Senate Finance settles on 6 cent hike for residential statewide property tax

MONTPELIER -- The Senate Finance Committee has approved a 6 cent increase in the statewide property tax for residential homeowners and a 7 cent increase in the tax for nonresidential property owners.

The tax rate for residential property owners would be $1 per $100 per assessed property value under the proposal. The rate for non-residential (commercial property and second homes) would rise to $1.51.

The committee, after weeks of negotiations, combined the miscellaneous tax and property tax bills, which also includes a tiered increase in the employer assessment on large companies that do not offer health insurance for workers. It also places an assessment on employers who pay workers so little that they can't afford to buy into company insurance plans and wind up on state and federally supported Medicaid programs that cost taxpayers as much as $7,000 per year for each beneficiary.

The bill raises approximately $4.5 million in General Fund taxes through a tiered increase in the employer assessment ($3.6 million) and a tax on snuff that raises $900,000.

The bill, H.884, was approved in a 6-0-1 vote. Sen. Bob Hartwell, D-Bennington, was not present for the late-evening committee decision.

The Senate proposal keeps the income base rate at 1.84 percent and does not use one-time Education Fund reserves to buy down the statewide property tax rate for residential property owners. (The House version used money from the reserve and supplemental property tax relief funds to raise the homestead rate by 4 cents and raised the nonresidential rate by 7.5 cents; the Shumlin administration recommended an increase of 7 cents across the board to make the Education Fund whole.)

Sen. Tim Ashe, D/P-Chittenden, said his committee was loath to rely on one-time money to pay for increases in education spending because projections show there will be an additional 6 cent to 8 cent increase in the statewide rate next year.

"With one-time money you have two choices," Ashe said. "You can buy down the property tax rates for one year, which leads to sticker shock in year two when you have to make up the difference in the fund, or you can invest in system changes that result in less costs year after year."

A number of Vermont communities are having trouble passing school budgets this year (rates are up by 5 cents in the current year), and there is widespread dismay over increasing education costs after a long period of declining enrollment. Vermont's student population has dropped 20 percent in the past 15 years.

Ashe said his committee was trying to strike a balance between keeping rates down now and making long-term system changes that will have the net effect of cutting the cost curve in education spending over time.

"Vermonters are stressed now," Ashe said. "We don't want to miss the chance to make cost-smart system changes through incentives to get districts and supervisory unions to more coherently manage expenses."

Ashe is referring to a proposal he has helped to draft that would require supervisory union districts to save money through unified contracts for busing, teachers and other services and the more efficient use of business administration. The provisions are under consideration in the Senate Education Committee as part of the miscellaneous education bill.

Ashe said the state is spending $20 million a year (not to mention tens of millions of dollars more from the federal government) on cost-containment efforts for publicly funded health care that costs the state $2 billion a year.

By comparison, the state spends $1.7 billion total on K-12 public education (including federal funding) and only $1.5 million has been set aside for education cost-containment and reform efforts, according to Joint Fiscal Office figures.

Ashe believes there is a tremendous amount of inefficiency in the education system. Better business practices, he says, could save the state as much as 3 percent to 5 percent of the total amount spent on public education.

Sen. Kevin Mullin, R-Rutland, agrees with Ashe's approach. The committee, he says, is looking for more long-term systematic changes that will "deal with skyrocketing property taxes."

Differences with the House

H.886 includes a number of changes to the House proposal. The House Ways and Means Committee bill kept the property tax rate separate from the miscellaneous education bill.

The House rates were set at 4 cents for residential property taxpayers and 7.5 cents for non-residential taxpayers.

Senate Finance did not want to create a gap between the two rates and also did not want to deplete reserve funds.

The House bill included a phase-out of the $7.7 million small school grants program over a six-year period.

Senate Finance stripped the small school phase-out from H.886. The committee also removed language that would create a unified chart of accounts for districts and allow for the hiring of a tax analyst.

Ashe said the committee will offer an amendment with all three of the aforementioned provisions.

Employer assessment increase

House Ways and Means placed a tax on e-cigarettes that would have generated $500,000 in revenue.

Gov. Peter Shumlin has opposed the e-cigarette tax. In his budget introduced in January, Shumlin pushed for a tax on health care insurance claims that would raise $14 million for the health care resources fund.

The Senate Finance Committee substituted the e-cigarette tax with an increase the employer assessment in order to balance the budget that emerged from Senate Appropriations.

Under the Senate proposal, businesses must make quarterly payments for each full-time equivalent worker. The indexed rate for 2014, which includes increases in the costs for the subsidy program, is $133.30, four times a year. Under the Senate Finance proposal, the assessment would stay level for businesses with fewer than 50 workers, while employers with 50 to 249 and 250-plus workers would pay slightly higher rates, the equivalent of $137 to $182 per employee per quarter. About 2,366 employers pay the assessment on roughly 31,000 employees, according to estimates from the Joint Fiscal Office. Among those totals are 1,853 small employers with 11,743 workers.

The proposal would also require payment from companies that offer insurance but whose workers can't afford the benefit and qualify for Medicaid. At least 3,800 full-time equivalent workers would be affected by that provision. The assessment on those employers, which would bring in $1.8 million in revenues, is baked in to the $3.5 million total raised.


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