Senate and House lawmakers are bound for a showdown over how much surplus revenue to use to buy down property taxes in the upcoming year, and how much to set aside for the future.
Senators backed a proposal Wednesday to use $100.9 million this year to bring down projected tax increases in a move that more closely mirrors a plan put forward by Gov. Phil Scott.
The legislation advanced by the Senate, H.949, would increase property tax rates next fiscal year by 3.8% on average.
Education in Vermont is paid for through the property tax, among other taxes. In an average year, the legislation setting property tax rates would be procedural. But this year, the bill has become the vehicle for an ongoing policy debate about short-term cost containment and fiscal prudence.
House lawmakers first clashed with Scott this session as they opted to set aside half of the $105 million he proposed using this year for a tax buydown to instead potentially use for that purpose next year. That proposal would have translated to a 7% average property tax increase next year.
But senators took an approach more in line with Scott’s recommendation, and amended the bill to use the $100.9 million for a full buydown this year. The legislation passed on second reading, and will likely be ironed out in conference between House and Senate lawmakers.
Senate President Pro Tempore Phil Baruth, D/P-Chittenden Central, told lawmakers on the floor Wednesday that the House’s version of the yield bill was “inadequate.”
Average education property taxes have risen more than 40% across the state in the last five years, prompting lawmakers to undergo a wide-ranging reform of the state’s public education and property tax systems in an attempt to rein in costs and improve the state’s educational quality.
To dampen the rise in cost, the governor and Legislature have agreed to use surplus funds from the General Fund — the state’s primary budget fund — to buy down the rates, contributing to artificially elevated property tax rate increases the following years. In his annual budget proposal in January, the governor called for using the $105 million to reduce the 12% average property tax increase that was projected in December.
Current statewide projections have school spending increasing by 4.2% from the current year.
“We’ve been to this well before, where we’re buying property tax rates down, and we’re doing so at the urging of our constituents,” Baruth said Wednesday. “I take us back to last election. It was not ambiguous, people are suffering from their property taxes, and they wanted relief.”
Not all Senate lawmakers were on board with the full buydown, but in a show of compromise, lawmakers on the Senate Finance Committee floated an amendment to use $4 million of the surplus General Fund money to temporarily expand the state’s renter credit, which offers tax rebates for renters within certain income levels.
Sen. Ruth Hardy, D-Addison, told fellow Senate Finance Committee members earlier this month that if they were going to put money toward property tax relief, “we should at least put some of it toward renter relief, so that everybody gets a fair share of it.”
Using the $4 million for the renter credit would raise the average property tax rate increase from 3.6% to 3.8%, Sen. Ann Cummings, D-Washington, told lawmakers Wednesday.
“The committee felt that that was an acceptable deviation, because we are helping more people,” she said. “Everyone is struggling. Rents are going up.”
Lawmakers nonetheless remain troubled over the state’s financial prospects next year, and whether there will be any surplus funds to keep property tax rates artificially low. Scott and the Legislature last year used $118 million to keep this year’s average property tax rates essentially flat.
“Things are tight, and the odds are things will be tighter next year than they are this year,” Cummings said Wednesday.
Lawmakers also used the bill to tack on language originally proposed in S.220. That legislation lowers the state’s excess spending threshold to further disincentivize school district spending by double-taxing any spending increases over a certain amount.
The legislation would lower the threshold from 118% of the statewide average per-pupil spending to 112%.
The language also excludes voter-approved school district debt from education spending in calculating excess spending. School district leaders lobbied lawmakers this session to remove capital construction debt issued after July 2024 from the penalty, arguing it hinders their ability to pursue desperately needed infrastructure repairs.
The bill had advanced out of the Senate in March but has since idled in the House.
Baruth, the lead sponsor on the legislation, said Wednesday that putting that language in the yield bill makes certain that lawmakers will take up short-term spending containment prior to the state’s adoption of a new education finance formula, one of the key goals of the ongoing education reform efforts.
“We wanted to make sure (House lawmakers) knew we are serious, Cummings said Wednesday. “We can’t keep buying down rates, and we have to get spending down.”
