Phil Scott vetoes property tax bill, unsettling next year’s school funding
Gov. Phil Scott vetoed the annual property tax bill on Thursday, setting up a veto session showdown on a piece of legislation that must pass for schools to be funded as normal.
“We must provide property tax relief now. This can’t wait for another study before implementing cost containment strategies,” Scott said in a statement.
Known as the “yield bill,” the annual property tax legislation helps set education tax rates statewide. As passed by the Legislature, the bill would raise the average education property tax bill by 13.8%, with actual local rates varying widely.
The tax increase, driven by surging school costs, defined this year’s legislative session. Now, lawmakers must determine whether to try to override Scott’s veto, or forge a new path, perhaps in collaboration with his administration.
Speaker of the House Rep. Jill Krowinski, D-Burlington, expressed her disappointment with the veto in a statement Thursday afternoon.
“The Governor has been unable to provide any alternative plan that would be workable for the start of the fiscal year on July 1,” she said. “If we do not have a yield bill on July 1, our education system is projected to face a $93 million … budget deficit.”
In the House, the yield bill passed 93-44. It passed the Senate 18-8.
Those numbers indicate a tight override margin, with two-thirds of each chamber needed to circumvent the governor.
At his weekly press conference Thursday, Scott said he planned to meet with House and Senate leadership next week to discuss possible compromises on the bill. He has thus far been tight lipped about the specifics of his proposals.
His ideas would likely look like past plans, specifically the administration’s idea presented by Tax Commissioner Craig Bolio to defer the property tax increase across multiple years by using money from elsewhere in state government.
That idea drew disapproval from Mike Pieciak, the state treasurer, who feared it would negatively impact Vermont’s bond rating.
“A lot of things that Commissioner Bolio had spoken about and testified to are part of this plan,” Scott said, “but there’s been a few changes.”
At the Thursday press event, the governor was adamant that it was not worth even contemplating what would happen if no version of the yield bill passed.
“We’ll come to some agreement before that happens,” he said. “I just don’t think that that should be a consideration.”
Soon after his veto announcement, Scott sent out a campaign blast promoting his rejection of the “historic property tax hike.”
“The Governor tried to work with lawmakers to prevent this unacceptable tax hike, but they moved forward anyway,” the message read, with a large “contribute” button at the bottom. “We need your help to elect more legislators who agree that Vermonters have had enough.”
Every year, the yield bill originates in the House Committee on Ways and Means. Reached Thursday, Rep. Emilie Kornheiser, D-Brattleboro, the committee’s chair, suggested the governor’s veto sent the wrong message to the education community.
“It tells all of the teachers and school staff and kids working really hard right now all across the state that we’re not invested in their future and their work,” she said. “I agree the property taxes are really, really hard, and not what we want Vermonters to be managing, but I have not seen another proposal.”
Contrary to the governor’s comments that legislative leadership didn’t want to discuss property tax policy until after his veto, Kornheiser said she has sought a meeting with the administration since soon after adjournment last month — without success.
“I know he’s mentioned in press conferences a secret proposal,” she said, “but a secret proposal doesn’t help Vermonters.”
What happens without a yield bill?
The yield bill sets property taxes at the rate needed to fund school budgets and other education costs.
Without a yield bill, the nonhomestead property tax rate — the rate paid by landlords, businesses and second home owners — is set at $1.59, about 20 cents more than the nonhomestead rate set in this year’s property tax legislation.
Nonhomestead taxpayers, then, would be in for a much larger tax increase than expected.
The homestead yield, the number used to set tax rates for homeowners, would revert to last year’s figure, as would the metric for people who pay based on income. As a result, homeowners would experience much lower taxes than they’re currently expecting.
This year’s yield bill also included other revenues in the form of a short term rental tax and a tax on software accessed over the internet, together projected to raise about $27 million. Without those revenues, property taxes will go up.
The combination of lower-than-expected homestead taxes and vanishing alternative revenue streams together would result in the $93 million funding gap the state would face without a yield bill.
Some of that deficit could come from the education fund’s stabilization reserve. But projected to have about $52 million, the reserve couldn’t cover the entire hole.
In a session driven by the cost of education, lawmakers used the yield bill as a vehicle for education policy, also now potentially on the chopping block. The legislation included the creation of a commission on the future of public education, which would be tasked with, among other things, coming up with cost containment mechanisms for down the road.
