State law leaves paying taxpayers on the hook to make up the difference
By Guy Page
Rising property tax delinquency rates across Vermont are emerging as a growing concern for municipal officials, as local governments shoulder the immediate financial burden when residents fail to pay — even though those dollars are ultimately destined for the state’s Education Fund.
The issue – described as ‘the elephant in the room’ by some property tax reform advocates – was highlighted this week in the Lake Champlain Chamber’s Advocacy newsletter. Although specific numbers aren’t known, delinquent property taxes are becoming a significant problem in some communities already grappling with tight budgets, rising costs, and uncertainty over future education finance reforms.
Under Vermont law, municipalities are required to remit the full amount of education property taxes to the state, regardless of whether individual taxpayers have paid. That structure effectively places towns and cities on the front lines of revenue risk. When payments come in late — or not at all — local treasurers must still find a way to send the state its share.
It’s not known how deep the delinquent property tax problem goes – in part because the State of Vermont doesn’t track municipal tax delinquencies, a must first-step to understanding and solving the problem, some state experts say.
What happens to property owners who can’t pay taxes?
Initially, the overdue amount becomes a lien on the property, writes Amy Loftsgarden of the University of Denver School of Law. Eventually, if you don’t pay your real property taxes in Vermont, the tax collector can sell the property to a new owner at a tax sale.
The tax sale process in Vermont begins with a notification, alerting you to the outstanding debt and the risk of a tax sale. Additional notices are published in local newspapers and posted in public places. The property is then auctioned to the highest bidder, who must pay the amount owed in taxes, fees, and penalties.
Importantly, Vermont law gives the owner a one-year redemption period, which means you can reclaim your property by paying the full amount owed, plus interest, within a year of the sale. If you don’t redeem the property within this period, the winning bidder receives a tax deed and becomes the new owner of the home.
Municipalities may resort to borrowing to cover property tax revenue shortfall
To bridge the gap, municipalities often rely on short-term borrowing, drawing on lines of credit or issuing tax anticipation notes to maintain cash flow. Interest costs associated with that borrowing are borne locally, not by the state.
Compounding the challenge is the lack of a centralized system to track property tax delinquencies statewide. Each municipality manages its own delinquent accounts, but no state agency aggregates that data to show how large the problem has become across Vermont.
Municipal officials report that delinquency rates have been climbing, particularly since the expiration of federal and state pandemic-era homeowner assistance programs that helped many residents stay current on housing costs. Inflation, higher mortgage payments, rising insurance premiums, and increases in municipal and school tax rates have further strained household budgets.
The situation raises a fundamental policy question: is the state effectively offloading revenue risk onto municipalities without fully measuring the exposure?