Surging Home Values Aren’t Causing Vermont’s School Tax Spike—Spending Is

Why Vermont’s Rising Home Values Don’t Automatically Raise Your School Tax Bill

A common misconception among some homeowners and public officials is that surging home values in Vermont are a significant contributor to the increase in school property taxes. But while education finance is a complex topic, rapidly increasing home values are not the direct cause of the double-digit percentage increase in your school tax bill. Instead, spending on education is the main factor driving changes in your taxes.

If school spending remains flat, your tax bill should not increase. In this post, we’ll explore why this is the case and why focusing on education spending is often much more relevant to understanding your tax bill.

First, let’s look at some hypothetical examples that were generated with the help of the AI assistant Claude. Then we note several factors that add complexity to the analysis.

Nonetheless, despite the added complexity, the main takeaway remains the same. School spending and Vermont’s complex system of taxation are the primary drivers of your increased school tax bill. Not surging home values. Don’t let candidates for office suggest otherwise.

A Simple Example

Let’s look at a hypothetical scenario. Though simplistic, it illustrates the basic relationship between home values, education budgets, and tax rates.

Year 1:

• Total value of all homestead properties in Vermont: $100 million
• Total education budget: $1 million
• Tax rate: 1% ($1 million / $100 million)

Year 2:

• Total value of all homestead properties increases to: $120 million (20% increase)
• Total education budget: Still $1 million (unchanged)
• New tax rate: 0.8333% ($1 million / $120 million)

As you can see, the tax rate actually decreased to keep the total tax collection in line with the unchanged budget.

Impact on Individual Homeowners

Next, here’s how this plays out for an individual home:

Year 1:

• Your home’s value: $200,000
• Tax rate: 1%
• Your property tax: $2,000

Year 2:

• Your home’s new value: $240,000 (20% increase)
• New tax rate: 0.8333%
• Your property tax: $2,000 (unchanged!)

Even though your property value increased by 20%, your actual tax bill remained the same. Because spending was flat, the tax rate was adjusted downward.

Reality Is Often More Complex

While this example simplifies things, it illustrates an important point: rising property values don’t automatically lead to higher taxes. If budgets remain stable and tax rates are adjusted accordingly.

Of course, real-world scenarios can be more complicated due to various factors:

• Individual properties may increase in value at different rates.
• Local school districts might choose to increase school budgets.
• Increases in school budgets are influenced by a number of factors, such as inflation, number of students, and educational needs of students.
• Inflation may rise at the same rate as home prices.
• The Vermont system of education finance is complex and homestead taxes are based on state-wide education spending.
• State government can limit property tax increases by tapping reserves and raising other taxes, as was done last year.

Another misunderstanding: Impact of CLA

Another popular misconception is that a low Common Level of Appraisal or CLA increases your tax bill. The Norwich CLA is currently 67.57%. But while the CLA affects the property tax rate, it does not affect your property tax bill. That’s a topic for another blog post. The Public Assets Institute explores the topic at this link and in the illustration below.

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Comments to this post are welcomed, below or by email. Even better, contact your local or state officials.

Contact me at norwichobserver[at]gmail.com