As if setting the statewide and local property tax rates were not challenging enough, there are many back office complications the legislature deals with every year. Readers may find this post excessively wonky, but it points to the financial challenges we face, and I thought you might find it interesting.
Vermont education spending totals approximately 1 ½ billion dollars per year. That’s a big number and does not include spending for college or professional trade education beyond high school. Coming up with the state’s share of this total is among the most daunting tasks we face.
Money for local education spending - directly reflected in property tax bills - comes from local property taxes and the Education Fund (Ed Fund). To understand what local voters pay, the local school budget is the place to start. But the school budget is determined by a variety of factors, not all of which the school board can influence. Some spending is well beyond local control (transportation, teachers health care, teachers pensions,etc.). This post will discuss a portion of the programs that draw from the Ed Fund before the school board gets to work on the budget. Whether you agree or not that these expenses should come from the Ed Fund, they are important because they pay for educating students that local school boards would have difficulty covering.
What’s in the Ed Fund?
The primary contributors to the Ed Fund are statewide property taxes (homestead and non-homestead) and the sales tax.* There are other contributions (e.g. federal funds and special funds) that are not discussed here.
Prior to Act 60 there was no statewide property tax. When Act 60 became law in 1997 the bargain between towns and the state was that revenue from the statewide property tax would be used only to fund school budgets. Previous to that date, the property tax was the exclusive domain of towns because that was the only tax the towns could raise locally.
But increasingly funds are drawn from the Ed Fund to pay for other related endeavors that are not under the school board’s control. To date they comprise only a small percentage of the $1 ½ billion education spending, but they are nonetheless significant. Among them are:
Special education, $198.5 million – a program for students with learning disabilities currently funded on a per student basis. Much of this is Medicaid money (combining state and federal funds) that is funneled through the Ed Fund to school districts for this specific purpose.
Pre-K education, $6.6 million – the program that provides that every young Vermont student may receive 10 hours per week of Pre-K education. Parents may enroll their students in the town where they live or enroll them at a Pre-K center closer to where they work. Under this system, because many parents enroll their students close to where they work, some local Pre-K centers have not retained enough students to remain economically viable.
Flexible pathways, $7.3 million includes dual enrollment and early college. These are programs that provide alternative routes from high school to college.
Dual enrollment – a program that enables qualifying high school juniors and seniors to enroll in up to two courses per year at one of the Vermont State Colleges while still in high school. The college tuition for those courses is paid from the Ed Fund. Dual Enrollment enables students, some of whom might not consider post-secondary education, to get a jump start on college. Most continue on and complete a college degree.
Early college (also part of flexible pathways) – this program is an expansion on the dual enrollment concept and enables qualified high school students to enroll in a Vermont State College directly upon completing their junior year. The high school still counts the student as enrolled at the home high school even though the student is in college. This practice protects high school budgets by enabling high schools to count these students in their average daily membership and thus not lose out in state aid to education. The students are awarded their high school diplomas upon the completion of the first year of college.
Community High School of Vermont – is a program for those up to 21 years old who never completed high school. At Community High School they can earn a GED (graduate equivalency degree) at a location other than their home high school. These are adults, some of whom are returning to the community following prison, who would clearly benefit from completing high school. Note: Funding Community High School has been moved back and forth from the Ed Fund to the General Fund and vice-versa. It is currently in the General Fund but the Governor has proposed that the money come from the Ed Fund.
High school completion – is a program initially set up for individuals 16 years or older who do not have a high school diploma and who have been unable to complete high school in a traditional setting. Essentially, it provides an alternative path to a high school diploma through a personalized learning plan by working largely with the adult education & literacy providers such as VAL . VAL is Vermont Adult Learning.
Each of these undergoes changes from year to year. Some of the changes are directed by the legislature in collaboration with the Agency of Education (AOE).
Student weighting – Each school district receives aid to education based on its equalized student population. “Equalized” is a statutory term used to balance the relative costs of educating students at different grade levels. The concept is that high school students cost more to educate than elementary students, and Pre-K students cost less. Currently an elementary student weights as 1.0, for a high school student it’s 1.25, and for a Pre-Kindergartner it’s .46. During the past year a comprehensive study examined student weighting and determined that the existing formulation wasn’t based on any empirical evidence and is essentially just made up. The study proposed a new system weighted more heavily towards students on IEPs and districts with high concentrations of poverty. Students in poverty and/or on IEPs require more resources to educate. The full study and an executive summary are available at the Vermont Legislature home page - Ways and Means. Search by witness – Tammy Kolbe - on 1/16/2020.
Whether and when the new formula is adopted is a political question because it will substantially change how much special ed money some school districts receive, and as a consequence that may change the tax rate in a number of towns. The working assumption is that if no additional money is available, changing weighting will alter taxing capacity - by lowering the tax rate in some towns while increasing the tax rate in other towns. Under the present process, schools bill AOE on a per pupil basis. The current practice does not distribute special ed money equitably because it doesn’t take into consideration district poverty rates and other resources available to some schools but not others.
For many years the State provided up to 80% of approved school construction costs, but that practice was discontinued over 10 years ago due to an unavailability of funds. As a result, not only did school construction grind to a halt, but plant upgrades and necessary maintenance that would have qualified for state aid was also deferred. But when required maintenance is postponed over and over, buildings deteriorate to the point where substantial sums or even new construction is required to provide a quality learning environment. After a long lull, tis year some schools are currently bonding for $350 million of new construction. AOE estimates that a total of $565 million will come before voters soon. Why this unexpected expense is noteworthy is that approximately 2/3 of the total will be born by property taxpayers statewide, not just by local voters who bond for construction. Why? Because under Act 60//68 the statewide property tax contributes approximately 2/3 of each school budget. If bonding is part of AOE approved spending, bonding expenses are part of the 2/3 also. Many Vermont schools need an overhaul or a brand new building and we all will contribute. Long story short - this is yet another challenge we face when balancing the state the Ed Fund and local voters go to the polls on Town Meeting Day.
Setting Statewide Tax rates (all of the above is part of this effort)
The legislature sets the yield and statewide property tax rates each year. But actual spending is determined by school districts. Hence tax rates are a direct reflection of what school districts commit to spend, not something made up by the legislature. Each January the Commissioner of Taxes sends a letter to the Legislature recommending residential and non-residential statewide tax rates and the yield rate. The yield is the amount each $1.00 on the tax rate will raise for the school budget. However, the Commissioner’s recommendations are largely based on the available tax base, the statewide Grand List, and the combined budgets that all the cities and towns vote to spend on their respective schools. The Ed Fund expenses outlined above are all part of the “costs” under consideration. This year the Commissioner’s 2020 tax rate letter would result in a school tax rate increase of about $.06, or six cents.
The Commissioner’s recommended tax rate is by no means set in stone. There are unspent funds from the last budget cycle that might be used to reduce the tax increase by 2 cents to $.04. We may not know until the legislature adjourns and all the school budgets have passed what the new yield and statewide property tax rates will be.
So there you have it. There are multiple forces pulling on the Ed Fund each year. Many are entirely justified, even if some voices would rather that they were paid from the General Fund, not the Ed Fund. But such is the work of the legislature each year.
Sounds easy does it not?
* Prior to 2018 a large contribution to the Education Fund was a statutorily required contribution from the General Fund. However, repeated Governors of both parties diverted the General Fund transfer for other purposes. To put an end to this chicanery the legislature did away with the General Fund transfer and instead dedicated the entire proceeds from the sales tax to the Ed Fund. As the sales tax is a growing source of revenue, that contribution grows with it.