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With a clear focus on progressivity, transparency, and local control, the Administration’s proposals address nearly every facet of the current education finance framework—from the way property tax credits are calculated to new mechanisms that directly address disparities among school districts.

A Progressive Shift in Tax Relief
The Administration has proposed reconfiguring the education portion of Vermont’s income-based property tax credit. The proposal would replace the current credit with a homestead exemption tiered by income, effective July 1, 2027. This shift is designed to address the “lag” between prior year income figures and current year tax obligations, making it easier for voters and school boards to see how budget votes translate directly into tax bills. Preliminary modeling—based on projected 2024 household income and FY25 property values—suggests that while some households may face modest increases, a range of mitigation strategies exist, such as a revamped circuit breaker credit and a property tax deferral program. These issues were discussed in a joint hearing with the Senate Finance Committee and the House Ways & Means Committee.

Recognizing that some households—especially those with high property values relative to income—might see tax increases under the new homestead exemption system, there was a focused discussion on relief through property tax deferral. Drawing on models from other states, including Maine, Minnesota, and Oregon, the proposal would allow eligible homeowners to defer a portion of their property taxes until the property is sold or ownership changes. While specifics remain under discussion, key ideas include setting deferral limits in tandem with the new homestead exemption and ensuring the program is accessible to those most in need.

Bridging the Gap
The Administration’s sweeping proposal also introduces a “State Guarantee” mechanism aimed at leveling the playing field for school districts. The mechanism calculates a “match rate” by comparing each district’s taxable property wealth per student to the state median. Districts with lower property wealth, which would traditionally struggle to fund education beyond the foundation formula, stand to receive significant state support. Meanwhile, districts with higher local resources would see little to no state guarantee. This targeted approach is intended to ensure more equitable funding while preserving local decision-making.

State Guarantee in Focus
The House Ways and Means Committee reviewed initial bill language that embeds the State Guarantee within a broader statutory reform of Vermont’s education finance system. This version provides precise definitions and detailed formulas—including adjustments to tax rates, billing procedures, and spending limits. Notably, it defines the “State Guarantee Rate” as one minus the ratio of a district’s equalized property tax grand list per pupil to that of the median district, with a floor at zero. This legislative framework also addresses related terms such as “excess spending” (spending above 118% of the statewide average) and specifies comprehensive administrative procedures to ensure accurate tax collection and fund remittance. While the legislative framework’s provisions are intended to create a more robust and enforceable education finance system, they also mean that local administrators, school districts, and taxpayers must navigate a more complex regulatory environment.

Balancing Change and Local Control
Looking ahead, education spending projections and district budgeting recommendations are aimed at improving resource allocation and operational efficiency. By aligning tax relief mechanisms with current income levels and streamlining district operations, the proposal aspires to create a more sustainable funding model while maintaining robust local control—a balance that has been at the center of Vermont’s education finance debates.

As legislators begin a careful review of these proposals, the Vermont Chamber remains committed to engaging in discussions and advocating for the Legislature to address the large-scale systemic issues crucial to reforming Vermont’s education system, ensuring both affordability and sustainability.

This week, legislators began a detailed review of Governor Scott’s proposed “Foundation Formula” for education finance, though actual bill language has yet to be seen. The foundation formula, which sets a base per-pupil amount of $13,200, adds weighted allocations for special education, English Language Learners, and career and technical education. While the plan aims to centralize services and encourage district efficiencies, legislators requested further clarification—particularly around local control and how these changes would roll out over time.

The Joint Fiscal Office also presented findings on moving from a property-tax-based education funding model to an income-tax-based system. The Vermont Chamber maintains that an income-based education tax would not address the root causes of rising education costs. Instead, it would impose greater volatility, administrative complexities, and potentially higher marginal rates on families and businesses already managing significant tax burdens.

As Vermont remains third in the nation for tax collections per capita, refining the existing property tax structure, paired with targeted relief mechanisms such as the property tax credit, is a more prudent and balanced approach to ensuring equitable funding while preserving housing affordability and economic vitality. The Chamber will continue to advocate for the Legislature to address the large-scale systemic issues crucial to reforming Vermont’s education system, ensuring both affordability and sustainability.