December 10, 2018

When an 8-cent tax break isn’t 8 cents

VTDigger file photo
Vermont’s education finance manager Brad James.

By Tiffany Danitz Pache

For VTDigger

Towns rushing to get school district mergers approved before a Nov. 30 deadline have one more incentive: the potentially $80 million hole in the education fund that threatens to raise tax rates 8 cents. Even if that increase washes out the 8-cent tax break towns can get by beating the deadline, they still end up better off than districts that aren’t merging.

Brad James, education finance manager for the Agency of Education, says the overall rate increase of 8 cents can offset the 8-cent incentive.

“In theory, yes, all else being constant,” James said. “In reality, it will all depend on where towns start compared to the new (unified district’s) incentive rate.”

State officials have warned that every school district could see an 8-cent increase in the statewide property tax rate because the education fund has a $50 million hole. That gap is expected to grow to $80 million when the state accounts for school budget increases of roughly 3 percent on average. A 1-cent increase in the average homestead tax rate raises about $10 million for the education fund.

Property taxes support $1.06 billion of the $1.58 billion education fund.

Adding 8 cents to the average homestead property tax rate of $1.51 means a home valued at $250,000 would see a $200 tax hike.

Meanwhile, school districts that have merged with neighboring districts have been told to expect tax breaks, starting at 8 cents, to help cover the costs of consolidation.

While merging districts can expect a tax break, the anticipated statewide tax hike will likely eat up most of the savings.

“Lots of people think that the 8 cents means their tax rate will be 8 cents lower than the prior year. That is not the case,” said James.

Act 46, the law driving consolidation, protects merging towns from huge swings in tax rates as they merge with other districts that may have higher or lower rates. The homestead rate can’t increase or decrease more than 5 percent a year, until all towns in the new district have the same rate.

“What 8 cents means is: The new unified district has a tax rate reduced by 8 cents, and that is the rate the towns will be moving toward,” said James.

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