H.887 (The Yield Bill): Education Property Taxes
The Yield Bill is one of the primary operating bills that are passed every year. Despite what is being spun online, leaving schools hanging without a funding bill would have dire consequences. It simply isn’t a valid option. As such, I voted to override the veto. As a new Rep going into the building this term, it was evident very quickly that education financing is a massive issue that will take several years to solve. Next session, it is clear that education financing will be the number one issue that needs to be addressed, followed closely by health care costs – both of which are fueling this rate hike.
Not being on the House Ways & Means Committee or the House Education Committee, this is an issue that I have limited access to through conversations with my colleagues. I stayed in touch with them, wrote an Op-Ed with Reps Holcombe & Brady in December (Valley News posted a month earlier than VTDigger), and stayed in touch with local school administrators who engaged with me along the way.
As everyone grapples to understand what happened, I found two resources incredibly helpful. The first is: Rep Laura Sibilia’s explanation of where we are and how we got here. Prior to the veto override session, she wrote, “The bottom line is this: Vermont does not have a simple system by which state policymakers can responsibly further impact property tax rates in mid-June. The Governor’s veto creates confusion and disorder, especially amidst several years of inflation, which is driving up the cost of household essentials faster than paychecks are growing. If his veto is not overridden, our non-partisan analysts are projecting a potential 30% increase in non-homestead taxes and a big budget hole to fill next year.”
The second is the information below that was provided by Rep Rebecca Holcombe, who sits on the House Committee on Ways & Means (she was also a former Vermont Secretary of Education). I find her descriptions clear and helpful.
I hope these resources help as everyone tries to understand the Yield Bill. I will share more information as it is available to us. Thank you for taking the time to read this and for engaging over the course of the session. If you have questions or concerns, please do not hesitate to reach out at mpriestley@leg.state.vt.us.
NOTE: Are you worried about being able to pay your property taxes this year? The legislature increased the size of the property tax credit that eligible Vermonters can claim to reduce their property tax rates by 13%. The purpose of this credit is to reduce tax bills for people with modest or fixed incomes. Check whether you are eligible for a property tax credit at this link.
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How did we get here?
How do we bring down Education Property Taxes?
We face a very significant risk related to property taxes, and there is no quick or easy solution for our communities.
Across all school budgets in the state, education spending increased substantially this year. There were numerous factors, including:
- increases in costs related to health care (about 4.5 cents on the tax rate),
- school-based mental health (about 5 cents on the tax rate), and
- infrastructure (about 5 cents, due to aging infrastructure and in some locations, PCB mitigation).
In addition, the state bought down the tax rate last year – a gap that needed to be made up this year (about 5 cents). Those increases alone drove an estimated increase of about 20 cents on the average tax rate.
In addition to all of the cost pressures mentioned above, some towns will face projected tax rate increases resulting from changes in Vermont’s education funding formula passed in Act 127 of 2022. The new formula makes it easier for communities to raise revenues for their school if they serve a lot of students who are more expensive to educate (i.e. economically disadvantaged students, English language learners, students in small/rural schools and high school students).
Recognizing that the property tax increase is unbearable for many Vermonters, the Legislature included a cost containment provision in the Yield Bill that, depending on your point of view, either encourages school districts to spend less or penalizes them for spending too much. In the next budget year, the penalty is projected to fall hardest on districts that are mid size and that operate schools.
If it costs less than a dollar to raise more than a dollar of education spending, districts that gain “tax capacity” under the new formula are more likely to increase spending. In addition, in districts that benefit significantly from the new weights, it may now be less burdensome at the district level to pay for social services out of education dollars, even foregoing a medicaid match, However, this makes the system as a whole more expensive, and that excess cost is shared system-wide.
Only one other state uses this kind of funding formula. They spend about half as much as us and are trying to increase spending.
In other words, unless we make significant changes, the estimated increases are an understatement.
The recently passed yield bill sets the property and income yield numbers, key figures that school boards and towns use to set education property tax rates. While tax rate increases will vary by district, the average statewide increase, once projected to be over 20% has now dropped to 13.5%. We were able to bring the increase down by adding new revenue sources (cloud software tax, short term rental property tax) and applying one time funds to buy down the tax rate. How much greater will tax rates be? Unfortunately, it’s a bit too early to know. School administrators need time to run the calculations with the new yield numbers.
Next year, EVERY district will enter the next budget season facing a bump of at least 7 cents because we chose to buy down the tax rate this year. Every time that is done, it creates a spike the following year, as it did this year. This is one of the main reasons the legislature was hesitant to buy down the rate further this year; it just makes the problem worse next year.
