Members of the House Ways and Means Committee listen to testimony on education finance during a remote joint meeting with other House and Senate committees at the Statehouse in Montpelier on Jan. 25, 2024. File photo by Glenn Russell/VTDigger Vermont’s education funding system is notorious ly 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.  And while the Legislature began to transform how public school is paid for in 2025, the debate is slated to continue in 2026.  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, 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. Since July 2025, the common level of appraisal has worked slightly differently, though the formula is not any less complex. The percentage reflects 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%. Much of how Vermont pays for education could change because of the passage in 2025 of Act 73. The new law envisions a major departure from Vermont’s current system by shifting budget decisions away from school districts and their communities and to the state via a foundation formula. Used by most states in the country, a foundation formula would provide each school district with a set amount of money based on the number of students enrolled, with additional weights to account for the increased costs of educating certain students, such as English learners and students with disabilities. School districts’ governing boards could still set their budgets and choose how to spend that money but would have to operate within the confines of the set amount the formula allocates. Districts would be able to choose to spend more than what the formula provides by raising funds from local property taxpayers with voter approval. But that spending, called supplemental spending, would be capped at 10% of a district’s budget. That cap would be ratcheted down every year until the cap hits 5%. However, the new formula is dependent on lawmakers first agreeing to a new map of consolidated school districts this legislative session. The formula would then be phased in over a five-year period and would not go into effect until 2028. 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 — and how it might change. ...read more read less