Months after rising property taxes caused chaos for Vermont school budgets, the state teachers union is pushing lawmakers to fund education using an income-based tax in place of the confusing — and, they say, unfair — current system.
Leadership of the 13,000-member Vermont-NEA briefed lawmakers on Thursday about a three-step proposal that would help phase in these changes over time. The meeting came shortly after the November 5 election, which saw state Republicans, who blamed Democrats for Vermont’s rising affordability crisis, make historic gains in the legislature.
Dems appear to have gotten the message. At a caucus meeting last week, senators pledged to make soaring property taxes their top priority during the upcoming legislative session, which begins in January.
At Thursday’s briefing, VT-NEA political director Colin Robinson acknowledged that Vermonters are both confused and frustrated by education funding, noting the large number of school budgets that voters rejected last Town Meeting Day. He said recent polling done by a national firm indicates that seven out of 10 Vermonters think that funding public education is highly important. But seven out of 10 Vermonters also report that their property taxes are too high.
The NEA enlisted the Public Assets Institute, a Montpelier-based nonprofit advocacy organization, to help devise a new path forward.
Step one, which would be implemented next year, would increase the number of Vermont homeowners whose income qualifies them for a property tax credit. Currently, around two-thirds of Vermonters already pay education taxes based fully or partly on their income, but the metrics used to determine who qualifies haven’t been updated in 16 years. Furthermore, under the current system, many homeowners hit tax “cliffs” — or thresholds where an additional dollar of income or a jump in property value can dramatically increase what they pay in education taxes.
The proposal would adjust eligibility guidelines to address inflation and the cost of housing. Currently, homeowners who make $90,000 or less pay taxes based on income, but also pay a property tax on any portion of their home site value above $400,000. Under the NEA plan, homeowners with a household income of up to $130,000 and a home site worth less than $1 million would pay taxes based on income. A partial property tax credit would also be available.
The move would provide “targeted property tax relief to over 50,000 middle class homeowners” but would require an additional $50 to $60 million from the education fund to pay for the expanded eligibility, according to Robinson.
In order to pay for that change, the state would need to raise new revenue for the education fund, make cuts or move some expenditures.
The second step, which would likely take through 2025 to accomplish, would be to “rebalance the education fund” by evaluating current expenditures and revenue. This dovetails with the work that legislators are expected to dive into when the session reconvenes. The Commission on the Future of Public Education, a body created by the legislature that has been meeting since the summer, has a similar charge; the group is expected to release a preliminary set of recommendations on December 15.
Robinson noted that “schools are stepping up to meet the needs of families” in ways they didn’t in the past. That means there are additional costs in the education fund that weren’t there 10 or 15 years ago. He suggested that certain categories of expenditures, such as mental health or social services, should be moved out of the education fund permanently. In terms of added revenue, “implementing things like a new tax on second homes could be a very viable and realistic solution,” Robinson said.
The third step of the proposal would be to eliminate the education property tax entirely and replace it with an income-based system. Tax rates in each town would be determined by the amount local voters choose to spend on their school budgets, as they are currently. Seven of 10 Vermonters support this shift, according to NEA polling.
A legislative committee studied the issue in 2022 and made recommendations on how an education income tax could be structured. But more work is needed to flesh out the logistics, Robinson acknowledged, such as whether the tax would apply to just homeowners or include renters.
The shift “would ensure that those with the greatest means pay their fair share,” Robinson said, noting that the majority of Vermonters already pay education taxes based on income. The current proposal does not provide specifics on how much people might save or who would benefit the most.
No other state funds education using an income-based system similar to the one being proposed, according to Public Assets Institute president and executive director Steph Yu. But “a lot of states make some adjustments based on income,” she said.
A common argument against using income taxes to fund education is that they fluctuate too much from year to year, making them an unreliable revenue source.
That may have been the case in the past, Yu said. But data collected between 2000 and 2018 show that the income tax base in Vermont was “less variable” than the property tax base, she noted.
The NEA’s proposal represents the first of what is likely to be multiple proposals in the coming months aimed at getting Vermont’s education property taxes in check.
During last Saturday’s caucus, Senate President Pro Tempore Phil Baruth (D/P-Chittenden-Central) told fellow lawmakers that getting a handle on property taxes was a top priority and called the situation a “de facto emergency.”
Baruth said he would give the administration the first full week of the legislative session to propose a fix for the education finance and property tax systems.
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