What Goes Into Your Tax Rate?
A homestead declaration form is part of the Vermont tax system a that helps apply a level of income sensitivity to the state school tax. (Herald / Tim Calabro)
Before voters on Town Meeting Day say “yes” or “no” to proposed local and education taxes for the coming year, the numbers they see on the agenda go through a labyrinth.
On the surface, with everything going right, it seems simple. First officials look at past budgets and see where expenses exceeded previous limits. Maybe a harsh winter required more salt on the roads, or a historical town building needed repair.
After drafting a budget for the next fiscal year—which usually starts around October—officials put on public meetings where townspeople can ask questions and pitch initiatives they want to see their local government finance.
Deliberation and review follows, and in a perfect world the selectboard approves the draft. Then it’s up to the voters.
In reality, a lot more goes into how those percentages arrive in your mailbox, starting with your town’s grand list. It’s one of the most important documents that a town draws up, said Therese Kirby, town manager and zoning administration in Bethel.
The list describes each parcel of land in town—its location, size, and assessed value. Both municipal and state property taxes are based on the information in the list, so if officials don’t keep records up to date, it creates a gap in what buyers are willing to pay for a piece of property and the assessed value, Kirby said.
That’s why “having town-wide reappraisals is so important to keep the value of your grand list accurate,” said Kirby.
Grand lists across the state increased in value by 12% in the past year alone, according to a recent report from Vermont Public. And with the real estate market booming due to a demand for residential housing that far exceeds the state’s supply, Vermont saw a nearly 17% increase in home prices in the last year.
White River Valley residents will likely feel this increase, as about two-thirds of Vermont towns face mandatory reappraisal on homes this year. But an increase in home price or assessed value doesn’t always mean that the tax rate will increase. The budget in Bethel will go up this year, as it did last, but the tax rate will likely change very little, even with ongoing growth in the grand list, Kirby said.
In places like Bethel, an increasing tax base can absorb budget increases without individual homeowners facing proportionally higher taxes. The danger occurs when costs are increasing and the tax base is decreasing, meaning individual homeowners may have to absorb more costs.
After the grand list is squared away, officials calculate the magic number needed to be raised through taxes by taking the expenses of the town and subtracting any non-tax revenue—such as zoning permits and marriage licenses— then dividing the result by the total assessed value on the grand list.
The School Side
Education taxes make up the majority of what Vermonters pay.
That begins when the local school board creates a budget for the following school year based on per-pupil spending. The difference between the expected spending from the school and the non-tax income from grants determines how much money needs to be raised by taxes, according to a report from the Vermont Children’s Forum and the Public Assets Institute.
Each year the legislature sets a homestead education property yield—costs divided by total assessed value—and a non-residential property tax rate. Both work to fund school budgets across the state.
The school board works to approve the draft budget, then it goes to townspeople—this year on March 7.
Once the funds are collected, municipal leaders send the education property taxes to the state.
Taxpayer income also influences the complex formula.
Vermont property owners may file a homestead declaration every year, indicating whether their property is their primary residence. That declaration determines the correct tax rate that goes to the state Education Fund.
In some cases, depending on residents’ income, they can qualify for a reduction in that portion of taxes. Such tax rebates are one way Vermont tries to equalize the tax burden across different incomes.
Sometimes, the state will raise or lower the tax rates after the fact to account for when assessed property values differ from market prices. Officials call that process the Common Level of Appraisal.
The process is complex, which can turn people away from understanding how it works, said Layne Millington, superintendent of Orange Southwest School District.
“If a person can’t sit down and calculate out, using the state formulas, what they should be paying in taxes and see if it matches what they’re being charged, that’s a problem,” Millington said.
Millington had left Vermont before lawmakers passed Act 60 in 1997, which moved education funding to the state level from the local level. The act created a statewide fund to pool tax revenue from every community and dole it out.
By the time Millington returned to the state in 2017 to take over OSSD, the change was dramatic, he said.
“When you visit schools now, the facilities are all in about the same shape and in pretty good shape. And people have plenty of resources for programming,” Millington said. “That was not the case when I left.”
He remembers doing his student teaching rotations in poorer towns in Vermont, where school facilities hadn’t been upgraded in 50 years and had textbooks that were falling apart.
Read the original story on The Herald
