Home Commentary Municipal Tax Burden: Exhibit A 

Municipal Tax Burden: Exhibit A 

By Ben Huffman

The way Vermonters use the municipal property tax is obsolete. We do not live in self-sufficient settlements physically isolated from one another. Yet that is the implicit rationale for how the tax continues to be applied and relied on as the municipal government’s primary fiscal resource.

Consider Montpelier’s situation.

Roughly 8,000 people reside in Montpelier.

Another 8,000 or more residing elsewhere are thought to come into Montpelier daily.

Non-residents are drawn to Montpelier because it is the seat of state government, and by the city’s attributes as one of the two most urban municipalities of central Vermont.

This non-resident influx has grown continuously for years, with a major share of it undoubtedly the result of population growth in surrounding municipalities.

For Washington County alone, the combined population of the county’s 18 towns has mushroomed, as seen in the chart Population Change in Washington County, VT, 1960-2020, while in contrast the population of the county’s two cities of Montpelier and Barre has declined. 

Although the county’s overall population growth has benefited Montpelier’s private business and nonprofit sectors, one wonders how much Montpelier residents are paying through their property taxes for non-resident use of the city’s municipal infrastructure, facilities, and human services.

Tables 1 and 2 present a partial context for considering this question, by comparing the municipal property tax burden on Montpelier residents to that on residents of Washington County’s other 19 municipalities.

Only the property tax supporting municipal government is presented, meaning that the higher property tax everywhere supporting education is excluded (together with its own problems). Excluded also are costs of water supply and sewage treatment not financed through the property tax.

And only the tax paid by residents is presented, but with renters as well as homeowners included (acknowledging that taxes on rented housing are paid indirectly by renters). The tax paid by residents is presented as a “net” amount, reduced by the income-sensitive state credits granted homeowners and an estimated share of state renter credits.

Finally, data is presented on Adjusted Gross Income (AGI), which is the personal income minus allowable reductions one reports on federal and state income tax returns. To compare municipalities’ tax and AGI data, I used “average per adult resident” as the common denominator. “Adult” is defined as age 18 and older. All data is for 2021, the most recent year for which all data used was available. The 2021 dollars have been adjusted for inflation to 2023 values.

Table 1 shows that in Montpelier the share of all municipal taxes paid by residents (compared to taxes on non-residential-commercial and other categories of property) was lowest of the 20 municipalities except in Cabot, Warren, and Berlin. But despite this comparatively low reliance in Montpelier on residents, the city’s average of $1,124 paid per adult resident was the highest except for Roxbury (the county’s least populated municipality).

Table 2 shows that in Montpelier the average tax paid, calculated as a share of average AGI, at 2.96%, was the highest except for that in Barre City and Roxbury.

Most instructive are the variations between the 20 municipalities in dollar amounts of taxes paid and their shares of AGI. By focusing on these variations, the disparities in taxes and incomes between municipalities are obvious.

Taxes paid by residents of both Montpelier and Barre City are comparatively high despite significant levels of state payments to both cities made in lieu of taxing state-owned properties, or of other forms of state aid allocated to ease municipal tax burdens (including homeowner and estimated renter credits).

Were Montpelier to adequately reconstruct and maintain its streets and water supply system, the municipal tax required to accomplish this would mean a tax burden much higher than it already is; with city streets being an obvious instance of city infrastructure heavily used by non-residents.

Needed even more urgently are investments sufficient to address climate threats of flooding, which will be vital to anyone’s future use of Montpelier’s downtown. Fortunately, state legislators are currently addressing the heightened risk of flooding in Montpelier, Barre City, and other riverside communities throughout Vermont.

Nonetheless, I believe Vermont’s political leaders need also to revise the existing model of municipal finance, in recognition of the uniquely important role Vermont’s most urban municipalities play in the lives of all Vermonters — a role well beyond that of serving only their own residents. And to implement this I propose that: 

  1. Urban municipal functions commonly used by both local residents and non-residents be identified; 
  2. Some portion of these municipal functions be financed with state funds obtained from Vermont’s entire population and private economic sector; 
  3. State credits to lessen municipal property tax burdens on both homeowners and renters be substantially increased. 
Ben Huffman lives in Montpelier. Details on data examined may be requested at benjhuffman@comcast.net. 

The material presented here represents the opinion of the author and does not reflect the opinions of The Bridge. Commentaries may be submitted to editor@montpelierbridge.com. Preference is given to submissions by those who live in central Vermont. Submissions are encouraged to be 500 to 750 words in length.