State News
January 6, 2016

Education spending cap could land districts in the tax “penalty-box”

By Bruce Parker, Vermont Watchdog

A limit on education spending is set to force Vermont school districts to reduce staff, but only if lawmakers don’t rush to stop it from happening.

As part of Act 46, Vermont’s statewide district consolidation law, lawmakers imposed a new spending threshold to restrict the state’s out-of-control education spending. Called the Allowable Growth Percentage (AGP), the cost-containment measure holds spending increases to 2 percent statewide by establishing spending ceilings of between 0 percent and 5.5 percent for individual districts, based on whether a district was a high or low spender in the prior year.

Any district whose per-pupil spending exceeds the dollar amount set by the Agency of Education gets a double tax on every dollar above the threshold, further driving up property taxes for homeowners.

Despite the cap’s good intentions, an unforeseen 7.9 percent increase in personnel health care costs, among other costs, is pushing districts over the threshold at an alarming rate. The development has caused some lawmakers to call for suspending the cap at the start of the legislative session in January.

“Many people do want to slow the rate of growth of spending, but to have increases in property taxes penalizing communities for things that are beyond their control is not really good,” said stated Rep. Cynthia Browning, D-Arlington.

As an example of costs districts can’t control, Browning cites programs for tots. “Arlington has to implement pre-kindergarten for 3-year-olds this year. Just implementing that costs $86,000, and that puts them over their cap,” she said. “Arlington spends about $14,000 a year [per student]. Their allowable growth percentage is about 1 percent. Just fulfilling that state mandate will put them in the penalty box. That’s not fair. That doesn’t make sense.”

Browning is calling for a freestanding bill that suspends the Act 46 AGP and puts districts back under the less strict excess spending threshold of Act 68, in place for more than a decade.

Going backward may not be so easy.

“I can tell you that the Act 68 excess spending penalty has been suspended for FY17 and FY18,” said state Rep. Oliver Olsen, R-South Londonderry. Olsen said lawmakers suspended the former penalty when they enacted the new one.

With the old Act 68 spending threshold suspended, lawmakers wanting to reverse course need to agree on two separate legislative actions. First, they need to suspend the new AGP, and second, they need to reinstate the old spending threshold, believing it would solve the current crisis.

Unlike the new AGP, which affects spending decisions for nearly all districts, the former Act 68 threshold snags only districts whose spending exceeds a dollar amount set each year by the state—$15,456 per student for fiscal year 2014.

According to Olsen, Act 68’s excess spending threshold is set too high to hold down statewide education spending.

“As a practical matter, the impact of the Act 68 excess spending penalty was limited to smaller, typically rural, school districts.” Olsen said. “The Allowable Growth Threshold [of Act 46] encourages all school districts—large and small—to contain the growth of education spending and take more aggressive actions to increase student-to-staff ratios.”

Asked how the two spending limits might differ in their impact on current budget pressures, Olsen said hypothetical comparisons will not be known until after districts set budgets, identify offsetting revenues and obtain a count of equalized pupils.

According to data from the Agency of Education, about 100 districts are hovering at or above the former $15,456-per-student spending limit. It’s unclear how many new districts would be pushed above that threshold by the 7.9 percent health care cost increase.

Fixing the crisis could be difficult for political reasons, as well.

While lawmakers like Browning say it’s not fair to penalize districts for failing to control costs not under their control, others, such as House Education Committee chair David Sharpe and House Minority Leader Don Turner, think the spending threshold should be maintained to force cuts.

When it comes to finding cuts big enough to avoid triggering penalties, personnel is the elephant in the room. Vermont’s student-to-staff ratio—4.67 students to every staff member—is the lowest in the nation. The most direct way for districts to avoid big tax penalties is to cut teachers and staff.

Brad James, finance manager for the Agency of Education, said lawmakers can make any change to the spending cap they can agree to, so long as the governor will sign it. “The Legislature could suspend this at the beginning of the legislative session, or they could change it, or they could repeal it, or they could do whatever they want—they have that authority. Then it’s up to the governor to sign it or not,” James said. “I don’t think they will suspend it. My guess is that they’ll probably figure out some way of coming up with some other offsets or something for these couple years.”

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