By Ethan Weinstein/VTDigger
Conversations around education finance — often lamented as one of Montpelier’s most complicated and least understood policy sectors — have taken on an alarmed tenor as lawmakers and Gov. Phil Scott’s administration fear the latest changes to the system might be driving up education spending in unexpected ways.
Now, lawmakers must grapple with their most recent rejiggering of education tax law during a uniquely challenging budget season.
Last year, the Legislature passed Act 127. Put simply, the law was meant to direct education money toward students who need it by providing schools with more money to educate students who are more expensive to teach. Ideally, that change in “pupil weighting” would create a more equitable funding structure.
As a result, wealthier, more urban districts with fewer English language learners saw their pupil weights decrease, which would require those districts to increase taxes to pass the same budget as the year before.
To soften that change, Act 127 capped increases to the homestead property tax rate at 5% for the next five years. (The cap does not consider the effects of the common level of appraisal, or CLA, which adjusts taxes based on current property value.) Through the new law, however, districts can increase per pupil spending up to 10% this year without triggering any further state-level review, regardless of Act 127’s effect on their pupil weights.
If a district’s per-pupil spending increases by 10% or more, a district must submit its budget to the state for a tax rate review led by the Agency of Education. The review would decide whether the increase in spending is “beyond the school district’s control or for other good cause.”
If the budget is deemed to contain “excessive increases in per pupil education spending that are within the school district’s control and are not supported by good cause,” the district’s property taxes would not be capped.
With the cap in mind, lawmakers and the Scott administration think school districts may be packing extra spending into their budgets during a rare time when those increases won’t necessarily be directly felt by all of their taxpayers. The concern, then, is that districts may increase spending in the next five years to utilize the cap. One idea thrown around is that because Vermont’s schools have hundreds of millions of dollars in deferred maintenance, towns might include extra money toward construction.
Chairs’ letter to the general assembly
In the open letter to the General Assembly House Ways and Means Committee Chair Rep. Emilie Kornheiser, D-Brattleboro, and Senate Finance Committee Chair Ann Cummings, D-Washington, said they are “increasingly and seriously concerned about the use of the 5% threshold set forth in Act 127.”
The letter stated: “We are increasingly and seriously concerned about the use of the 5% threshold set forth in Act 127. The threshold was designed to help the few districts who would experience the most extreme reduction in weighted pupils, so they could build a gradual glide path through a few years of difficult budget seasons. The threshold was not designed to stack deferred spending and delayed maintenance costs into a few short years. It was not designed to fix all of our state education challenges or the overall pressures of operating in an inflationary environment. It was not intended as free money — in fact nothing in the education fund is free.
“The education fund is a promise among neighbors that we will take care of each other’s needs and costs. If districts act solely in their own rational self-interest, those costs will be picked up by property taxes in neighboring towns. Most of us, regardless of the town we live in, can’t afford what it seems is happening in the education fund this year, and something will have to give.
“Act 127 was intended to create greater equity between districts — to narrow the range between the haves and have-nots. At this point, given what we hear about how the 5% threshold is being used, it seems to be widening that gulf rather than narrowing it. We have a great respect for the work of school boards, school staff, and school administrators and understand the significant cost pressures you’re facing. But Act 127 was not intended to address those cost pressures in a single year. It’s intended to achieve greater equity in the system overall.
“While we understand that the timing is incredibly challenging, the Legislature will be looking for policy levers to address unintended consequences this year, and into the future. We have a responsibility to act in the interest of all taxpayers across Vermont. We intend to have all districts that utilize the 5% threshold present their budgets to a reimagined tax rate review committee, and hope that more extreme measures are not needed this year.
“You each have a part to play in this work. In the interest of moving beyond rumor and towards well-informed policy, we anticipate a more current and robust data collection of your drafted budgets in the coming days with hopes for cooperation by your Associations (VBSA, VSA, and VASBO)….We appreciate the partnership of your associations in finding our way through the acute challenges today and the challenges we will face tomorrow. Our kids and communities are worth it,” the letter concluded.
Testimony
On Thursday, Jan. 25 lawmakers took rapid-fire five minute testimony from about two dozen school and state education officials in a joint hearing with the House Committee on Education, the Senate Committee on Education, and the Senate Committee on Finance.
Ryan Heraty, superintendent of Lamoille South Supervisory Union, did not hide his disdain for the latest changes resulting from Act 127, which sought to change the education spending formula to direct more resources to schools with higher-need students, calling the law “one of the most detrimental and dangerous pieces of legislation in recent history.”
Passing school budgets
Even in districts that stood to gain the most from Act 127’s new pupil weights, the pressures on school budgets — health care costs, salaries, the end of federal dollars — have negated any benefit from the new weights, leaders said.
