this Thursday as the Senate was preparing to pass S.100 (more on this below). The Education Committee was prepared to concur with the House but wanted to be sure that they would also receive funding for PCB remediation through H.737. After discussion the Committee chose to put $29M towards school meals, $45M towards PCB remediation, $10M towards career and technical education, and roughly $8M towards pensions - leaving only $2.5M for property tax reduction. The Governor had proposed $45M in property tax relief, and the house had $36M.

They voted out the bill 6-0-1 and it will appear on the Senate Floor Monday. The bill will go to conference committee and there is likely to be further negotiations given the disparity in funding preferences.

May 15th Update

The Senate arrived at a compromise over H.737 where $22M was allocated for the investigation, testing, assessment, remediation, and removal of PCBs in school buildings. The state may recover from PCB manufacturer's monies expended from the reserves for this purpose. The Agency of Education, the Agency of Natural Resources, and the Department of Health shall submit to the general assembly a plan setting out a process for the disbursement of monies reserved for PCB remediation.

This was the result of a compromise with the House over S.100 which passed earlier in the week, allocating $29M to universal school meals. The House wanted to prioritize school meals and property tax savings whereas the Senate wanted to spend some of the $95M education surplus on PCB remediation.

In the end, $29M went to meals, $22M to PCB remediation, $15M to Career and Technical Education, $7M to teachers retirement, and the remaining $20M going into stabilization reserves and property tax savings.

The Senate approved the bill on a voice vote, sending it back to the House.

The House reviewed the Senate amendment on Thursday afternoon.

The House voted in favor of the bill on a voice vote. The bill will now be sent to the Governor.