Impact of Act 68 on Burlington Businesses

Act 68 Information

Why was there a nearly 30% increase in education property taxes on commercial property in Burlington in FY 2005?

(Note: FY 2005 is the fiscal year that began July 1, 2004, and ends June 30, 2005)

Act 68 was passed by the legislature in 2003 to correct problems with Act 60, Vermont's education finance law. Two classes of property were defined, residential and non-residential. The residential property consists of primary residences occupied by the tax payer, with adjacent land; the non-residential includes all other types of property, such as commercial, farm, and rental residential.

Two statewide tax rates were set: $1.10 for the residential property and $1.59 for non-residential. These were reduced to $1.05 and $1.54 respectively for FY 2005 because the Education Trust Fund received more revenue than anticipated due to appreciation in property values. (Note: For FY 2006 the rates have been set at $1.02 and $1.51.)

These rates are adjusted for each town and city by the "CLA" - the Common Level of Appraisal. The CLA reflects the difference between the assessed values on the grand list and the actual fair market value of property in the town. The CLA is determined by the state through an equalization study each year. The FY 2005 CLA for Burlington was 67.59%: in other words, the state determined that property in Burlington - on average - was assessed at 67.59% of its actual value. The City reappraisal process this year that will bring assessments closer to 100% of fair market value. (Note: The CLA for the year of reappraisal - FY 2006 - will be greater than 100% because of the way it is calculated, using three years of sales. For FY 2006 the estimate as of Jan 2005 was 1.15.)

The local effective tax rate can be calculated by dividing the Act 68 rate by the CLA. The tables below show the calculations for Burlington for FY 2005. (Note: For estimates of FY 2006 tax rates click here.)

Vermont homeowners saw a significant decreases in their property taxes in FY 2005 with the low residential rate authorized by Act 68. Much of this difference is funded by the new 6% sales tax that went into effect on October 1, 2004. Also, in many communities the non-residential property also showed reductions. However, this was not the case in Burlington, Winooski, Barre and Rutland, among others. In particular, in Burlington there was a nearly 30% increase in the education property tax on commercial real estate, including business and rental residential property. This increase was due to the combined effect of the increase in the Act 68 tax rate for education and the decrease in the CLA.

The increase in the City's municipal tax rate was be much less, so the overall average increase on commercial property was about 20%.

The BBA Policy Committee explored ways to reduce the impact of this tax increase, both in the short-term and the long-term. Mayor Peter Clavelle and other city officials were equally concerned and developed several proposals.

On February 4, 2004, the House Ways & Means Committee heard testimony on the impact of Act 68 and Burlington's appeal for a "soft landing." Below are copies of the testimony made by Mayor Clavelle and by me, and the tables showing calculations of Burlington's property tax.

At the March 4, 2004, Membership Meeting of BBA information was presented about the impact of Act 68 by city officials. Mayor Clavelle urged interested business people and property owners to contact legislators - particularly those on the House Ways & Means Committee - to express their concerns. Click here to go to a directory of legislators with e-mail addresses and phone numbers on the Vermont State Legislature website.

Nancy Wood, Executive Director, Burlington Business Association

Revised Feb 22, 2005

Return to top

Burlington Tax Rates

Tables Updated & Revised 3/5/04

Table 1. FY 2004 Burlington Property Taxes			Proportions
	Rates	Revenues *	Rates	Revenues *
Municipal	0.9866	18,212,636	36%	39%
School	1.7609	28,991,497	64%	61%
Totals	2.7475	47,204,133	100%	100%

+ Downtown Revitalization (Parking)	0.12	220,000
*Note: Municipal revenues reflect 120% assessment of commercial real estate and machinery & equipment.