“We approached this budgeting season with some … trepidation but also hope,” Elaine Collins, superintendent of North Country Supervisory Union in the Northeast Kingdom, told lawmakers. “If any district in Vermont should benefit from weights, it’s a poor rural district like North Country.”
At first, the district expected to be able to lower tax rates for its communities, she said, by passing a budget that didn’t add new programming. But once the common level of appraisal adjustment was made for each town, any tax savings disappeared.
“It is a miracle if we’re going to pass school budgets this year,” Collins said. “It’s a mess. And it’s a mess, I think, not of the schools’ making.”
Education — especially with the increasing responsibilities placed on schools — is expensive, and schools are increasingly forced to address the severe behavioral needs of students, according to educators.
Before serving as superintendent, Collins worked as principal of Newport City Elementary School. In her first year, she said the school registered 890 uses of restraints, escorts and seclusions — when a school staff member physically directs, immobilizes or isolates a student.
“Nobody was learning,” Collins said.
Six years later, Collins said, that number was below 50.
“The cost of remediating that system was adding lots of extra supports, doing lots of professional development and tweaking systems and refining systems. And it was expensive,” she said. “It’s not sustainable for us to do this in education unless we find other revenue sources or other ways of funding our schools. Our local taxpayers can’t afford it.”
In Winooski, a district with the most to gain from Act 127 because of its economically disadvantaged and English language learning students, its leaders said the law may be creating further inequity — the opposite of lawmakers’ stated goal.
The 5% cap in particular “turns Act 127 on its head,” said Robert Millar, Winooski School District board chair.
Winooski, with the highest proportion of English language learners in the state, saw an increase in pupil weights. With the increased tax capacity, its school district didn’t expect to hit the 5% cap, according to Millar.
“We analyzed several districts’ public statements and charts from public board meetings and came to the concerning conclusion that many are increasing [their] budgets beyond the normal expected inflation increases in order to take advantage of Act 127’s 5% tax rate cap,” Millar said. The result, he suggested, would be increased taxes on Winooski residents, despite lower per pupil spending.
Norwich’s school district stood to take the hardest hit from Act 127’s readjustment of pupil weights. Given the leeway of the law’s 5% cap, the district decided to include funds to improve ailing infrastructure in its budget — new boilers, an upgraded heating system. But once the district received lawmakers’ letter concerned about the use of the cap, board members nixed most of the additional funds for capital projects, Garrett Palm, the Norwich school board chair, said.
Because Norwich only makes up about a third of a cross-border district with Hanover, New Hampshire, it has to make larger budget cuts to reap the same tax effects, its leaders explained.
“I consider myself an optimist,” Palm said, but with Act 127 and education cost pressure, he’s concerned Norwich might not have a school in the next decade. “I’m having a hard time staying positive.”
How lawmakers could respond to feedback from the field remains to be seen. So too does the exact extent of tax hikes, which rely on warned school budget data not yet collected by the Vermont Agency of Education. Next week, the agency expects updated figures, which will add more clarity to the currently chaotic outlook.
“The data gathering process is like the most essential piece of us figuring out any of this,” Kornheiser said.
‘Interesting incentives’
Craig Bolio, the state’s tax commissioner, said that Act 127’s 5% cap created “interesting incentives” for school districts, but he stressed that increased education spending is not the same as unnecessary education spending.
“I don’t want to insinuate that every district in Vermont is out there gaming the system,” he said.
But Bolio highlighted two primary incentives of concern. The first, he said, is that if a district does not hit the 5% cap, it loses the ability to use the cap in the next four budget cycles.
For some, that creates an “incentive to be over that cap now and stay over it,” he said.
The second involves the 10% review process. Bolio suggested that a school district planning to increase per pupil spending by 6% might push that to just under the 10% review threshold, knowing that homestead property tax increases would remain capped at 5% regardless.
Where could the money come from?
The 5% cap begs the question: If homestead tax payers have a cap on their taxes, who makes up the rest of the education spending?
Vermont’s Education Fund is self-balancing. The amount of money needed to fund school budgets will always be raised.
How money gets into the fund, though, is a policy choice. Lawmakers have not yet signaled how they could pull the levers at their disposal to fund it. But they have a few options.
One would be adding to non-property tax revenue. Currently, those streams include sales and use tax, a portion of the meals and rooms tax and lottery money, among other sources. Lawmakers could choose to create new revenue sources, or increase the sources that already exist.
Another option is the non-homestead property tax rate, a uniform rate set annually by the Legislature. (Non-homestead properties, put simply, include everything except primary residences — things like commercial properties, rental units, second homes and camps.)
Because Act 127’s 5% cap applies only to homestead tax payers, the Legislature has more flexibility to raise revenue this year through the non-homestead property tax.
