Woodstock — An estimated 20,000 “house rich, cash poor” Vermonters have been affected by a scaling back of the state’s income sensitivity program that was enacted during this summer’s special legislative session.
“I wasn’t even aware of it until a taxpayer pointed it out to me,” said Roberta Robinson, the finance director for the town of Norwich, where high property values make it the communiy most likely to be affected by the change in the Upper Valley.
Amid a general sense that perhaps the state’s definition of “income sensitive” had become too extensive (fully 70 percent of Vermonters get some sort of adjustment to their tax bill each year under the program), Act 11 reduced the maximum amount of property value that can be discounted.
Starting this year, for households that earn less than $90,000, the amount of house value that can be discounted is $400,000, rather than the $500,000 value that could be discounted last year.
For households that earn between $90,000 and $147,500 — the upper limits of income sensitive eligibility — the amount of house value that can be discounted is $225,000, down from $250,000.
Robinson said that the taxpayer who visited her office had seen a $1,600 increase to his education property tax bill as a result of the change.
Doug Farnham, director of the Vermont Tax Department’s property valuation and review division, said reducing the top limit to $400,000 is affecting an estimated 3,000 households and will boost the state’s education fund for fiscal year 2019 by $1.8 million, while the reduction to $225,000 is affecting roughly 17,000 households and adds another $5.9 million, for a total of $7.7 million in added revenues.
Gov. Phil Scott lobbied against an earlier, more dramatic proposal that would have scaled back the home value adjustment to $200,000 for those making more than $90,000.
“It was a legislative proposal that the governor accepted in compromise to avoid a government shutdown,” said Farnham, who added that keeping the overall property tax rate down was a major goal for Scott.
Democratic lawmakers also expressed mixed feelings about the change, and spoke about it as a compromise.
“There has been a growing sentiment that income sensitivity is a very generous program and affords those with a high property value an undue advantage compared with those who have lower house value,” said state Rep. Charlie Kimbell, D-Woodstock.
The total amount of breaks given under the income sensitivity program has increased steadily over the past decade, to $189 million in 2017 from $130.6 million in 2007.
Kimbell said he supported the bill as a less drastic version of other proposals that would have had more of an impact on the income sensitive.
And state Rep. Tim Briglin, a Democrat who represents Norwich, Thetford, Sharon and Strafford, said he doesn’t like the change, but he also supported the bill, in part because he viewed it as a better deal for the income sensitive who would have been more severely affected by a much-discussed move to an income-based education tax.
State Rep. David Ainsworth, R-South Royalton, said he didn’t know enough to have a strong opinion of this particular change, but that the overall theme of a bloated income sensitivity program is very familiar to him.
“They kept raising the level that people could have income and participate in it. That I thought was wrong,” Ainsworth said. “Initially it started out anything over $90,000, you weren’t eligible for it but now it’s up to $140,000 or more.”
Statewide, the income sensitivity program involves a total adjustment of $165 million to the fund, with the average filer getting a $1,378 discount on their property tax bill. But homeowners who have property valued at $250,000 or more are not evenly distributed throughout the state, and some Upper Valley communities will be harder hit than others.
In Orange County last year, 6,272 people received an average of $1,200 each in adjustments, for a total of $7.5 million. But the average varies widely from community to community — some of the lowest average adjustments are in Corinth ($946) and in Chelsea ($1,017), while the highest averages in the county are in Thetford ($1,881) and Strafford ($1,901).
In Windsor County, where nearly 11,000 people receive an average of $1,480 in adjustments for a total of $16.2 million, the difference between communities is even more pronounced.
The lowest average breaks are received in Windsor ($844) and Springfield ($979), while the two highest are Woodstock ($2,506) and Norwich ($2,686).
Briglin and Kimbell said they knew that the high property values in those towns would create a disproportionate local impact.
“That is a very challenging thing for towns that I represent,” Briglin said. “That creates a big concern. There are folks who bought homes in Norwich decades ago for $100,000, and now those homes are worth probably a million dollars. And their income has not really changed.”
Briglin said that the bill also had many positive components, including a reduction in income tax rates and the elimination of taxes on Social Security income for households earning $60,000 or less.
“It definitely affects Woodstock households,” Kimbell said. “We’re talking about any town where you have a high property value because of a strong market. ... The difficult part is that they get taxed out of the home that they’ve lived in all their life. It’s a delicate balancing act.”
Kimbell said that he also was frustrated by the constant back-and-forth adjustment to the program and other components of the state’s tax laws.
“As a legislator, it’s hard to accept that every couple of years we change the number,” Kimbell said. “It makes it very difficult for a homeowner to predict what their tax rate will be.”
Matt Hongoltz-Hetling can be reached at mhonghet@vnews.com or 603-727-3211.