Vermont’s education funding system is notoriously complicated and totally unique.
Following years of rising property taxes — and a watershed 2024 election animated, in part, by a debate over how the state pays for its schools — lawmakers entered the 2025 legislative session poised to consider major changes.
To understand where we’re going, it’s important to understand where we’ve been. Here’s how the system has worked in recent years:
Vermont pays for education on a statewide basis, meaning property taxes from across the state are pooled and then redistributed. As a result of the state’s complex funding system, budget decisions in individual communities impact tax rates across the state.
School district budgets are built by local school boards in consultation with district officials and voted on at the local level, often on Town Meeting Day in March. What voters approve is what the state will fund, and property tax rates are set at a per $100 of property value rate to pay for it.
Roughly two-thirds of the entire state’s education budget is paid for with property taxes. The remainder is covered through the sales tax and portions of other taxes — such as rooms, meals, purchase and use — as well as state lottery proceeds and federal and state Medicaid money.
Every year, the Legislature passes the “yield bill,” which helps set homestead, non-homestead, and income-sensitized property tax rates in order to fund the voter-approved budgets in each school district.
Homestead property refers to primary residences. Non-homestead property includes everything else, from second homes and apartments to businesses and camps. The annual non-homestead tax rate is uniform statewide. Homestead property tax rates, however, are impacted by local school spending decisions.
A resident’s homestead property tax rates go up and down based on how the school district’s per-pupil spending compares to a state average. Per-pupil spending is a technical term that, in short, refers to the amount of money spent by a school district divided by the number of students in the district.
But not every student is counted equally. Like other states, Vermont uses student weights to adjust for those who are more expensive to teach, including English learners and economically disadvantaged students. Those students are weighted as more than one student in the calculation.
A majority of homestead property tax payers receive some discount based on their income. These taxpayers are sometimes referred to as “income-sensitized,” and Vermont uses a property tax credit system to support income-sensitized taxpayers.
Yet another layer of complexity is added when the so-called common level of appraisal, set annually for each town by the state Department of Taxes, is added to the equation.
Historically, and currently, the common level of appraisal, expressed as a percentage, reflects the difference between a town’s appraised property values and what the department considers to be fair market value. For example, if the property in a town is found to be appraised on average at 85% of market value, the common level of appraisal would be 85%.
To come up with a property owner’s education property tax rate, the base rate — set by the Legislature only for non-homestead property, adjusted by school district per-pupil spending for homestead property — is divided by a town’s common level of appraisal. This can lead to towns within the same school district having very different property tax rates.
Starting in July 2025, the common level of appraisal is expected to work slightly differently, though the formula will not be any less complex. The percentage will reflect the difference between a town’s appraised property values and the statewide average appraised value as both compare to fair market value. For example, if statewide property values are at 95% of fair market value, the new appraisal level of the town above would be 85% divided by 95%, or 89%.
To learn more about Vermont’s unique methodology, check out these other resources:
Vermont Public explainer on school funding.
Vermont Agency of Education report on education finance.
Legislative Joint Fiscal Office “Education Finance 101” documents.
Read the story on VTDigger here: How Vermont pays for schools.