Gavin Howe
Vermont's education funding system is complex and unique, with lawmakers planning to make changes to the state's education finance system in 2025. The state pays for education on a statewide basis, pooling property taxes from across Vermont and then redistributing them. This means that budget decisions in individual communities impact tax rates across the state. School district budgets are built by local school boards and voted on at the local level, with the state funding what is approved. Property taxes provide about two-thirds of the education fund's revenues, with the rest coming from consumption taxes, lottery profits, and Medicaid funds. The state also uses a property tax credit system to support income-sensitive taxpayers. The common level of appraisal (CLA) is used to equalize what is paid in education property taxes across towns, with the CLA for every Vermont town being the primary result of the Equalization Study performed annually by the Department of Taxes.
| Characteristics | Values |
|---|---|
| Basis of education tax calculation | Per $100 of property value rate |
| Who decides the school district budget | Local school boards in consultation with district officials |
| Who approves the school district budget | Voters |
| Who decides property tax rates | Legislature |
| Portion of education budget paid by property taxes | Two-thirds |
| Other sources of education funding | Sales tax, rooms tax, meals tax, purchase tax, use tax, state lottery proceeds, federal and state Medicaid money |
| Property tax credit | Maximum of $5,600 |
| Municipal tax credit | Maximum of $2,400 |
| Basis of homestead tax rates | Per-pupil spending |
| Basis of non-homestead tax rates | Not clear |
| Minimum district tax rate | 1.000 |
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What You'll Learn
The 'yield bill'
In Vermont, the "yield bill" refers to the annual property tax legislation passed by lawmakers to fund school spending approved by local voters for that year. The yield bill sets homestead, non-homestead, and income-sensitized property tax rates.
Vermont's education funding system is complex and unique, with school district budgets built by local school boards in consultation with district officials and voted on at the local level. The state pays for education on a statewide basis, pooling property taxes from across Vermont and then redistributing them. This means that budget decisions in individual communities impact tax rates across the entire state.
The yield bill is a crucial component of Vermont's education funding system, ensuring that approved budgets are fully funded. The bill takes into account various factors, including per-pupil spending, which is a measure of how much a school district spends per student. Different types of students have different costs of education, so a weighted formula is used to calculate per-pupil spending.
The yield bill also addresses the common level of appraisal (CLA), which is the tax department's analysis of how over or undervalued properties are in each town. The CLA is used to adjust homestead and non-homestead tax rates to better reflect the current market value. This helps ensure that the final tax rate applied in every town is fair and equitable.
Additionally, the yield bill considers income-based tax credits. About two-thirds of Vermont residents receive an income-based property tax credit each year, and households with incomes below a certain threshold are eligible for additional credits. These credits are designed to support income-sensitized taxpayers and reduce their tax burden.
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The 'homestead tax'
The homestead tax is a tax applied to a person's primary home and the surrounding land. The tax is calculated based on the property's value and the amount of per-pupil spending in the corresponding school district. Homestead tax rates are pegged to how much a district spends per pupil, with certain students expected to be more expensive to educate. For example, a high school student is more costly to educate than a kindergarten student, so greater weight is placed on high school students in the weighting formula.
The homestead tax is a significant source of revenue for the Education Fund, which is the statewide fund used to pay for schools in Vermont. The fund is separate from Vermont's general fund, and homestead taxes, along with non-homestead taxes, provide about two-thirds of the Education Fund's revenues.
In Vermont, school district budgets are built by local school boards in consultation with district officials and are voted on at the local level. The amount of per-pupil spending that a town votes for determines its homestead rate. However, this rate is independent of the town's property tax base. The current system ensures that approved budgets are fully funded and that towns with the same per-pupil spending have the same tax rate.
To address potential disparities in property values and tax rates across towns, Vermont employs a Common Level of Appraisal (CLA). The CLA is an annual analysis conducted by the tax department to assess how over or undervalued properties are in each town. This helps adjust homestead and non-homestead tax rates to better reflect the current market value.
Vermont also offers a property tax credit system for income-eligible households. These credits are reflected in the "Education Taxes" portion of the bill as "Education State Payment." The maximum education property tax credit is $5,600.
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The 'non-homestead tax'
In Vermont, all property is subject to education property tax to fund the state's schools. This property is categorised as either non-homestead or homestead. A homestead is the primary dwelling and parcel of land surrounding it, owned and occupied by the resident as their domicile. All property is considered non-homestead unless it is declared as a homestead.
