Property Tax Yield Bill (H.887): April 30 - May 2, 2024

Chairwoman Cummings opened the Senate Finance Committee meeting on Tuesday by reminding Senators that “we now have about four days (possession of H.887)… to figure out how to actually save the public school system.” It was noted that 30 school budgets had been defeated, some now twice. Senator Chittenden added the South Burlington budget 3rd vote is next Tuesday.

Senator MacDonald sees the difference between the Act 46 era and now is student weighting.  He called that effort “not misguided,” but when it was “combined with economic circumstances around the nation at the time it was done, certainly a different result on Town Meeting Day.” Implying that the property tax savings were never realized. Cummings agreed the results and were skewed by inflation.

NOTE: The Joint Fiscal Office has a nice graph that shows spending adjusted for inflation and Act 46 had no impact on spending.

Cumings continued that that they have not found a solution for health care. “Until Americans are willing to pay the 50% that other nations pay for their free healthcare… we are going to continue to struggle with what we’ve got,” she stated. She added that “56% of Americans cannot handle an unexpected $1000 bill in their budgets (a report she attributed)”

The Committee’s discussion shifted towards the Commission on the Future of Education that H.887 creates. There was interest in directing the Commission to resolve “foundational problems,” because our class sizes are so low compared to the nation.

There was frustration with how late the bill arrived on their desks and how little time they had to work on it before adjournment (10 days or so). Cummings stated that would be working into the evenings late just to get a handle on this. There was a suggestion that they do a strike-all and send it back to the House.

Senator Brock stated, “I don’t see a plan here.” He was concerned about going back to the public and telling them they didn’t have enough time to fix the system, so they ‘did something’ without thinking it through and without having a real plan. Cummings agreed they needed to do this “thoroughly.”

There was agreement that they needed to set a structure and a plan for getting to the end result we want. “We haven’t really designed that result yet,” said Cummings.

Legislative Counsel provided a walk-through of H.887 for the Committee.

Cummings had concerns about the 1.5% surcharge on short-term rentals because it is only applied on “one slice of that pie” (presumably just vacation rentals not hotels?). “If I was being charged I would be considering a lawsuit,” she stated. Because it is being “unevenly applied” she has legal questions and wants some answers.

Senator McCormack didn’t really think the new ballot language was helpful, calling it “just better wording of information.” Cummings agreed that they have tried a number of different wording changes on ballot information and she “cannot see that it has had any impact.”

NOTE: We would disagree here because the new language shows an estimated tax rate change which is something that voters currently don’t have at their disposal.

Legislative Counsel explained the changes regarding how the Common Level of Appraisal (CLA) gets applied. The math is meant to allow the difference between pre-CLA and post-CLA tax rates to be closer together. It does not, however, impact the final tax rate of a district.

The Committee finally arrived at the only real const-containment measure in the bill – the excess spending threshold. MacDonald noted that the definition of excess spending is now hinged on new language, however the calculation of the new version is similar to the old one, as is the policy goal.

Senator Chittenden was not clear about these bond Language in the bill that allows bonds payments to be excluded from the calculation. Cummings explained that she expects another round of “technical explanation” along with testimony Chairwoman Kornheiser to “fully explain” to them the policy here.

NOTE: The language referred to here is meant to hold harmless school districts who took out bonds before the excess spending threshold was put in place. This would prevent districts from being pushed over the threshold because of bonds they took out before the penalty was a thing.

There was also spirited discussion about a report from the Tax Department to assess what income sensitized families have for assets that could be taxed and to create an inventory of the types of assets these folks hold despite “lower incomes.” Senator Ram Hinsdale did not like this direction because it asks the Department “do a lot” and they would likely come back with things like camps, farms, and forest lands that have been passed down through families for generations. She called the effort “a red herring.”

After the walk-through, Cummings paused and stated “with all the fanfare, everything has been reduced to a study… and the studies are so huge, I am not sure we are going to make any progress in dealing with the problem.”

NOTE: She is right! The Commission is being asked to do too much. The scope needs to be narrowed if they are going to be effective. Also, outside input is needed. These commissions contain all the usual suspects that created the current system.

Chittenden added, “I don’t see the very important word I hear constantly from voters, Cost Containment.” He proposed that they should add that specific term be added and both Cummings and Brock agreed.

McCormack jumped in saying “I think this (bill) is a disappointment. I would like to think, if nothing else, a moratorium on tax foreclosures might be in order. If we are going to take care of the problem in the future, then maybe the consequences of having failed to pay your property taxes should be put off into the future as well.”

Cummings and Ram Hinsdale both appeared receptive to this, Brock stated that “one concern I would have about that is that whether that would encourage intentional non-payment of taxes… Be careful about what we do.” He wasn’t opposed, but they should be wary.

