The annual property tax yield bill was a little different this year. In response to a projected 20% increase in property tax rates, the legislature injected a number of policy reforms into the bill in hopes of reducing rates in future years.

The Details:

This bill is an expanded version of the annual "yield" bill which sets FY2025 property tax rates at the following:

• The non-homestead property tax rate will be $1.391 per $100.00 of equalized education property value (flat from FY2024).
• The homestead property yield rate is set at $9,893 which is expected to result in an average property tax rate of $1.311 per $100 of property value (flat from FY2024).
• The homestead income sensitized yield is set at $10,110, which is expected to result in an income tax rate of 2.56% (up from 2.33% in 2024).
• The average bill change across all three groups is projected at 13.8% due to a 10.7% increase in spending and a 14.3% increase in the statewide grand list values.

A new short-term rental surcharge is created by the bill at the rate of 3% of the rent of each rental unit. The $11.8M this new tax is projected to generate in FY2025 will go directly to the Education Fund to buy down tax rates. Another tax buy down mechanism included in the bill for FY2025 is a one-time $25M transfer from the General Fund.

The bill also uses $20.6M from the Education Fund to increase the property tax credit (PTC) for FY2025 to attempt to hold income-sensitized property tax payers harmless for the spike in spending. The PTC lags by a year so taxpayers would not recover the costs for the increased property tax bills until the following year when they go to pay their income taxes.

In a departure from previous years, this yield bill includes a number of policy changes, starting with the Commission on the Future of Public Education to study the provision of education in Vermont and make recommendations for a statewide vision for the states public education system. The Commission shall also make recommendations for strategic policy changes necessary to make Vermont's educational vision a reality.

The Commission will be comprised of:

1. The Secretary of Education (or designee)

2. The Chair of the State Board of Education (or designee)

3. The Tax Commissioner (or designee)

4. One state representative, appointed by the Speaker of the House

5. One senator, appointed by the Senate's Committee on Committees

6. One representative from the Vermont School Boards Association (VSBA)

7. One representative from the Vermont Principals' Association (VPA)

8. One representative from the Vermont Superintendents Association (VSA)

9. One representative from the Vermont NEA (VT-NEA)

10. One representative from the Vermont Association of School Business Officials (VASBO)

11. One Representative of the Vermont Independent Schools Association

12. The Chair of the Census-Based Funding Advisory Group

13. The Executive Director of the Vermont Rural Education Collaborative

A steering group is also called for in order to provide direction to the Commission. The steering group will be comprised of six members of the Commission and shall be appointed by the Governor and legislative leaders. The steering group is required to create an education finance sub-committee that may include non-commission members. They can also create other sub-committees, but they must be comprised of commission members.

The Commission is asked to consider and prioritize the following topics in developing its recommendations:

• Education governance, resources, and administration;

• The role of the Agency of Education in the provision of services and support for the education system;

• The composition, role, and function of the State Board of Education.

• Additionally, the Commission is asked to:

  • Study and make recommendations regarding the most efficient and effective number and location of school buildings, school districts, and supervisory unions needed to achieve Vermont's vision for education, taking into account and building upon the recommendations of the State Aid to School Construction Working Group.

  • Study and make recommendations regarding the role public schools should play in both the provision of education and the social and emotional well-being of students.

  • Explore the efficacy and potential equity gains of changes to the education finance system, including weighted educational opportunity payments as a method to fund public education, and shall make recommendations for a funding system that affords substantially equal access to a quality basic education for all Vermont students.

  • Include recommendations for how to set tax rates to sustain allowable uses of the Education Fund, whether a statutory, formal base amount of per pupil education spending should be considered, adjustments to the excess spending threshold, and strengthening the understanding and connection between school budget votes and property tax bills.

The Commission is required to include all public feedback received as an addendum to its final report. It will have the assistance of the Agency of Education (AOE) in scheduling meetings and providing administrative assistance, and shall receive per diem compensation and reimbursement of expenses. The AOE will receive $200K to help cover this work.

A second group would also be created by the bill, The Education Fund Advisory Committee. The Committee on Education Financing will be composed of

• The Commissioner of Taxes (or designee)

• The Secretary of Education (or designee)

• Two members of the general public appointed by the Speaker of the House

• Two members of the general public appointed by the Senate's Committee on Committees

• One member of the general public appointed by the Governor

• The President of VASBO (or designee)

• One member appointed by the VSBA

• One member appointed by the VSA

• One member appointed by the VT-NEA

The Committee is tasked with making recommendations to the General Assembly regarding the weighting factors, categorical aid, income levels eligible for a property tax credits, means to adjust the revenue sources for the Education Fund, equity, transparency, and efficiency in education funding statewide, and any other topic, factor, or issue that is relevant.

