Gov. Phil Scott has signed a bill that enables school districts to postpone their budget votes past Town Meeting Day and repeals a tax break officials believe is partly to blame for an unprecedented rise in education spending.

Since the outset of the legislative session, one topic has dominated the rest: a predicted 20% rise in property taxes. And while schools face a series of acute inflationary pressures, Democratic lawmakers and the Republican governor alike believe that a temporary tax cap included in a recent retooling of Vermont’s education finance formula unintentionally created the incentive for districts to spend even more this year.

To mitigate the problem, lawmakers have fast-tracked H.850, which repeals that tax break and gives school districts extra time to revise their spending plans for the upcoming year.

Legislators worked at remarkable speed to enact the legislation, which was introduced and passed out of both chambers in just two weeks. Instead of taking the customary five days, Scott, too, worked quickly, signing the bill the day after it was sent to him by lawmakers.

H.850’s impact

The bill, signed by Scott on Thursday, amends a law passed in 2022 called Act 127, which sought to encourage poorer, more rural, and more diverse districts to spend more on higher-need students. To advance that goal, lawmakers revised the state’s education funding formula, allowing those districts to spend more without seeing a commensurate spike in local tax rates.

The cost of that, however, would be that more affluent districts would experience the opposite effect — seeing tax hikes even if their spending remained the same. To ease those districts that would be disadvantaged by Act 127 into this new framework, the law included a provision that year-over-year homestead property tax rates were capped in the first five years of the law’s implementation.

Officials now believe that the tax cap has fundamentally divorced local education spending from local homestead tax rates, and encouraged all districts to increase their spending. So they’ve repealed it and replaced it with a far more targeted — and less generous — transition mechanism.

And while the impact of the tax cap’s repeal will have disparate impacts on different communities — some will see their tax rates automatically increase, others will decrease — the bill is intended to restore a cause-and-effect relationship between a district’s per-pupil spending and its tax rate. With the cap in place, districts found themselves in a situation where they might add — or subtract — millions from their budgets without seeing any shift in their tax rate.

It’s unknown at this point what kind of impact H.850 will have on the average property tax bill. Legislative fiscal analysts have said that, at this point, there are too many unknowns — chief among them: how many districts will actually decide to amend their budgets downwards in response.

H.850 gives districts until April 15 to reschedule a new vote, and it also sets $500,000 aside to reimburse them for associated costs. The bill also requires town clerks to mail a new ballot to anyone that’s already requested an absentee ballot, although that falls short of what Scott wanted — a mail-in ballot sent to all registered voters.

A ‘necessary step’

In a letter sent to lawmakers alongside his signature on H.850, Scott on Thursday called the bill a “necessary step,” but warned that it would likely only have a marginal impact. And he scolded lawmakers for repeatedly rejecting the ideas he’d proposed in prior years to reduce education spending.

“Our work in this area has just begun, which is exactly the same thing I said when I signed S.287 of 2022 — the bill that enacted the 5% cap H.850 repeals,” the governor wrote. “… I called on the Legislature to address the cost pressures this bill added — and avoid adding more costs — ‘before this new formula takes effect.’”

“Had the Legislature worked with me to do so, we would all be in a better place today,” he added.

But lawmakers also emphasized that they do not believe their work is done. H.850 itself states that it is only an “initial step” in “transforming the educational system to ensure a high-quality education for all Vermont students, sustainable use of public resources, and appropriate support and expertise from the Agency of Education.”

And indeed, multiple committees have already begun taking wide-ranging testimony about the cost drivers in Vermont’s pre-K-12 system. On the Senate floor on Wednesday, moments before lawmakers voted to send H.850 off to the governor’s desk, Senate leader Phil Baruth, a Democrat/Progressive from Chittenden-Central, called for a “groundbreaking” reform. The bill his colleagues were poised to approve, he said, was only a “first step.”

“The second step is to think about cost containment,” Baruth said. “And I think that is something we have to approach in a much different way than we have since I’ve been here.”

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