Vermont lawmakers reach late-night property tax deal, but bill looks destined for a veto

The Vermont House and Senate reached an agreement late Friday night on the Legislature’s annual property tax bill to fund school districts’ budgets. It cleared both chambers around midnight, in the final hours of the 2024 legislative session, though it faces a likely veto by Gov. Phil Scott.

The compromise followed a week of back-and-forth between the two bodies as lawmakers tinkered with a bill now set to raise the average education property tax bill by 13.8%.

But ultimately, the bill would defer making big changes to Vermont’s education finance system to a summer study committee, which is charged with proposing cost-saving ideas later this year.

“I am really scared, really scared about what is going to happen the following year,” Rep. Pattie McCoy, R-Poultney, said on the House floor, deriding the bill’s lack of structural reform to education funding.

The legislation, referred to as the annual “yield bill,” bounced between chambers this week as lawmakers worked to find middle ground.

Legislators plan to buy down property tax rates with about $25 million from a one-time state budget surplus and to add revenue from two new taxes to the education fund, projected to bring in approximately $27 million next year. That $52 million is relatively small compared to the current projected education spending increase of $181 million.

The new taxes in the bill include a 3% surcharge tax on short-term rentals, which is projected to raise around $12 million in its first year, and the repeal of a tax exemption on software accessed over the internet, expected to raise about $15 million.

Met with changes proposed by the Senate this week, the House Ways and Means Committee further amended the bill twice on Friday.

Rather than concur with the Senate’s excess spending threshold, which would have penalized school districts that spend more than 16% above the statewide per pupil average, the House changed the figure to more than 18%.

The Senate had voted to postpone the bill’s “commission on the future of public education,” instead tasking an education finance committee to hash out cost-containment ideas in the short term. In response, the House decided on Friday to embed the finance work within the bigger commission, allowing both to work simultaneously.

In perhaps Friday’s most substantive change, the House brought back a one-time increase in the tax credit for Vermonters who pay property taxes based on income. The Senate had previously stripped it from the bill.

Because the property tax credit works on a lag, income-based taxpayers would have experienced a larger-than-average increase this year before next year’s tax credit made up for the spike. About two-thirds of property owners pay the tax at least in part based on income.

In the House Ways and Means Committee’s earlier version of the bill Friday, the state would have spent more than $20 million to subsidize income-sensitized tax bills, bringing up the average education property tax increase from 12.5% to 14.1%.

That change ruffled the feathers of some committee members, including Rep. Katherine Sims, D-Craftsbury, who said she was uncomfortable with amending the bill in such a way that it increased the average bill.

The Ways and Means Committee voted 8-4 on the bill Friday morning, with Democrats in support and Republicans opposing.

Yet despite the morning amendment, nothing happened publicly throughout the day, and the House never took up the amendment.

Around 4 p.m., the Senate Finance Committee met to discuss the House’s work before it had reached the House floor.

“It’s what we have, and I think it’s what we’re gonna get,” said Sen. Ann Cummings, D-Washington, chair of the committee.

Senators seemed ready to accept the House’s new version in order to head home Friday night.

But rather than move forward with the morning’s draft, Ways and Means reconvened after 7 p.m., almost 10 hours after the day began. While not substantially revising the morning’s version, the committee considered a new draft that reflected updated school budget data. As a result, the average property tax increase ticked downward, from 14.1% to 13.8%.

The final version of the yield bill also tweaks how the Common Level of Appraisal, or CLA, is applied to individual towns, with the goal of decreasing the impact of applying the CLA to the local tax rate.

The CLA is used to adjust local tax rates so that property owners pay taxes on the fair market value of their properties. As reimagined in the bill, the CLA would be used in such a way that “cut(s) down some of that big wide (tax rate) swings that people get so upset about,” Cummings said on the Senate floor.

Around 11:30 p.m. the House voted 93-44 to approve the bill, with a handful of Democrats joining Republicans in opposition.

And just after midnight, the Senate did the same, voting 18-8.

Lawmakers plan to return to the Statehouse in June, at which point they may confront a gubernatorial veto of the yield bill. To override such a veto, two-thirds of both chambers would need to support the bill.

Read the story on VTDigger here: Vermont lawmakers reach late-night property tax deal, but bill looks destined for a veto .