Table 2. Increase in Burlington Education Property Tax Rates in FY 2005 Due to Act 68
Education Tax Rates	Statewide Act 68 Rate for FY2005 (Equalized Rate)	With Burlington Spending Adjustment (Voted 3/2/04)	Effective Tax Rate (With .6759 CLA Adjustment)	Over (under) FY 2004 Education Rate (1.7609 - See Table 1)	% Change
Residential (Homestead)	1.05	1.122	1.6600	-0.1009	-5.7%
Commercial and rental residential	1.54	1.54	2.2784	0.5175	29.4%

Table 3. FY 2005 Burlington Overall Tax Rate on Commercial Property
	FY 2004 Rates (See Table 1)	Estimated FY2005 Rates	Change from FY 2004	% Change from FY 2004
Education (See Table 2)	1.7609	2.2784	0.5175	29.4%
Municipal *	0.9866	1.0566	0.0700	7.1%
Total	2.7475	3.3350	0.5875	21.4%
* Note: Projected municipal rate for FY2005 included the 4 cent tax increase approved 3/2/04, and additional 3 cents for retirement, debt service, county tax and CCTA. It does not include effect of 120% assessment of commercial property (which reduces % change in total taxes to 20.4%).

Return to Top

Nancy E. Wood, Executive Director, BBA

Testimony before Vermont House Ways & Means Committee

February 4, 2004

Burlington is one of several Vermont cities that face a significant increase in education property taxes due to the increase in the non-residential property tax rate under Act 68. I am here to testify in favor of several initiatives that would soften the impact of these increases, and to offer my view of why this is equitable and consistent with Vermont policy with respect to downtowns.

Act 68 went a long way towards providing tax relief for Vermont residents throughout the state, and for businesses in many communities. However, in Burlington while homeowners will benefit from the lower rates, business property and rental residential property will see a significant 29.4% increase in their education property taxes.[1] Other cities - Barre, Rutland, Winooski - will also experience significant increases in non-residential property taxes.

There are several ways that the legislature could soften the impact of this increase:

1. Reduce the non-residential rate for all municipalities by 7 cents, from $1.59 to $1.52.

2. Phase in the increase over a period of five years for municipalities where the impact of Act 68 causes significant increases in non-residential taxes.

3. Reduce the non-residential rate by 10% for municipalities that have received the downtown designation, and/or where there is a significant municipal overburden on property taxes.

4. Increase the cap on payments in lieu of taxes (PILOT) for University of Vermont property, and fully fund the difference.

Why are these proposals equitable and consistent with Vermont policy?

1. Lower rate: The Governor has proposed reducing the non-residential rate from $1.59 to $1.54. However, this is a decrease of only 3% compared to a proposed 4.5% decrease in the residential rate. I would urge the consideration of applying the 4.5% reduction to the non-residential rate also, from $1.59 to $1.52. This would have a positive influence on economic development throughout Vermont, and more accurately reflect the actual appreciation in property values. (3/5/04 NOTE: No longer an issue- The Legislature has passed and the Governor has signed into law the $1.54 and $1.05 rates.)

2. Phase in: There is precedent in the original Act 60 for phasing in increases, softening the blow where it is greatest.

3. Downtown/Municipal Overburden rate reduction: The 1998 Downtown Development Act recognized that vital downtowns are critical to the well-being of Vermont, and provided a number of incentives to encourage investment in the rehabilitation and revitalization of downtowns. The City of Burlington received the downtown designation and has used it as part of a long-term commitment to enrich economic opportunities, preserve historic buildings, create housing, improve infrastructure and provide comfortable public spaces within a thriving commercial district. The shock of the Act 68 property tax increase will have a negative impact on investment in Burlington and other downtowns. The cost of services to support our downtowns is paid for mostly through local property taxes. Combined tax rates for municipal services and education are high relative to other communities. The effect of the Act 68 increases will be "pro-sprawl," encouraging investment in more rural communities that have lower overall tax rates. Reducing the education rate to offset the impact of the municipal overburden would increase equity among communities, and would support our policy of strengthening downtowns.

4. Increase PILOT: Within and near the Burlington downtown are some of Vermont's most valued institutions and landmarks: the University of Vermont, Fletcher Allen Health Care, the Flynn Theater, the historic Waterfront, the Community College of Vermont, the Fleming Museum, the Fletcher Free Library, the new ECHO at the Leahy Center for Lake Champlain, historic churches and buildings, the Chittenden County and Federal Courts. Much loved, used and enjoyed by residents from all over the state, most of this property is tax-exempt. Some payments in lieu of taxes are made to support necessary city services, such as fire and police protection, street repairs, park maintenance, etc. However, the state payments have not kept pace with inflation. State PILOT payments for FY 2004 total about $470,000 for UVM and other state owned buildings - property valued at more than $350 million. The cap on state PILOT for UVM of $750,000 is unreasonably low, and is only partially funded. Increasing these payments would more fairly compensate the City for services provided for the state's benefit, and would help offset costs to local taxpayers.

