The Legislature has been wrestling all winter with how to respond to the double-digit property tax increases necessary to pay for schools. On Wednesday, using the annual tax bill used to set property tax rates, lawmakers in the House Ways and Means Committee advanced their answer.
Those who had hoped Montpelier might find a way to substantially reduce their taxes will be disappointed, although lawmakers have sought from the beginning to manage expectations about what could be done about this year’s projected increase. The bill moved forward on a party-line 8-4 vote, with Republicans in opposition.
The most recent estimates project that the average homestead bill will go up 15% while the average non-homestead bill will rise 18%. That’s not much lower than the 18.5% tax increases initially forecast late last year.
Lawmakers are nevertheless using the tax bill to signal that they believe they have a mandate for change. It includes the creation of a Commission on the Future of Public Education, which will be tasked with recommending a soup-to-nuts overhaul of Vermont’s pre-K-12 system. And in the short term, the legislation would also re-enact a tax penalty, starting next year, for school districts that spend over a certain threshold.
While at work on the bill, lawmakers navigated criticism from Gov. Phil Scott’s administration and from school officials. While Scott called for measures that would immediately reduce taxes, school officials argued lawmakers were exploring ways to penalize districts for their spending without addressing underlying cost drivers.
The bill would raise some new revenues to take the pressure off property taxes to a modest degree. The legislation advanced Wednesday includes a 1.5% surcharge on short-term rentals and removes the sales tax exemption on prewritten software, which would apply to such products as Quickbooks and Turbotax. But these will collectively raise a little over $26 million — a figure that is dwarfed by the $200 million increase in education spending.
The credit that income-sensitized property taxpayers receive to offset their tax bill operates on a one-year lag, which isn’t a problem when property taxes rise slowly year-over-year. But because tax bills are expected to rise so abruptly this year, the credit Vermonters would have gotten this year would not have matched this year’s increase. In an attempt to make them whole, the bill advanced Wednesday creates a special property tax credit for income-sensitized homeowners.
This additional credit, however, will come at the cost of higher rates for those that pay non-homestead property taxes, including second homeowners, businesses and landlords — a fact administration officials have seized upon in their criticism of the legislation.
“This is a puzzling approach when you consider the affordability crisis renters and employers currently confront,” Vermont Tax Commissioner Craig Bolio and Deputy Education Secretary Heather Bouchey wrote in testimony submitted to lawmakers.
The tax-writing committee on several occasions considered quickly enacting much more aggressive reforms — before ultimately deciding there simply wasn’t time to properly vet them. Before the committee’s vote, Democratic Rep. Katherine Sims of Craftsbury repeated the adage that sometimes, you need “to go slow to go fast.”
“We need more modeling. We need more data. We need more folks at the table, co-creating that solution,” she said.
Lawmakers last week considered using the tax bill to radically reimagine Vermont’s school finance system, but, within days, watered their proposal down to a study following pushback from schools. Officials with Gov. Scott’s administration, meanwhile, pitched an eleventh-hour plan on Friday that would have seen the state defer payment on education expenses over several years. Lawmakers quickly set that idea aside after the state’s treasurer, Mike Pieciak, strongly recommended against it.
Pieciak told the committee Monday that while he had “wanted to keep an open mind,” conversations with the state’s financial advisors had dissuaded him from pursuing the matter further. Other states and municipalities had attempted similar borrowing schemes, he said, and seen their credit ratings suffer.
“The point that they wanted to make, and that I share, is that your credit rating can go down really quickly, and it’s really hard to get it back,” Pieciak said.
Scott, at his weekly press conference Wednesday, lambasted lawmakers for doing too little to bring down property taxes this year. But pressed as to whether he had any additional ideas to bring to the table, given the treasurer’s apprehensions, the Republican suggested it was the Legislature’s responsibility to make his proposal workable.
“Well, then they ought to get creative and figure out a way to make it work without it affecting our bond rating,” he said. “They’re smart people.”
The bill still needs the full House’s approval, and then heads to the Senate.
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