[T]he Shumlin administration is predicting that the statewide property tax will increase by 2.35 percent next year.
State officials expect education spending for fiscal year 2018 to be $1.617 billion, up from $1.552 billion in fiscal year 2016.
Officials say school spending will go up for most of the state, but because property values and incomes are also on the rise the blow will be softened slightly, bringing what would have been a 2.54 percent increase down to 2.35 percent.
If local school districts kept per pupil spending flat this coming year, taxes would go down in most of the state, according to Mary Peterson, the commissioner of the Department of Taxes.
“It is important to remember that decisions made at the local level are still the primary factor in determining education tax rates in each town,” Peterson said. “Taxpayers may see more significant changes due to those local decisions.”
Each year, the Department of Taxes, the Agency of Education, the Department of Finance and Management and the Joint Fiscal Office make a prediction about what school spending might look like for the next fiscal year. Once voters approve school budgets in the spring, lawmakers set the tax rate.
The property tax formula for homeowners is now tied to per pupil spending. The Legislature changed the formula two years ago to help taxpayers better understand how tax increases are related to school spending. The formula for homestead tax rates used to be solely based on assessed property values.
The statewide nonresidential rate still uses the old formula. The nonresidential rate is expected to go up in fiscal year 2018. The rate is currently $1.53 per $100 of assessed value. In fiscal year 2018, the rate is expected to be $1.55.
The 2.35 percent increase estimate is based on modeling for all three types of taxpayers — non-residential ratepayers, homeowners who pay the straight rate and homeowners who pay based on income.
The tax rate is affected by a number of factors. There continue to be fewer students enrolling in Vermont’s schools. More than 20,000 students have dropped from the rolls over the past 15 years. Despite the declining enrollments, property taxes have continued to increase.
Act 46, the 2015 landmark education law, is phasing out a “hold harmless” provision that artificially inflates enrollments as schools lose students. By 2020, school district’s budgets will be based on actual head counts.
Other factors that play a role are the grand list and how much it grows or shrinks, depending on the value of real estate. The state offers an “income sensitivity” program or property tax discount system for homeowners who earn less than $90,000 per year. These homeowners pay property taxes on a sliding scale. The difference comes out of the education fund. When incomes exceed the threshold, fewer rebates are issued and there is less pressure on the education fund.
Property values and incomes are predicted to stay strong in the near future. Growth in these two areas means that revenues for the education fund will grow organically to a certain extent and if schools spend at the same level they did last year, tax rates could go down.
Act 46 changed the way the state forecasts tax rates by tying the property rate to $1 per $100 of equalized education property value (“property dollar equivalent yield”). The law set the rate for Vermonters paying based on income at 2 percent (“income dollar equivalent yield”).
This is the second year of the new structure that looks at what a property and income dollar will “yield.”
The forecasted spending for FY18 looks like this: $1 of every $100 in assessed value yields $10,076 per pupil (last year the figure was $9,701). Two percent of income taxes will yield $11,875 per pupil spending (last year it was $10,870).
The average per pupil spending rate in Vermont is roughly $18,000, according to the most recent data from the Agency of Education, based on voter approved budgets. The state has had among the highest per pupil spending rate in the nation for a number of years.
Rep. Adam Greshin, I-Warren, a member of the House Ways and Means Committee, says he was surprised the yield had gone up as much as it had, “that is a good piece of news that is based on higher property values and a rise in incomes. That was a surprise. But the average statewide tax is up and that is also a surprise based on the fact that we have higher property values and higher incomes.”
Gov.-elect Phil Scott reacted to the letter in a statement Thursday night.
“Clearly, more work needs to be done to provide Vermonters with the property tax relief they have been calling for,” Scott said. “I look forward to working with the legislature in the coming years to tackle this challenge and improve the overall affordability of Vermont.”
