Prospects dim for property tax compromise after sour meeting between administration and lawmakers

By ETHAN WEINSTEIN

VtDigger

Published: 06-13-2024 3:12 PM

Negotiations between Gov. Phil Scott’s administration and legislative leadership soured after a Wednesday afternoon meeting to discuss the executive branch’s property tax and education finance proposal. 

The meeting and subsequent fallout followed Scott’s veto of the annual property tax legislation last week. If enacted, the legislation would increase the average education tax bill by 13.8%, driven by rising school spending.

For weeks, Scott has used press conferences to tease his plan. On Wednesday, his team unveiled a “menu” of ideas that, if taken all together, would bring down average property tax increases to 4% to 6%, according to the administration’s projections.

In the final days of the session, lawmakers in both chambers passed the yield bill with margins around the two-thirds needed to override a veto. Legislators now must consider whether to pursue any of the administrators’ proposals or attempt an override during a veto session next week. 

The governor’s plan would “keep Vermonters from being crushed by a property tax increase this year,” Sarah Clark, interim administration secretary, said at a media briefing following Wednesday’s meeting with lawmakers. 

Clark, alongside Tax Commissioner Craig Bolio and Interim Education Secretary Zoie Saunders, described a range of proposals that include injecting $124 million toward lowering rates this year and working to decrease school spending going forward. 

For immediate relief, the administration suggested that surplus state revenues from May and June — perhaps $20 million — could go toward this year’s taxes. 

“It’s not money that’s guaranteed until it comes in,” Clark cautioned. 

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Scott’s representatives also suggested nixing universal school meals, a $20 million program. And they proposed using the entirety of the education fund stabilization reserve — about $47 million — to further buy down rates. Taxpayers would then pay back 20% of the reserve each year for the next five years, according to Bolio, and education fund surpluses could go toward the repaying of the reserve. 

Such significant one-time buy downs needed to be coupled with cost-containment, state officials argued. 

To curb spending, the administration suggested placing more restrictive limits on how much school districts could increase spending in fiscal year 2026 before facing financial penalties. State leaders also proposed transitioning for fiscal year 2027 to a foundation formula, paying districts per student and allowing local voters to increase spending at a higher tax rate. 

Ahead of Wednesday’s meeting, lawmakers and the administration had engaged in weeks of back and forth over when and how to meet. But when lawmakers finally heard the proposals they unleashed intense — and immediate — disapproval. 

“We were led to believe that Governor Scott would be present and engaged at our meeting this afternoon and that he would offer details on a responsible plan to cut property tax rates,” Senate President Pro Tempore Phil Baruth, D-Chittenden Central, said in the statement.

“Unfortunately, neither turned out to be true. The Governor was absent, and the ideas presented by his team are among the most fiscally irresponsible he and his Administration have ever proposed,” Baruth said.

Scott’s absence also displeased House Speaker Jill Krowinski, D-Burlington, who released a statement deriding the proposal as “nothing more than election year politics rather than a true commitment to collaboration.”

The Governor’s team rejected that he ever planned to attend the meeting.

“There was never a plan for the governor to be there for the initial discussion,” said Kendal Smith, the governor’s director of policy and legislative affairs, adding that Scott would have attended a later meeting if there was a “handshake” agreement to be had. 

“The issue at hand is getting this rate down for Vermonters,” said Rebecca Kelley, Scott’s spokesperson, “not who’s at the meeting.” 

A 13.8% tax increase would lead to people “not being able to afford rent, increasing our homeless population,” Kelley said, “pushing more people into poverty, causing more people to leave the state.”

(Another Scott spokesperson, Amanda Wheeler, said the governor was at an event in West Rutland celebrating music education “but was prepared to meet with lawmakers this afternoon if a deal could have been reached.”)

The proposals unveiled by Scott’s team on Wednesday included a mix of ideas — some new, some old and some that originated with lawmakers themselves this past year. 

“If you don’t do it all as a package, the fiscal cliff it establishes will be extremely difficult to overcome,” Clark said. “Even with our proposal, it’s still very challenging. But doing nothing, from our perspective, is worse.” 

In the yield bill as passed, lawmakers used more than $20 million to increase the property tax credit for Vermonters who qualify based on income. The administration suggested using that money to decrease rates for all taxpayers, rather than just those who are income-sensitized, as the other sources of money would bring down average rates far below current expectations. 

School budgets have also ticked down about $4 million since the yield bill passed, according to officials, so a new bill could reflect those savings. 

For fiscal year 2026, administration leaders’ short-term cost-containment proposal included imposing new, more restrictive limits on how much school districts could increase spending before facing financial penalties. The idea, referred to as “allowable growth rates” and first proposed in the House during the legislative session, would limit most districts to increasing budgets at the rate of inflation. Lower spending districts would be allowed to increase budgets up to 6.5%, according to Bolio. 

Another short-lived House proposal appeared on the administration’s menu: a foundation formula. A model used by most states to fund education, the idea involves determining what an “adequate” education costs in Vermont. Districts would then receive so-called educational opportunity payments based on that adequacy number and the number of students in the districts. If local voters decided to spend more, they could do so at an increased tax rate.

In discussing the administration’s proposal to use the $47 million education fund stabilization reserve to buy down tax rates, Bolio characterized it as “deferring” tax payments to future years.

“It is deferring a certain share of the property taxes this year,” Bolio said on Wednesday. Structural reform would shift some of the repayment to higher spending districts, he indicated. 

The day prior, Scott had said at his weekly general press conference that his plan would not include a “deferment” concept, an idea that the administration first proposed during the legislative session. 

State Treasurer Mike Pieciak advised lawmakers against the deferment proposal that had been discussed last session, fearing it would impact Vermont’s bond rating. (The rating agencies have also said that spending outpacing revenue could affect the state’s bond rating, Scott’s team has noted.)

In response to a question on Wednesday, Bolio maintained the new proposal wasn’t a deferment, “because this isn’t going to be carried like debt by schools. It’s using actual reserve funds,” contrasting the idea with using “the general fund cash balances.”

Taxpayers, though, would still carry the burden to repay the education fund reserve. 

On her way out of the afternoon meeting, Sen. Jane Kitchel, D-Caledonia, chair of the Senate Appropriations Committee, condemned the lack of “fiscal responsibility” in the administration’s plan. 

“Obviously everybody would like to make the property tax increase as low as possible,” she said. “If the proposal is to go in and use the stabilization reserve to buy down the rate, that is a practice that we never ever had considered or would consider as fiscally responsible.” 

Kitchel, who recently announced she would not seek reelection, also challenged the administration’s notion that a $20 million surplus will materialize from increased revenues in May and June. 

“That’s an unknown. You don’t set the yield based on unknowns,” she said.

As chair of appropriations, Kitchel guided the creation of the state budget for years, and is widely considered one of, if not the most powerful lawmakers in Montpelier.

“I have to tell you, as someone who’s dealt with budgets and short-term decisions that have huge long-term impacts, like the underfunding of pensions, it’s not a direction that I feel comfortable in going,” she said.