Vermont's downtowns, and Burlington in particular, are centers of regional and state activity. Residents and tourists come to our downtowns to work, for services, to be educated, for health care, to shop, eat, sleep and play. The economic impact of all this activity is significant for Vermont. In 2000 there were over 31,000 jobs in Burlington, close to one-third of the 95,000 jobs in Chittenden County. Close to 20,000 people commute to work in Burlington, and many thousands more come into the city every day for other purposes. In 2001 the state collected $7.6 million in rooms and meals taxes from Burlington restaurants and lodging businesses, and $12.7 million in sales taxes. The cost of supporting this activity is primarily born by the city, mainly through the municipal property tax. I believe that the changes I am proposing are fair, and are in the best interest of the state as well as the residents and businesses in Burlington and other affected downtowns.

[1] The nearly 30% increase in Burlington's non-residential property tax rate is based on the Governor's proposed reduced Act 68 rate of $1.54 and a CLA of 67.59%.

Information on PILOT was provided by Burlington City Assessor John Vickery.

Additional Comments:

In summary, Burlington property owners and businesses are asking for EQUITY, not a hand out. They are seeking an even playing field. Like all businesses in Vermont they

· Face double digit increases in health care

· Increased Workers Compensation costs

· 20% increase in sales and use taxes on equipment & supplies, with Act 68 rate increase from 5% to 6%.

· Pay at the same rates for income taxes, gas tax, telecommunications tax.

Under Act 68 most businesses will pay property taxes at a lower rate… very few face a 30% increase, and very few will pay property taxes at overall rates as high as Burlington.

Return to Top

Mayor Peter Clavelle, Testimony before House Ways & Means Committee

February 4, 2004

How is Burlington doing economically? The short answer is that the City has a sound economic development plan, and our strategic plan continues to produce results. Unlike many other U.S. cities under current economic conditions, Burlington’s local economy is been remarkably healthy.

Indicators of the strength of our local economy include:

The lowest commercial-, industrial-, and retail-vacancy rates in Chittenden County,

· An increasing number of new jobs (for a total of more than 31,000 jobs, with an average annual wage of $36,000),

· Increasing Gross Receipts (rooms and meals) Taxes,

· Increasing Retail Sales Tax Receipts (more than 9.7% increase for the City vs. a decline of 1.6% for Chittenden County),

· Increasing tourism, and

* A CLA adjustment of 11% reflecting increases in property values (which will drive up educational property taxes).

These numbers result from an array of accomplishments over the past decade, including:

Major redevelopment activities, such as Gilbane’s new Innovation Center of Vermont and the redevelopment of the Burlington Town Center;
The continuing revitalization of Burlington’s waterfront;
Expansion of the University of Vermont and Fletcher Allen Health Care;
A substantial increase in the housing available downtown; and
The revitalization of once-aging neighborhood commercial districts; and
Progress on major transportation projects and continued expansion of the Burlington International Airport.

But, what’s wrong with this picture? The City’s budget does not reflect local economic activity. City revenues are projected to increase by less than one percent. The vast majority of new revenues generated by our local economy go directly to the State of Vermont. Job growth in Burlington provides State income-tax revenue. Burlington’s retail sector generates increased sales-tax revenues that fill the coffers in Montpelier. And, with Act 68, nonresidential properties in Burlington - including commercial apartments - will see a statewide property tax increase of 30 percent this year.

Recommendations:

1) Soften the property tax increase on nonresidential properties, including commercial apartments, by phasing it in. (Note: City Attorney Joe McNeil presented the Ways and Means Committee with amendment language that would authorize a three year phase in for municipalities with an increase of 25% or more in the non-residential property tax rate due to Act 68).

2) Amend TIF legislation (tax increment financing).

3) Break the dependency on the property tax by allowing for local options. Give municipalities options to create a tax structure that reflects—and serves—local economic activity.

Return to Top

This page updated 2/22/2005