Property Tax Outlook ...

Bad & Getting Worse
by
Hugh Kemper

Tax Commissioner Westman’s December 1st letter with accompanying charts to the Legislature should come as no surprise to Vermont Tiger readers. Based on available projections for the Education Fund through FY12, the bottom line is simply this- if voters and/or the Legislature do nothing to reduce projected K-12 spending for FY11 and FY12, the average homestead property tax rate will increase over the next two years by no less than 20.7 % and the non-homestead property tax rate by no less than 7.7%.  Adding FY13 to the mix based on Westman’s letter, the homestead tax will increase by more than 25% and the non-homestead tax by more than 16%. As Vermonters pay approximately 84% of education property taxes (homestead + non-homestead), the prospect of these increases in property taxes is ominous indeed.

There are four principal drivers behind these prospective property tax increases; namely,

(1) projected yearly increases of 2% in K-12 education spending notwithstanding continuing declines in student enrollment,

(2) the virtual certainty that the General Fund – which is faced with a $384 million cumulative deficit over the next three years – will be unable to resume making its annual contribution to the Education Fund at the customary level,

(3) a projected operating deficit for the Education Fund in FY12 of $19.3 million and

(4) the need to restore the Education Fund’s Stabilization Reserve in FY12 to its minimum statutory level of 3.5%.

To pay for increased education spending and these shortfalls, net property taxes for FY12 will need to total $997 million- a net of $397 million from homestead taxes and $600 million from non-homestead taxes- resulting in a 20.7% increase in homestead taxes and 7.7% increase in non-homestead taxes.

 

Income sensitivity is the reason homestead taxes increase much more than non-homestead taxes. By FY12, per current projections, prebates + rebates will total $182 million or 33.5% of gross homestead taxes collected vs. $119.5 or 29% of total homestead taxes collected in FY09. However, assuming  the state must fund the abovementioned $72.4 million of shortfalls, prebates + rebates will likely exceed $200 million and more than 35% of collected homestead taxes. Basically, fewer and fewer Vermonters have to pay more and more so that more and more can be refunded to more and more qualifying for income sensitivity.

Clearly, any increase in property taxes to fund an education system whose capacity (primarily staffing) far exceeds that required to provide a quality education is unconscionable. That property taxes would increase due not only to increased spending but also to the prospective failure of the Legislature to comply with the General Fund’s historical obligation to pay its fair share of education spending simply adds insult to injury.

There are things we all can understand better and things we can do.  It is critically important to begin disciplining education spending now- at the local school district level during the FY11 budget process and vis-à-vis our respective elected officials in Montpelier. FY12’s property tax issues represent a clear and present danger to our fiscal house … not to mention our sanity. Most of our elected representatives, I gather, hope their constituents won’t notice in an election year the troublesome FY12 property tax issues and their predisposition to inaction. The bottom line is that FY12 will hit hard unless the legislature addresses these issues during the 2010 legislative session.

If your elected representatives don’t do so meaningfully, perhaps you should vote for those who will next November.

Comments

[RFC]

Hugh,

Perfectly stated!

I hope those in the General Assembly have their hearing aids turned on.

[Richard]

Rich Westman was on Vermont Public Radio today, along with Paul Cillo, of the Public Assets Institute.

Mr. Cillo has an answer to our economic conundrum. And I kid you not.

Mr. Cillo's response to our little dilemma is to increase the income-sensitivity program, to allow even more Vermonters access to reduced property taxes - as their incomes shrink and Vermont jobs disappear - while he simultaneously proposes increasing taxes on the wealthy (are they still here?)

The insular nature of his responses and arrogance were even more disturbing than his actual proposals.

If Mr. Cillo's views are representative of his like-minded cohorts throughout this state (Mr. Cillo helped craft Act 60), we should all be very, very concerned.

Doing the same thing over and over again, and expecting different results, comes to my mind.

[timv]

I hold little, or no, hope for a mass replacement of the hippy spawn/social worker/trust fund baby legislature.
A populace that will elect Bernie Sanders to the House AND Senate is beyond common sense or any sort of intelligent reasoning.