Common Level of Appraisal and Other Mysteries of School Funding

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Town Meeting Day is right around the corner, so it’s time for an update on school funding and what we need to pay attention to in 2018.

Your school property tax: Your school property tax is a factor of four influences: the statewide property tax rate, school budget(s), equalized pupils, and the CLA, or Common Level of Appraisal, which equalizes property values across the state in order to make the statewide property tax fair. This system, created under acts 60 and 68, is designed to treat taxpayers and students in all Vermont towns fairly. Towns have equal ability to raise funds. The majority of taxpayers pay school taxes based on their income. Here’s how it works:

The statewide property tax: Under Act 68, the statewide property tax is $1.00 for residential property – your home – and $1.629 for non-residential property (businesses and second homes.) This rate is on each $100 of the property’s fair market value. When applied to all property statewide, this should raise enough to provide a basic education payment of $9,847 (the amount the state calculated is needed) for every equalized student* in the state. The statutory tax is rarely implemented. When there is a surplus in the education fund, the state may drop the statewide tax rate. For 2019, the Tax Commissioner has recommended the statewide property tax rate remain $1.00 residential and $1.629 non-residential. The property yield is expected to decrease from $10,160 to $9,842. This reduction is expected to result in state-wide average tax increases of approximately 9.5 cents.

The school budget: The state calculated the educational spending per equalized pupil base amount of $9,847. It takes more than $9,847 to educate a student; how much more is what school boards wrestle with as they set their budgets. When the school budget is final, the state tax rate for residential property is adjusted to locally raise taxes for spending above the basic education payment. The residential tax rate adjustments reflect both the U-32 and elementary school budgets. The non-residential tax rate is fixed and is not changed by the school budget. However, both rates are changed by the Common Level of Appraisal.

The Common Level of Appraisal: So far, we have seen that the statewide property tax rate raises enough to cover the basic education payment, and the local adjustment raises enough to cover the rest of the school budget. This combination of state and local tax rates works as long as all the property in the state is being taxed at 100% of its value.

Here’s how that works: If your $100,000 house is taxed at $1.05 per $100, it will raise $1,050 in taxes. But what if your cousin’s identical $100,000 house in another town is only appraised at $75,000? If the same $1.05 tax rate is used, your cousin will only pay $787.50. This is unfair.

To deal with the inequity of differing appraisals from town to town, the state comes up with a formula for each town that compares its appraisals to 100% of the fair market value – what your home is actually worth. This is the CLA; it represents the gap between appraised value and actual value. Instead of changing the appraisals the formula changes the town’s tax rate. Think of that $100,000 (fair market value) house again. If it’s appraised at $150,000, the tax rate is reduced to still raise the same $1,050. If it’s appraised at $100,000, the tax rate stays steady at $1.05. If it is appraised at $75,000, the tax rate is increased to still raise the $1,050 on that house. This CLA formula is applied to both the residential and non-residential property tax rates; so all education taxes are affected by the CLA.

Why CLA matters: When property values rise rapidly, the appraisals quickly fall behind the actual values, and the CLA drops from year to year. A small drop means a small increase in the tax rate; a big drop means a big change. When a town conducts a new appraisal, the CLA jumps up, often going above 100%. Tax rates fall. After that, as long as property values continue to rise, the CLA will continue to drop. In the past year, WCSU towns’ CLA changed: Berlin from 105.84 to 102.45; Calais from 98.48 to 98.51; East Montpelier from 94.94 to 95.83; Middlesex from 93.67 to 101.24; and Worcester from to 101.06 to 99.40. When the CLA drops, the tax rates rise so that the properties continue to generate the needed revenue. You would pay the same amount of tax if your house were appraised at 100% with a low tax rate as you do when your house is appraised at 75% with a higher tax rate. It’s a balance. It helps to think about the dollar amount of tax rather than the tax rate.

Putting it all together: With this year’s CLA adjustment, the increase in the state tax rate due to the decrease in the projected property yield and projected residential tax rate increases (decreases) are as follows (includes U-32 and respective elementary school budgets as proposed): Berlin +11.0¢; Calais +6.8¢; E. Montpelier +9.4¢; Middlesex +3.9¢; and Worcester +16.3¢.

The last but very important part of the equation is the income protection in Act 68. During calendar year 2016, 61% of the homeowners in our five towns did not need to pay the full amount of the education tax since they made less than the $141,000. For tax year 2016, the current income cap per household is $141,000 ($152,680 if working). Make sure that you apply for any homestead tax adjustment. Please help your relatives, friends and neighbors apply for adjustments if they are eligible. Even if you didn’t receive one in the past, it is worth applying for, because as the tax rates and income limits change, so does the eligibility. The tax department has a substantial outreach program to reach eligible citizens. If you have any questions, call the tax department at 828-2865. If you are eligible, the tax adjustment shows up right on your tax bill.

*Equalized students, or when is a student NOT a student? A school does not get $9,847 for every student body in the classroom. Say you get a point for each student. You get extra points for high school students, for state-placed students, for students who do not speak English, for low income students, and for various other categories. You even get extra points for not having ENOUGH students, if the decline in enrollment is so fast that the lack of revenue would make it impossible to run your school. The state adds up all the points, divides it by the number of actual students, and gives each school a number of equalized students which may or may not bear any resemblance to the number of actual students! The school then gets basic education funding for each equalized student. This same number is used to calculate the per-pupil expense, which is even more important these days than the total school budget. This is why declining enrollment is such a problem: when the school’s budget is divided among fewer pupils, the per-pupil cost goes up, and that affects the tax rate. Stay tuned!

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