McCormack added that “over the years anything that ended with a study, I feel we failed at.”

Chittenden raised the concept of a carve-out carve out to exempt residents that only rent a few weeks and perhaps pay their taxes by doing short-term rentals (STRs). Cummings and Ram Hinsdale agreed with that. The thought is that this is a good way to raise revenues from commercial entities that “snatch up” properties solely to offer them as “hotels” without the regulatory implications.

Ram Hinsdale ventured further, claiming that these are “mostly residents making a few decisions to STR versus the commercial” endeavors. She is “very uncomfortable” about the surcharge.

Questions arose again about how much time they actually had to work on the bill. Cummings noted that if anyone had ideas how to fix income inequality on this bill “I am willing to take ownership” because it’s the pathway to home ownership which builds actual wealth.

NOTE: She is right, this is why we spend so much time focusing on housing and education. These are the things that drive long-term prosperity. Unfortunately, they are linked by property taxes that creates the need to balance these two priorities.

Brock stated that “you cannot do education funding in a vacuum which is exactly what the bill does… We are never going to fix education funding unless we understand and plan for how it’s going operate with and effect other taxes and other taxpayers.”

Ram Hinsdale wanted modeling from the Joint Fiscal Office regarding her objections to the STR surcharge being discriminatory; she will be willing to consider a surcharge that applied across the entire rooms tax like a 0.5% surcharge (or whatever number is necessary) on all hotel and accommodation rooms. Cummings thought that might work, but there were some questions about extended-stay facilities and whether vising workers (like nurses, etc.) would be impacted. Cummings also wanted to see a sunset date on the surcharge, saying that it should only “raise enough to alleviate some of the pain here near term.”



Chairwoman Cummings reminded the Senate Finance Committee on Wednesday that they needed to get H.887 out by the end of the week. She reiterated that they need is “a real effort,” because the Legislature does not “have any more money to throw at it.” She was “very concerned this year we will cause foreclosures.”

Jeff Francis (Executive Director, Vermont Superintendents Association) Complained that the atmosphere is “acrimony towards the public education system… the costs we lament right now have been a long time in the making… And I think they are relatively easily understood.”

He went on to detail FY24-25, saying that they know the cost is largely related to personnel and the number of facilities they maintain. “The labor costs are reflective of community choices in a local control state… I and others here in the room wear the battle scars of Act 46 which was an effort at consolidation and merger that was painstakingly pursued between 2014 and 2018… and then stopped at a time when some of us in the education community felt we needed to go further,” he stated.

Cummings agreed the stop was premature, but pushed back on how much they could do in a short time frame. Francis added that with “the collective bargaining construct in the state, it is irrefutably hard for school boards at the table to get a handle on staff reductions in an environment where you have upward pressure form everybody who loves their local school and downward pressure from the state, not wanting to see folks laid off…”

NOTE: It seems to be more of a misunderstanding about where the costs are coming from school boards point the finger at the state, and the state points the finger back at school boards. The reality is that both are to blame.

He claimed that “in the House… early iterations of Ways & Means were blunt instruments that was not going to address the numbers of facilities and personnel.”

NOTE: What he seems to be referring to here is the base education amount concept. While it may not directly address these items, what it would do is create downward pressure on high spenders while offering support to low spending districts.

Francis acknowledged that Vermont was one of the highest spending states in the country on education, however held up a tally sheet of school district budget votes. “If you leave it to local determination, that is what is going to look like. The patterns of voter approval of budgets is, you could argue, inherently dis-equalizing…” Cummings agreed with this, calling it “nature running its course.”

Senators reminiscenced about the effects of the common level of appraisal (CLA) over time and identified the 2008 crash as examples where the CLA can initiate a radical shift in certain towns with certain CLAs.

Senator McCormack was still wrapping his arms around the overall inflationary pressures within the education costs per pupil that are driving the overall spending picture. He believed that nexus was still staff and system scale. Cummings noted that the ESSER funds that some districts used to increase staffing in certain areas have now become “dependencies” within budget.

NOTE: Basically, what she is saying is that they used one-time funds to create new ongoing expenses (staff).

Ram Hinsdale added that the grand list could grow if housing construction spikes, and Cummings reflected that they hope it also stabilizes prices.

The discussion shifted towards the revenue sources in the bill. Ram Hinsdale voiced a concern about the condos at ski area villages are typically under a management company so the short-term rental (STR) surcharge would not affect them but will affect the widow in Dover who rents her house with Vacassa or AirBnB. Legislative Counsel indicated that the way to address this would be to simply raise the rooms tax.