The non-homestead tax is applied to all other types of property, including second homes, commercial facilities, and rental buildings. The non-homestead tax rate differs from the homestead property tax rate. The statewide non-homestead tax rate is $1.703 per $100 of property value. This rate is set to generate enough property tax revenue to support school budgets approved by voters after accounting for other revenue sources for the Education Fund.
The Common Level of Appraisal (CLA) is used to adjust non-homestead and homestead tax rates to reflect current market values. The CLA is determined by the Equalization Study, which compares the ratio of the grand list value to the sale price of properties sold in the town over the previous three years. If the grand list values are generally less than the sale prices, the town's CLA will be less than 100%. Conversely, if the grand list values are higher, the CLA will exceed 100%. The CLA does not change property values but only the education tax rate in a town, known as indirect equalization.
The non-homestead tax rate is subject to change based on the town's spending per pupil. Even if a town votes to spend less on education, if the count of equalized pupils declines, the tax rate may increase. It is important to note that the non-homestead tax rate is unrelated to the amount of property tax base in the town.
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The 'Education Fund'
The Education Fund is a statewide fund used to finance education in Vermont. It is separate from Vermont's general fund, although the general fund occasionally supplements it. The Education Fund represents about a quarter of all state spending.
The Fund is primarily financed by homestead and non-homestead taxes, which provide about two-thirds of the fund's revenues. The homestead tax is applied to a resident's primary home and surrounding land, while the non-homestead tax is applied to all other types of property, including second homes, commercial facilities, and rental buildings. The tax rates for homesteads and non-homesteads are adjusted using the Common Level of Appraisal (CLA), which reflects the difference between a town's appraised property values and the fair market value as determined by the Department of Taxes. This ensures that the final tax rate applied in every town aligns with the current market value.
The remaining one-third of the Education Fund's revenues come from consumption taxes, such as the sales tax, lottery profits, and Medicaid funds.
Vermont's education funding system is considered complex, and the state has undergone several reforms to address issues of equality and tax burden. Act 60, passed in 1997, was a significant reform that changed how the state funds elementary and secondary education. It aimed to address the differences in property wealth between districts, thereby reducing the tax burden on low- and moderate-income households and ensuring equal educational opportunities for all children.
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Property tax reform
Vermont's education funding system is complex and unique, with property taxes playing a significant role. The state's property tax reform journey began with Act 60 in 1997, which aimed to address unequal educational opportunities caused by property wealth differences between districts. This reform decoupled a school district's tax rate from local property wealth, shifting to a statewide funding model.
Act 60 imposed a state property tax to fund schools, but school districts retained the ability to levy their own taxes according to a statutory formula. This reform sought to reduce the property tax burden on low- and middle-class homeowners, as previously, people in the same income group but different towns paid similar taxes yet received varying levels of education.
The "yield bill" is an annual piece of property tax legislation passed by lawmakers to fund school spending approved by local voters. Homestead and non-homestead taxes comprise about two-thirds of the Education Fund's revenues, with the remaining coming from consumption taxes, lottery profits, and Medicaid funds. The "homestead property yield" aims to raise enough revenue for the Education Fund, while the "income yield" ensures those with income-based credits experience similar tax changes as those paying based on property value.
To ensure fairness, Vermont introduced the "Common Level of Appraisal" (CLA), an annual analysis of property valuation across towns. The CLA equalizes education property taxes by adjusting homestead and non-homestead tax rates to reflect current market values. This prevents towns from sending more or less tax revenue than their fair share to the statewide Education Fund.
The state also offers property tax credits for eligible households. Income-eligible households may receive a credit if their education property taxes exceed a certain percentage of their household income. Additionally, households with incomes below $47,000 may be eligible for additional credits, with maximum education and municipal property tax credits of $5,600 and $2,400, respectively.
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Frequently asked questions
The law on education taxes in Vermont is a complex system. In simple terms, Vermont funds education on a statewide basis, pooling property taxes from across the state and then redistributing them. This is done to ensure equal educational opportunities for all children, regardless of where they live. The state property tax is supplemented by homestead and non-homestead taxes, which provide about two-thirds of the education fund's revenues.
The homestead tax is applied to an individual's primary home and the surrounding land. The non-homestead tax is applied to all other types of property, including second homes, commercial facilities, and rental buildings.
The tax rate for homesteads is determined by a variety of factors, including the town's homestead property yield, per-pupil spending, and the Common Level of Appraisal (CLA). The CLA is used to adjust homestead tax rates to reflect the current market value.