The bill reinstates an excess spending penalty threshold. The threshold is set at 118% above the statewide average per-pupil spending. Above that threshold, every dollar of spending would be "double taxed" by the local school district. However, any bonds passed before July 2024 would be exempt from this calculation.

The bill would require the Agency of Education to initiate rulemaking to update the District Quality Standards rules to include recommended reserve fund account standards, and shall publish the updated rules in the Agency of Education, District Quality Standards, by January 1, 2025.

Updated ballot language was included in the bill to make it easier for voters to understand. Although the change was more minor than a previous version and only includes the total budget, per pupil spending, and a percentage change in per pupil spending. The previous version included an estimated tax rate.

Finally, the bill also corrects some funding errors from FY2024 by transferring direct payments to a handful of towns for underpayment of their education expenses.

Analysis:

This bill is a mixed bag. There are some useful things that it does, like que up an in-depth look at the overall structure and cost of the education system. However, an actual focus on spending is lacking in the bill's language. Instead, much of the language focuses on having a long-term "'vision" for education in Vermont. There is little in the actual language of the bill that indicates quality or cost of education should be the focus of that vision.

The re-introduction of the excess spending penalty is a welcome change, but it (by itself) will be ineffective at curbing the overall cost of education or better connecting local spending decisions to local tax rates. This is another miss for this legislation as previous versions had various other mechanisms that made the education financing system more transparent to voters, including ballot language that would have put the actual projected tax rate in front of people.

The Commission on the Future of Education showed promise when it was being conceived. Legislators referred to it as a Blue Ribbon Commission, like the ones that had generated policy reforms over a decade ago. However, it quickly became clear that there is a significant risk that this Commission could be overtaken by special interests looking to consolidate their hold over the public education system. They already hold five of the 13 seats on the Commission and would only need to convince two other members to control a majority. This is a departure from the previous Blue Ribbon Commissions which held as a hallmark the fact that they leveraged people from totally outside the current program or system to review and make recommendations. This impartiality is importing to ensuring outcomes that are solutions-based and not just guided by an industry insulating itself from meaningful change.

Further along the path of transparency and accountability, we find the one-time monies that this bill pours into the Education Fund to buy down tax rates. In addition to the $31M in carry over funds and the $13M in a special offset reserve, this bill raises $14.7M in a new cloud tax and $11.8M in a short term rental surcharge. When you add in the $25M General Fund transfer, we have a total of $69M in one-time monies that will not be available to buy down rates in FY2026. This means that all other things being equal, property tax rates will need to pick up this slack. Further, the cloud tax is really a cost shift, not a spending reduction since Vermonters will still be paying this tax and it may actually be less equitable than the property tax system.

There is another accountability problem with these property tax buy-downs. The Legislature has become fond of them, but they are likely a contributing factor (along with unfunded mandates) to the current property tax crisis. When school budgets go up rapidly and the legislature bails them out with new or one-time revenues it allows school boards to bypass making tough decisions or being held accountable to taxpayers for their decisions. This bill perpetuates that problem.

Since education spending decisions (school budgets) are made locally in Vermont while we have a statewide taxing system, this lends itself to confusion. When tax rates go up, legislators point to school boards for spending decisions. School boards point to the legislature for taxing decisions. Voters are left wondering who to believe and accountability is tossed to the wayside. The ONLY cost containment mechanism that has existed in the whole system for the last number of years has been local voters and their budgets. However because of the lack of transparency about how the system works and when their final tax rate will even be, voters are unequipped to take on this task. When the Legislature buys down tax rates it dilutes the perception of how much local districts are actually spending on education. The bill does not fix this or even attempt to address it.

This bill could have been much more than it is. Unfortunately it falls short of meaningful reform and chances at meaningful reforms in the future are dubious. Perhaps the Commission on the Future of Education will surprise us, but given its composition we are not too hopeful.

Current Status:

The bill passed the House and the Senate but was vetoed by the Governor on June 6, 2024

Last updated: 6/16/2024

DISCLAIMER: Generative AI used to assist in the production of this report.