Senator Brock also expressed interest in this approach, which would create a surcharge based on occupancy type (transient, short-term, extended stay, migrant worker, etc.). The Joint Fiscal Office had done some modeling around this and a 0.5% surcharge on just rooms (Vermont has a shared meals & rooms tax rate) would yield $4.3M.



The Committee came back on Thursday to continue their discussions. Chairwoman Cummings shared that they were trying to find enough money reduce two cents on the property tax and then smooth out the bump that the income sensitized payers are going to feel this year (property tax credits don’t get collected until the following year). She noted that a lot of people don't have five $500, $600, $1,000 or more dollars to cover the cost this year.

NOTE: Property taxpayers will still see 15% increase in their tax bills, but some of that may be offset by tax credits the following year if they qualify for the income sensitivity program.

Cummings noted that the rooms tax wasn't exactly popular and undermined the competitive edge of the state’s wedding industry and the competitiveness with surrounding states. She shared that there was a potential $27M coming from “another source,” that hasn't been settled yet.

The Joint Fiscal Office reviewed an updated Education Fund Outlook. It was noted that if they targeted a uniform bill change across all three property tax groups, it would result in a 14.2% increase when the $27M was added in.

Turning to the Cloud Tax, the Tax Department recommended that if they were going to start creating exemptions from the tax, they should exempt specific programs (like TurboTax). Ram Hinsdale noted that “we have a growing remote workforce in Vermont that consume a lot of software as tech businesses.” There was concern that if they start taxing passing, a lot of “doers” are going to be “very motivated” to move over to one of the 43 other states that doesn’t tax pre-written software.

It was noted by Senator Chittenden that yesterday they had heard from small business that the current language would tax both retail software sales as well as software services that software businesses primarily use infrastructure and platform as a service to host a product that they then resell. This means that these taxes would stack upon each other because the business would be taxed on the software platforms they rely on and then the product would be taxed again when it is sold to the end-user. This is what the Committee is seeking to avoid.

Representative Beck joined the Committee to introduce his Educational Opportunity Payments concept that was in the original draft of the House Ways & Means version of the bill. He felt the state's funding system is a good system, but it “has one flaw” that is leading to all of the problems that we continue to see in the Education Fund. “This language will solve the two problems that you're seeing here,” he stated.

Fundamentally, “we aren’t calculating the yield correctly,” he claimed. Districts don't feel connected to their tax rate because their education spending is as all non-categorical aid spending. Beck thought that instead, education spending should be equal to all spending that is paid for by homestead taxpayers.

NOTE: This is an important distinction because the education spending is what is used to calculate the cost per student that a district is taxed for. I.E it determines what spending local taxpayers are responsible for.

Beck’s amendment is proposing to create an Educational Opportunity Payment (EOP) that would be given to every district based on the student weight that we use in Act 127. The idea is that this creates a base spending amount for each district when the EOP is combined with categorical aid. If a district wants to spend more than that, they can but will pick it up on their local homestead tax rate.

Cummings noted that most other states to it this way where the state determines a base funding amount and then districts are on their own beyond that. Ram Hinsdale thought if they pit homestead against non-homestead taxpayers, you are also pitting renters against homeowners, which could have “difficult consequences” for who decides to spend what. However, Beck pointed out that our current system does this (homestead property taxes vary based on local spending, but non-homestead does not).

Angie Harbin (Executive Director, Downstreet Housing and Community Development) joined the Committee to talk about the impact of an 18% increase in the non-homestead tax rate. Cummings was worried that this might impact the ability to meet the state’s housing demand. Harbin shared that this increase would affect affordable housing providers across Vermont, and Down Street and other affordable housing providers are unable to pass along much if any of this increase to their residents. This change is significant enough to jeopardize the stability of individual properties. They are not able to pass along any of this increase along to their renters and their margins are so thin that they can barely sustain them either. She asked that the Committee create a carve-out for affordable housing properties from this increase. Ram Hinsdale asked if they could create a separate tax category for permanently affordable housing so they could more easily set an independent tax rate.

Craig Bolio (Commissioner, Vermont Department of Taxes) joined the Committee next. Cummings quipped that he was going to help them “raise all this money,” saying that they needed $53M for their conference committee. Bolio notified them that he would “try not to disappoint them.”

He shared some concerns about the 15% bump in the property tax credit for FY2025. He called the administration of change to the tax credit “exhausting for the department,” but it would also be a “double benefit” if an individual’s taxes didn't go up at the same rate next year. He also had some technical questions how they envisioned this being implemented. Cummings pointed to families who would have to come with $1,000 or more and might not see the offsetting credit until the subsequent year. However, she acknowledged the “double dipping” issue where if they used the credit to give families the $1k this year and then again next year when the regular credit would kick in. She added that she wasn’t sure the housing market would continuing to go up at the rate it has been going up, but cautioned “it's not functioning necessarily like a normal market.” She thought they would have to assume that “it will stay up.”

