January 23, 2016 Update

The effort to curb education spending increases (and thus tax increases) last year appears to be in serious jeopardy already this winter as school boards react to the “allowable growth rates” that affect the budgets now being completed.

There is a lot of misunderstanding about what the “cap” actually does, and a lot of politics surrounding the reaction.

There is a major disagreement between the House and Senate on what to do (something I think is really healthy, especially given the single-party super-majority), and very little time to act before school budgets are locked in for March town meeting voting.

I voted against Act 46 last year, not because I thought we should not push for greater consolidation of districts, but because I thought the predicted budget savings were overstated, and this alleged reform bill did little to address underlying cost and financing issues.

I believe that the “caps” were a poor, stop-gap measure to avoid any more serious efforts at reforming the financing infrastructure, but in the absence of other measures, they need to be maintained in the short term.

Why? What they do is protect districts against bearing the costs of those who are spending much more. Going above the growth rate is not banned. The limit on the growth rate varies for each school district based on prior spending. The penalty is simply that the local district must pay for its own increases in costs, instead of forcing others to pay.

The governor produced his annual budget proposal this past week, and he began by saying, “This will be my sixth budget that does not increase income, sales, or rooms and meals tax rates that are already too high.”

As pointed out in the weekly newsletter of the Vermont League of Cities and Towns, however, the governor has never included property taxes in his list of broad-based taxes that he has been unwilling to raise and therefore (appropriately) did not mention property taxes in that statement.

The state’s budget has many direct impacts on the property tax, and they cannot be left as though unrelated.

A New Distraction

As if existing controversy was not enough, a crisis erupted last week with the discovery that the Agency of Education had made an error in how it calculated the “allowable growth rate” provided to school districts. Budgets were, in some cases, based on wrong information.

The Senate had already indicated it would repeal the spending limits in Act 46, but this error became an added rationale. The Senate had opposed any spending restrictions last year, and only agreed to a compromise provision in the bill that finally passed.

The confusion resulted in the House Education Committee reconsidering its own actions, and a bill we were supposed to take up on the House floor last Tuesday was delayed. That bill proposed allowing an increase in the growth rates that would apply to all district budgets.

This means that in the coming week, the House will take up a bill with multiple components (and likely proposed amendments with lots of floor debate.) It will include the increase in growth rate, a “hold harmless” provision for the error by the Agency of Education, and potentially, a change in the limit on property tax rebates to make up for the Education Fund shortfall that will result from the allowed increase in the growth rate.

Party line politics emerged on Friday, when Republicans proposed that the House act immediately on the piece that everyone agrees on: protecting districts from negative consequences from the Agency error (the “hold harmless” provision.) That would have ensured that section passed, even if the other pieces are not addressed or the bill is voted down.

That proposal was voted down on a split between Republicans and Independents versus Democrats and Progressives.

What Is the ‘Cap’ Under Debate?

A Republican member of the House Education Committee, Scott Beck, did a superb job of explaining to his constituents the crux of this issue. Rather than duplicating his effort, I will share it directly:

“Facts can be stubborn. On average, for every additional dollar spent by a Vermont school district, their homestead taxpayers only fund half; the other half comes from homestead taxpayers in the other 276 districts through higher homestead education property tax rates. In St. Johnsbury (per pupil spending of $12,106 in FY16), $.27 of our $1.27 homestead tax rate goes to subsidize districts that spend more. In a district that spent $16,000, their homestead tax rate would have been $1.69 in FY16. If every district had spent $16,000, their tax rate would have been approximately $1.91, a $.22 subsidy.

“Given these unfortunate circumstances, it is no surprise that many school districts have spent at a rate that eclipses inflation, income growth, and grand list growth. The money comes cheap, and gets cheaper if the district spends even more. It is the equivalent of buying a compact car and paying a surcharge, while the person purchasing the full-size sedan gets a sizable discount. Even though the full-size costs more, more value is received for the money and a lot of full-size sedans leave the lot. The end result, of course, is high education property tax rates to pay for all of those full-size sedans.

“Act 46 and its allowable growth rate is intended to address at least part of this dysfunctional funding system. Prior to Act 46, if a district picked the full-size sedan, other districts that picked the compact car had to help pay for the full-size. The allowable growth rate puts an end to this practice going forward. For FY17 and FY18, the district(s) that pick the full-size sedan are going to have to pay more in the form of a penalty for exceeding their allowable growth rate.

“For those districts that cannot or will not control their education spending, this allowable growth rate probably seems unfair. They should take a moment to consider the perspective of districts that have committed to controlling their spending increases and remained within their allowable growth rate. It’s not that they don’t want any other district to be able to choose the full-size sedan, they just don’t want to have their homestead property tax rate increased to pay for it.

“What would be the result of repealing or delaying the allowable growth rate? Simple, a run on full-size sedans and homestead taxpayers up in arms over the homestead education property tax rates required to pay for them.”

How Does This Impact Us?

Many towns have a lower allowable growth rate under Act 46 than our local districts, which means that we would benefit from the greater spending reduction pressure on the higher-spending districts with lower AGRs. Without Act 46, we will continue to bear the negative impact of higher statewide spending despite our ongoing frugality.

What’s important to recognize is that Act 46 does not force any district into draconian cuts, as some folks are asserting. A decision can be made to exceed the “allowable growth rate” by whatever a district feels is necessary, and the penalty is having to pay for that extra spending from our own local property taxes, without help from the statewide education fund.

That’s a local voter decision, which affects local property taxes, as it should.

I will support any effort to “hold harmless” districts affected by the Agency of Education error, but I will not vote to repeal the Act 46 restrictions, nor to raise the thresholds.

What’s more important in the long run is that I will continue to press for an overhaul of our outdated, complex, inequitable education funding formula.

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Thanks for the honor of representing you! You can contact me or Rep. Patti Lewis by email (counterp@tds.net for me; pattijlewis@myfairpoint.net  for Patti) or by leaving a message at the statehouse at 828-2228. We welcome your feedback and input.