How Education Property Taxes are Calculated

A state representative several years ago wrote up a really great explanation on how Vermont’s education taxes are calculated. I hope you find this helpful! (this is an example, it is not Waterbury’s actual budget)

Before the Brigham decision (1997), towns with big grand lists had an easy time raising money for their schools, while towns with a small grand lists had a hard time raising money for their schools. Education property taxes ranged from $.40 to $4.00. The Vermont Supreme Court held that this range violated students’ right to equal opportunity to education. Act 60/68 set up a new procedure below for determining tax rates, which essentially creates a statewide grand list, so that every town has the same ability to raise money for their schools. In the step-by-step description below.

Step One: The Town votes on the budget.
Voters in Waterbury-Duxbury are being asked to approve a budget of $11,584,574 (a 2.1% increase over last year).

Step Two: Total spending is reduced by “other revenues” to calculate education spending.
Total spending is reduced by “other revenues.” In Waterbury-Duxbury, other revenues are $1,469,774, resulting in education spending of $10,114,800. The proposed education spending is 4.0% higher than last year.

Step Three: Calculate education spending per equalized student.
Next, you must calculate education spending per student. For Waterbury-Duxbury: divide $10,114,800 by 654 equalized students = $15,473 per student. In Waterbury, this is a 4.2% increase over last year. We are fortunate that, in our school district, the number of students has been relatively constant over the past few years. In Bolton, a school with fewer than 100 students, they have been losing 4 or 5 students per year, which has a huge impact on cost per student. Note that, so far, all of the decisions have been local ones. Because spending per student is so critical to the rest of the calculations, the Legislature is considering a change in the ballot language so that voters know the proposed cost per student before they cast their vote.

Step Four: State determines the base education rate and base tax rates.
The Education Fund receives revenues from property taxes, sales tax, lottery and a few other sources. If the sales tax and lottery are doing well, then the base education rate can be higher, which lowers the local tax rate. This year, the Legislature will probably set the base education rate at $9,459 and the base tax rate at $1.00. It’s really not necessary for the State to set two numbers and, as a result, the Legislature is looking at a “yield” formula that would be less complicated.

Step Five: Calculate the local multiplier.
The local multiplier is the local spending per pupil, $15,473, divided by the base education rate $9,459, which for Waterbury is 163.58%. To determine the local (unequalized) tax rate, you take the product of the local multiplier and the base tax rate: 163.58% x $1.00 = $1.6358 .

Step Six: Adjust the equalized tax rate for variations in grand lists across the state (also known as the common level of appraisal).
Because each town’s grand list cannot be updated every year, the tax rates must be adjusted statewide depending on whether the grand list is below fair market value or above fair market value. In Waterbury, our grand list is slightly below fair market value, so our tax rates need to be higher to produce an equitable statewide result. The Tax Department estimates that the grand list is .9947 of fair market value. To get the equalized tax rate, you divide tax rate ($1.6358) by the common level of appraisal (.9947), which produces an equalized statewide property tax rate in Waterbury of $1.64. About 75% of Vermont tax payers pay an income-sensitized rate. So even though the tax rate looks like $1.64, most Waterbury residents will pay a lower rate.

Leave Your Comment