They reached the excess spending threshold section of the bill, which has been suspended since FY2022. There was a comment they didn’t expect a significant increase in the number of districts that would get hit by the new threshold, and that it was not “necessarily enough Cost Containment.”

Senator Chittenden commented that “if local control is going to be the cost-containment lever, voters need a fair shot to understand what their vote means. But under the current system, nobody gets it right, and that makes it extremely difficult for people to actually understand the impacts of their votes.” The Committee agreed that the base funding reform idea was intriguing, and did solve some of the incentive problems that they have been talking about, but they wanted to understand why the House stripped it out. There was also a sense that there needed to be a conversation about reforms to address the “actual cost pressures for districts.”

The two biggest cost drivers this year were insurance and wage increases for teachers. Cummings thought that insurance wasn’t going away next year but they knew they need to “get rid of personnel” and that they needed to address having “too many schools for too few kids.” Bolio noted that the Administration “stands ready” to talk through creative ideas to “bend the cost curve.”

Cummings wanted to see if they could get the Treasurer in the next day to talk about bonding capacity and borrowing money to buy down rates for this year.

Apparently, the Treasurer said he could probably let go of $20M from existing funds if he knew we had a change in formula that would pay that back in FY26. Until he sees a solid cost-containment or revenue mechanism, we wasn’t willing to release those funds. Otherwise they are just hoping that rates will come in significantly lower next year.

It was noted that the Governor wants to see more houses built so that there is more organic, grand list growth, and less pressure on the Education Fund. The Administration believes that raising taxes without structural reform in the Education Fund will increase the overall tax burden on Vermonters, and that it will reduce taxing capacity for other non-education spending.

Cummings commented that she thought “some people will lose their housing, their ability to feed themselves, or their retirement savings if we don't get the tax down to 5%. I think that we need to find $150 million to get it down to 5%.”

NOTE: As much as we would like to see a property tax increase in the mid single-digits, there needs to be consequences for spending decisions for school districts and for voters. I the Legislature keeps bailing out school budgets every time decisions catch up with them, we are undermining the only accountability and cost-containment mechanism we have in the current funding system – local property tax rates.

Cummings noted that $10M is what they might be able to raise on the Cloud Tax. She would prefer to avoid hitting reserves. The Committee began to list some potential revenue sources that they might go to:

  • Sugar-sweetened beverages - both sugar and artificially sweetened.
  • Doing away with the clothing exemption for items above $100. It was suggested that if they don’t tax the lower-end items it’s not as regressive.
  • Tobacoo and Vapes, even though they are already taxed at 92%
  • Wealth tax - Some members were concerned that no one had done it. They would have to hire some national experts to do the study, and they would have to tax margins differently.

Shifting from 1.5% short-term rental tax to a 0.5% lodging tax was also a point of discussion. Some members were supportive of this shift and others worried it might make the state competitive with other states in the region. Maine taxes lodging at 9.5%, New Hampshire at 8.5%, Massachusetts at 5.7%, New York at 4%. Vermont is already at 9% (with an additional 1% local option) and the STR would add another 1.5%. However, the language would also need to be written in such a way that this surcharge on rooms would go directly to the Education Fund instead of being split with the General Fund as the current rooms tax is.

Some Committee members were concerned about being too out of step with other regional taxes. Maine taxes lodging at 9.5%, New Hampshire at 8.5%, Massachusetts at 5.7%, New York at 4%. Vermont is already at 9% (with an additional 1% local option) and the STR would add another 1.5%.

Senator Chittenden proposed they “squeeze the treasure” for $20M, remove the sale tax exemption for clothing items over $110, keep the $6.8M short-term rental tax, and add $3.7M in sales tax on candy, which get them to $43.8M. If they add in the $25M that Cummings was attempting to get from the General Fund, it should be enough to get a uniform property tax rate closer to 10%.

The Committee seemed generally inclined to support this funding package. Cummings, however, wanted to make sure that the Streamlined Sales Tax Governing Board would be supportive of that move. She asked the Tax Department to call them the following morning to find out.

The Committee shifted back to the excess spending threshold and cost containment. There was interest in reworking the study, which the Senate Education Committee was working on. The Committee wanted to make sure they dealt with the “real structural issues that are out there.”

Cummings commented that she thought they were “ready to steal $20M,” from the Treasurer, but they need to get the school grade population staffing ratio up to the national standard because our average is way below that.

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