This commentary is by Ken Fredette, a resident of Wallingford.
Vermont statutes require our tax commissioner to release a letter annually — known as “The December 1st Letter” — that predicts likely property tax rates needed to support education in the ensuing fiscal year.
Three major figures considered when formulating the prediction are estimates of school budget proposals that are being firmed up this time of year, any surplus in the Education Fund, and property values.
Recent headlines in the Rutland Herald and on VTDigger have what I see as unnecessarily negative spins about property tax rates rising despite a sizable surplus in the Education Fund.
While technically accurate, they implicitly support some people’s feeling that school spending is out of control. “Surplus will help keep tax rates down” would also be accurate.
School spending is predicted to increase for fiscal year 2024 for a variety of reasons — building maintenance and improvements that have been deferred far too long (lawmakers put a moratorium on state aid for school construction in 2007, placing the entire burden of any needed capital projects onto local taxpayers); negotiated pay increases for staff; increased costs for health insurance; in some cases new formulas for funding special education services and “weighting” of pupils — the list goes on.
Even so, Tax Commissioner Craig Bolio includes in the December 1 letter the fact that — factoring a substantial surplus into the equation — homeowner property taxes should be seeing a statewide average decrease from $1.38 to $1.31 (per $100 of property value) next year in what is called the Equalized Tax Rate — the rate that would be applied to residential property values to support school budgets.
Yet, he predicts homestead tax rates will increase by 3.7%, and that would be 8.3% without the surplus. It should be noted that statute requires any surplus remain part of the Ed Fund, which helps to keep tax rates down, so it’s curious and a bit disconcerting that Commissioner Bolio alludes to using that money elsewhere, but that’s another discussion.
This brings us to the third factor in the equation — the common level of appraisal. The CLA is an adjustment to grand list values (that is, the total taxable property in a community) based upon a rolling average of recent sales. As stated above, the equalized tax rate is a function of school budgets; the CLA is a function of property values. But the CLA is applied to the tax rate instead of property values, which lends itself to the perception that school spending is the culprit.
The problem of applying the CLA to the (in my longstanding opinion) wrong part of the equation has been exacerbated by Covid and climate change. People seeking to escape cities during the pandemic, and now seeking to escape severe weather-related events almost everywhere else, have found Vermont to be a very desirable destination. Rightly so, methinks, and I will presume they all appreciate what a special place on our planet we have here.
That said, when people of means pay well above listed values for a place in Vermont, that impacts other homeowners in that town.
For example: If somebody pays $348,000 for a property listed at $250,000, along with other similar sales over time, everybody living around them will see their property values go up.
That’s good news if one is looking to sell their home; not so much if they simply want to stay there.
In the above example, the state of Vermont would see the property listed at about 72% of its “actual” value. I put actual in quotes, as the lines of value are now being blurred by those who are paying what many would consider to be exorbitant amounts for properties here, sometimes sight unseen.
When this scenario is repeated multiple times over years, all homeowners see their education taxes increase because the formula now being used deems that their homes are undervalued, so an adjustment must be made so everybody pays their fair share. But, again, the adjustment is made to the school tax rate instead of the property value.
I have heard many times over the years from those involved in realty, appraisals and such that we don’t have the right to say anybody’s property is more or less valuable than it is assessed at without doing an appraisal. OK, that sounds perfectly reasonable — but how is increasing school tax rates a better solution? Because, while we don’t have the right to change property values, we do have the right to change the tax rates that would be needed to support school budgets, in effect changing those budgets? Say again?
I have long felt, and on more than one occasion have testified, that if somebody agrees to pay $348,000 for a property assessed at $250,000, then they also agree that the assessed value for the purposes of that town’s grand list for their new home is $348,000, they pay property taxes based upon that figure, and their new neighbors will not see their taxes driven up disproportionately.
Perhaps not a perfect solution, but a good place to start the conversation. We absolutely need to have a hard look at the current methodology to relieve undue financial burdens on Vermont residents, especially through the lens of attracting and retaining young people who would like to work, play, and raise families here. Support and celebrate our schools — they will come, and stay.