Property tax increase projections lowest in three years, but are subject to change

MONTPELIER — The Shumlin Administration is projecting property taxes will increase by 1 percent in the coming year, with the governor pledging action to fine tune school district spending thresholds within the first month of the legislative session.

The Agency of education, the Department of Taxes and the Joint Fiscal Office are projecting an average statewide tax increase of 1.12 percent, the lowest increase in three years, although that figure is a best-guess that will be subject to revision in the coming months.

Mary Peterson discusses projected tax rates while Gov. Peter Shumlin looks on.

Josh O'Gorman / Vermont Press Bureau

Mary Peterson discusses projected tax rates while Gov. Peter Shumlin looks on.

“What we’re anticipating from what were seeing in these numbers is that that the average tax bill be going up by a little more than 1 percent, and education spending is going up by 2.5 percent,” said Mary Peterson, commissioner of the Department of Taxes.

On the residential side, the average homestead tax rate is projected to increase by 1 cent, to $1.535 for every $100 of assessed property; however, tax increases will vary from municipality to municipality depending upon how much they spend on education.

The non-residential tax rate is projected to increase by 0.3 cents, to $1.538 for every $100 of assessed property.

This year, the average residential tax increase was 2.5 cents and the non-residential increase was 2 cents. The year before, those increases were 9 cents and 7.5 cents, respectively.

“Needless to say, this is the lowest average increase in three years,” said Gov. Peter Shumlin.

By statute, the state is required to issue a letter to municipalities every December. However, Act 46 – the school district merger law – changed the way state officials calculate projected tax increases. For years, the letter would include a “base education” amount that municipalities could use to calculate their tax rates.

Now, the calculation refers refers to “yield amounts.” Peterson said she anticipates there will be come confusion among school board members over the change.

“The letter will be a little more confusing because we are changing how the calculation is made, so hopefully everyone will be patient and we will entertain questions as they come up,” Peterson said

The education-spending increase is based on what is currently being spent. At town meeting in March, voters across the state approved school budgets that had a combined average spending increase of 2.5 percent.

However, the tax increase will be a function of the school budgets approved at town meeting in 2016. State officials will begin getting a better picture of what the true education spending increase will be at the end of January, when school boards finalize the budgets they will present to voters in March.

“It is important to remember that these projected yields, rates and bills are all based on forecasts and averages,” Peterson said. “Taxpayers may see significant changes due to local decisions.”

Among those decisions will be whether to exceed the allowable growth rate for school spending. Act 46 includes a provision that creates spending increase thresholds for school districts that vary from less than 1 percent to as much as 5 percent. With health care costs projected to increase by 7.7 percent, some school boards are expected to struggle to stay under the spending thresholds, and tax payers will face financial penalties if they fail to do so.

Shumlin said he expects the legislature will take action to change the allowable growth formula by January 31, the deadline for town clerks to post warnings for town meeting March 1.

“I would hope, in meeting and talking with legislative leaders, coming up, we would find a solution that would give school boards the predictability they need long before they submit their budgets to voters,” Shumlin said.

Shumlin said he has a plan, but it’s “not ready for prime time.”

The legislature will convene the 2016 Legislative Session on Jan. 5.

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