While the Governor’s message that tax rates were too high was very simplistic, his plan to lower them this year was anything but. The Governor wanted school districts to borrow against next year in order to bring down the rate this year. Given the projected increases in coming years, that seemed perilous, so the legislature overrode this request. We need genuine cost containment. Hiding the problem with deficit spending just digs the hole even deeper.
In addition, the Republican majority leader advocated for “capping” growth with an “allowable growth threshold.” This strategy was tried and removed previously in Act 46 precisely because its effect was to give the green light to a lot of districts to grow more than they needed, raising spending, rather than limiting it. The 10% cap we took out of the formula this session because it fostered higher spending is another example of why this so-called “containment” increases spending. Similarly, clawing back reserves (as some demanded) could also have had perverse consequences.
Beyond the efforts described above, the Governor has been largely absent from efforts to generate solutions. The legislature was unable to arrive at more comprehensive solutions this session, but did take some steps to ensure we were in a different situation next year.
What does the yield bill do?
For an excellent summary of the financial impacts of the yield bill, see this link to a fiscal analysis prepared by the Joint Fiscal office at the Vermont legislature:
One bright spot: the bill increases the property tax credit for people in the income sensitivity program. This should blunt the harm to taxpayers with the most modest incomes. Several of us have also been looking for ways to means-test this program to ensure it is protecting the right taxpayers.
The education commission established in the bill is designed to make recommendations related to the structure of the education system, as well as the finding formula. To paraphrase a former Chair of the House Appropriations committee from a few years ago, the right solution for us now might be the one that makes everyone give a little to make us all better off. Vermont just does not have the tax base to support the expanding demands on the education fund, and our communities need to bring our system in line with reality in a way that protects our communities and opportunities for our children.
What does the legislature need to do?
The current cost pressures are not all cost pressures local districts can address on their own. They need help from the legislature. Without legislative action, we make our communities unaffordable for too many people. And as our communities become unaffordable, fewer people with small children can afford to live there, shrinking our student population even more. This is a negative downward spiral the legislature must interrupt.
The primary levers to do so include:
- Changing the funding formula. Our current formula is both hyperinflationary and not providing the intended benefits, even to some of the communities it was supposed to benefit. This must be the top priority of the House Ways and Means committee and the Senate Finance Committee next year. We can both use weights to ensure kids who cost more to educate are supported AND ensure both a floor and reasonable limits on how much education costs.
- Tackling out of control health care costs. The cost of an individual plan on the health care exchange has doubled since Governor Scott came into office. With premiums increasing by double digits every year, there is no reasonable limit to inflation in school costs. Moreover, as our population ages, and more Vermonters shift to Medicare, the impact of cost shifting to private insurance is becoming more concentrated, driving ever higher prices.
- Addressing the cost shift of state social services to the education fund. The Governor has been balancing the state mental health budget with vacancy savings and keeping increases far below inflation– effectively a cut. Since schools are the payers of last resort, those costs are falling back to the Ed Fund. In other words, by under budgeting at the state level, the Governor can claim to be reducing costs, while forcing school districts to pick up the tab, as they are required to do in statute. We need a real plan for how to protect our safety nets without breaking the backs of tax prayers.
- Supporting strategic consolidation, particularly at the high school level, paired with reasonable limits on where districts pay tuition. We have high schools of fewer than 100 students that struggle to provide the breadth and depth of opportunities students need. The White River Valley district, which merged 2 high schools and 2 middle schools into 1 high school and 1 middle school is an example of how this kind of collaboration can both give kids better opportunities AND lower cost. At the same time, there is no point financially in closing small high schools only to support tuition to even smaller schools, to out of state prep schools, or to schools that can’t or won’t serve all children or above by VT antidiscrimination statutes. Limiting where students can go would ensure the VT schools that serve the majority of our children, including schools like Thetford Academy are more robust and cost less per pupil.
- In the short run, targeting of infrastructure dollars where they will make the biggest difference: places that are consolidating and places coping with PCB mitigation. Addressing “must do” priorities first will free capacity for “want to” priorities later.
- Addressing the explosion in cost in special education services for students with extraordinary disabilities, especially related to tuition to specialized settings. The last few years of budget data suggest we are serving fewer children but at much higher prices, including in for-profit settings.
What can communities do to mitigate this pressure?
- Work on lowering the cost per pupil to try to minimize the impact of the excess spending penalty.
- Encourage taxpayers to apply for the income sensitivity program. Many taxpayers do not realize they are eligible.
- Support smart development of affordable housing that makes it possible both for young families to move here and for seniors who want to downsize to find a place within the community that they can call home. We have fewer children here than we did 20 years ago. To the extent we make it possible for more children to attend our schools, the lower the per pupil cost.
- Take advantage of new opportunities in H.630 to partner regionally to share services, e.g. high quality, affordable placements for students who need specialized settings.
This update can also be downloaded from Google Drive here.
