The statewide property tax could go up 7 cents — not 5 cents — next year as originally reported by the tax commissioner, Mary Peterson.
In her letter to lawmakers last month, Peterson recommended that the rate increase by 5 cents per $100 of assessed property value. In a memo sent on Friday, she issued a correction: There was an error in the original calculation that could push the rate to 7 cents. The state’s consultant “erroneously reported” the State and Local Government Price Index in several calculations that skewed the formula.
Last year, the rate went up 5 cents for homestead (residential) property and 6 cents for non-residential (commercial and second home) property owners, according to a spreadsheet from the Joint Fiscal Office. The statewide base property tax rate increased by 7 cents from fiscal year 2009 to fiscal year 2014.
If the Legislature, as expected, approves another 5 cent increase in fiscal year 2015, the rates will be 99 cents for homestead and $1.49 for non-residential.
That increase will be painful for many taxpayers.
Under a possible 7-cent scenario, rates would go up to $1.01 for homestead and $1.51 for non-residential property owners.
But the net effect of the additional 2 cents on homeowners — if lawmakers approve the higher rate and bump up the per pupil reimbursement to towns — is negligible. Non-residential property owners will see a slight increase, as a result of the 2-cent bump.
Jeffrey Francis, director of the Vermont Superintendents Association, said the mistake hurts the administration’s message, especially since the commissioner’s Nov. 26 memo and Gov. Peter Shumlin’s letter admonishing school districts to reduce spending were released with such fanfare.
“My reaction was, it was unfortunate that they didn’t have the number right the first time,” Francis said. “It adds to the challenge of the budgeting process.”
In Peterson’s original letter, the base income tax was 1.8 percent. Under the law, homeowners who pay 1.8 percent or more of their income in property taxes are eligible to receive a discounted property tax rate based on income, instead of the assessed value of their property. The base income rate been 1.8 percent since fiscal year 2009.
Peterson bumped up the base income tax rate to 1.84 percent in her memo on Friday. According to state statute, when homestead property taxpayers pay more than $1.01 per $100 of assessed value, that triggers a change in the base income tax.
That threshold was reached when Peterson made the recommendation to increase the rate by 7 cents on Monday, driving up the rate to $1.01 for homeowners.
This year, the state will deduct $153 million from $591 million in homestead education tax revenues to pay for the income sensitivity program. The JFO’s Ed Fund spreadsheet does not separate amounts paid by income-sensitized Vermonters and taxpayers who are not eligible for the rebate.
Freezing the base education reimbursement to towns could impact local property taxes
The memo presents lawmakers with another issue. Peterson points out that the Legislature could keep the rate at 5 cents by freezing the “base education amount,” or the per pupil reimbursement rate to towns.Lawmakers must decide whether to increase the statewide rate or to flatten reimbursements to towns and potentially drive up local tax rates in their home districts.
Historically, lawmakers have pegged per pupil rate increases to inflation. For three years during the recession (fiscal years 2010, 2011 and 2012) the base rate was frozen at $8,544. After that, the rate was increased by $607.
Early projections show that school spending could increase as much as 5 percent. That would drive the base education rate up from $9,151 to $9,382 this year in concert with the statewide rate increase.
Francis is concerned that lawmakers may freeze the base education rate, which would drive up local property taxes.
“I do not think because of this newly found factor they ought to say we’re not going to increase the base education amount,” Francis said.
No matter what, he says, local school districts are developing “responsible budgets, period.”
Gov. Peter Shumlin plans to hold a summit in January to re-evaluate the state’s 16-year-old education finance system, which includes an income-sensitivity component that he says “inoculates” low-income Vermonters from property tax increases.
Peterson says national financial experts are taking a “good look” at the state’s education finance system and will come up with alternatives that “could address better spending decisions to the amount of revenue that’s available.”
Editor’s note: This story was updated at 6:33 a.m. Dec. 17.
CORRECTION: The average spending adjusted rate was cited as the trigger for the change in the base tax rate on household income; the increase in the homestead tax from 99 cents to $1.01 is the trigger.
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