By Jim Sabataso
Staff Writer
Vermonters should brace for a significant increase in their property tax bills.
That’s the takeaway from the state tax department’s annual letter to the Legislature, which was delivered Tuesday. In the so-called “Dec. 1 Letter,” Tax Commissioner Craig Bolio forecasted education property tax bills could increase, on average, by 9% in fiscal year 2022. Total education spending is expected to grow by 3.79%.
Bolio called it “one of the largest single year increases in the average homestead rate in the last decade.”
The letter projects a fiscal year 2022 homestead yield of $10,763 compared to $10,998 for fiscal year 2021. The forecasted fiscal year 2022 income yield is $12,825 compared to $13,535 for the current tax year. The average homestead tax rate is projected to increase by 9.5 cents and the statewide base non-homestead tax rate will jump 10 cents for fiscal year 2022.
“The Governor and Administration do not believe this is a tenable tax increase for Vermonters who are working hard to recover from the pandemic, nor for the Vermont economy which continues to struggle due to the pandemic-related disruption,” Bolio stated in the letter.
Bolio cited several factors impacting tax rates. While some were a result of the state’s perennial demographic struggles that have seen education costs outpace property value growth, the coronavirus pandemic was, unsurprisingly, a major contributor.
“Due to the economic downturn from COVID-19, the FY22 forecasts for non-property tax revenue sources to the Education Fund were downgraded from $590.9 million to $552.1 million earlier this year,” Bolio stated, explaining that this lost revenue accounts for more than 4 cents of the forecasted rate. (Non-property tax revenue sources include: 100% of sales and use tax, 25% of meals and rooms tax, 33% of purchase and use tax, and lottery proceeds.)
Another major driver is teacher retirements, which are projected to draw $38.9 million from the education fund — up more than five times from last year’s $6.9 million. The increase accounts for about 3.5 cents of the forecasted tax rate.
Yet Bolio is quick to stress that these numbers are not final.
“I think folks should take this as a serious warning of a very challenging budget year. But there’s precedent of high estimates in the past, where we’ve been able to mitigate action through partnerships and school boards and the administration and the Legislature all working together,” Bolio said in a Tuesday interview.
He said the purpose of the letter is to give the administration, lawmakers and Vermonters “some insight into what the upcoming landscape is going to be regarding property taxes.”
In Vermont, education spending is not set until Town Meeting Day in March when communities vote on school budgets, which will be finalized and presented to the public during the next few weeks. Homestead education tax rates are dependent on local school district spending per pupil.
Another factor to consider this year: As student enrollment numbers dipped across the state due to the pandemic, lawmakers this session moved to freeze average daily membership (ADM) counts at last year’s levels. ADMs are used to calculate equalized pupils, which are in turn used to determine homestead tax rates. New property tax rates take effect July, 1, 2021.
Bolio noted the pandemic has added and extra layer of “uncertainty” to what is already a challenging process.
“Non-property tax revenue forecasts … are impacted by the local and national path of the virus, and potential for recovery is contingent on positive outcomes with a vaccine, treatments, and prevention efforts moving into next year,” he stated in the letter. “It is unclear if, and when, additional federal stimulus may arrive, and what shape that stimulus might take to help alleviate pressures in the Education Fund to offset what the Administration views as the unacceptably high burden these pressures would impose on taxpayers.”
Jeffrey Francis, executive director of the Vermont Superintendents Association said the letter helps superintendents and school board members “understand the pressures as they’re being characterized at the state level.”
“I think that the way that we’re going to be more successful at navigating these challenges is if the General Assembly and the administration work with local school officials and make sure that they don’t add to the cost burdens by new mandates or by making decisions that are going to create more costs,” he said.
Francis noted that many districts around the state are already facing “tough decisions” about how to achieve greater efficiency and provide better learning opportunities while dealing with declining enrollment and aging facilities.
“School districts should not be left to their own devices to have to contend with those kinds of challenges,” he said, adding that the state could contribute by “showing some leadership on that front.”
One particular section of the letter that jumped out to Francis was what he called the “dramatic increase” in the cost of the teachers’ retirement fund, saying it “begs more explanation.”
Bolio referred questions about the teacher retirement figure to the state treasurer’s office. Requests for comment from the state treasurer’s office were not immediately returned.
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