At the end of this year’s regular legislative session both education finance/tax and state budget bills passed by large tri-partisan majorities.  The Governor vetoed both – citing the property tax increases that the bills allow to go into place.  This update will focus almost exclusively on the education finance aspects of the bills that are being debated in what is entering a 3rd week of a special session.

H.911 was passed during the regular session and contained the tax legislation required  to set residential and non-residential property tax rates.  This would have allowed an increase of 2.6 cents on the residential rate and 5 cents on the non-residential rate, to pay for the school budgets that voters approved at Town Meeting.  The state budget which passed at the end of the regular session would have also put one-time funds towards teachers retirement.

The two bills we passed included:

• $9.8 million in one-time money going into the education fund to restore reserves
• Capping income sensitivity adjustments at $400,000 of property value, rather than $500,000
• A removal of the general fund transfer instead committing all the revenue from the sales and use tax, and 25 percent of the meals and rooms tax to the education fund. The education fund would have no longer paid for adult education programs, renter rebates, or the Community High School of Vermont.
• Fixed an inadvertent $30 million income tax hike on Vermonters from the federal tax changes enacted last year, created a Vermont standard deduction and Vermont personal exemptions. The bill also reduced Vermont tax rates and collapsed the top two tax brackets and established a charitable tax credit for Vermonters that would be capped at $20,000
• 34.5 million in one-time money to pay down obligations to the teacher’s retirement fund which is projected to save $100 million in interest over time.

I voted for both the budget and the tax bill during the regular session because I believe they struck a good balance for where we are in time with our distributed education system.

The Governor vetoed both bills over the property tax increase they allow this year.  In addition, and importantly, his administration wants to be able to be able to pull funding out of the current system to be able to pay for expanded childcare and post secondary education in upcoming years.

The administration’s end of session proposal has six components and relies on the projected savings over 5 years to pay back funds used this year to eliminate the property tax increase:

1. Move to new Special Education payment method (legislation is passed & signed)
2. Lowering income sensitivity house value from $500K to $400K (agreed to by the legislature)
3. Increase student/staff ratio working with task force (task force agreed to by the legislature, $250 million in projected savings by 2024 not agreed to)
4. Significantly reduce per pupil excess spending penalty
5. Transition to statewide healthcare bargaining unit
6. Property tax adjustments for new homesteads after 7/1/2018

The backdrop for this debate is the massive organizational transformation Vermont’s education system is currently undergoing.   Since Act 46 passed in 2015, voters in 146 towns have voted to merge 157 former districts into 39 new unified districts, in 33 former Supervisory Unions, for a net reduction of 118 districts and 4 fewer supervisory unions.  The latest evidence of this historical transformation came out June 1st with the release of the Secretary’s Proposed Plan under Act 46, Sec. 10

Governor Scott reminded Vermonters in a recent oped that there is good reason for the ongoing organizational changes in Act 46: “…our education system is being weakened by a decline in our working-age population and an increasingly inefficient system that’s diverting budget dollars away from kids. The K-12 system was built to educate more than 100,000 kids. Today, we’re educating about 76,0000 – that’s 27,000 fewer in 20 years, and declines continue.”

At the state and local level we are all working overtime to stabilize a system that is critical for Vermont’s children and future.  Situations with very few changes occurring are considered “stable”.  Systems that are not stable – undergoing a lot of change –  require careful management to avoid system failures.

Governor Scott’s administration and the Vermont legislature must acknowledge and respond appropriately to the level of stress that exists in many of our communities (and institutions) given just how much change is occurring in our demographics, our communities and our rural education system.   We need to be careful.  The full effects of the 157 Act 46 school district mergers noted above will take at least 10 years to fully unfold, and additional future merger recommendations are ongoing.

In this historic period of time, Vermonters have choices to make if we want to have a strong publicly funded education system 10 years from now. When making these choices in the next few years, Vermont’s policy makers must prioritize stabilizing the system first with an eye towards positively impacting quality and cost.  This will be challenging given Vermont’s education system has shared state and local roles.

It is virtually impossible to manage for both costs and quality in our current system of shared state and local decision making.  Vermont has a state education taxing and finance system for which no single entity is accountable to tax payers and which currently cannot scale equitably.  When it comes to quality of student opportunity, the responsibility is squarely placed on local decision makers who must assess student and budget needs, develop a budget based on those needs, assess information from the state on how much per pupil spending is acceptable this year, and who then are held accountable by local voters at Town Meeting for the ensuing tax implications.

So how are we going to find a compromise between the governor and legislators?  The debate has been defined as whether or not to use unanticipated revenue and one time funds to buy down tax rates for one year, or pay down borrowed teachers retirement funds and save interest.  We will likely land somewhere in the middle.  There are several proposals under consideration right now to find consensus on new tax and budget bills:

• House Ways and Means has proposed to use one time funds to eliminate the residential property tax increase this year.  Like we did last year.  This comes with the knowledge that we are artificially lowering tax rates, even though spending went up this year.  And that means we will likely see a bigger increase next year.
• Rep. Cynthia Browning has proposed using one time funds to pay for the Act 46 incentives instead of raising taxes to pay for them.  She rightly notes that no local school budgets included the cost of the incentives, and these are a state imposed cost driver of tax rates.  This year that cost was about $10 million dollars.  In the next two years it will be $14 million each year.
• Last year’s budget was vetoed over a failure to agree to move teachers healthcare negotiations to the state.   Unique circumstances presented an opportunity to manage both costs and quality.  I strongly supported that proposal, (driven by the governor’s determination to reduce property taxes), becasue it was the first savings proposal I have seen that didn’t create unpredictable and uneven impacts for kids.  We should move this proposal forward as part of a compromise this year.

Decreasing the excess spending threshold and banking on savings from the staff/student ratio task force are not acceptable in this current dynamic atmosphere.  Neither is the “Beck mechanism” which did not make it into the final bill we signed during the regular session, but it is being floated as a part of a “compromise”.  This mechanism acts like the excess spending threshold by presuming that all students are the same and are educated in the same environment and in identical sized communities, but it is able to impose much more aggressive penalties to local taxpayers and students in rural districts.

Most importantly we need to remember the effects of this disagreement are not contained to Montpelier.

After leaving the statehouse one night during week two of the special session, I received an uncharacteristically terse phone call from one of my district’s longest serving school board chairs – “Do you guys have numbers for us yet? Central office says we need to provide our numbers to you, but I don’t understand how you all think we can give you our numbers when you haven’t given us yours.”

This 25 year veteran has not only cautiously and steadily shepherded our local district and our joint district study committee through the Act 46 process, he led our entire Supervisory Union through the first successfully completed S.U. process in southern Vermont.  He is working with our superintendent to try to wrap things up in one district while simultaneously working with two communities to establish staffing, curriculum, transportation and school norms in a new district.  He is really frustrated that the administration and the legislature cannot get on the same page on this year’s education tax rates so he can focus on those things.  He could use quality educational support, technical expertise, and encouragement from Montpelier.  He is not helped by Montpelier trying to manage staffing levels in individual school districts, or by the imposition of extreme per pupil spending penalties on individual rural schools in less densely populated regions of the state.  We can not take his ongoing service for granted.

This phone call points to a central tension in most of our Vermont education debates including the current one: Who do Vermonters want to manage the schools?

Maybe it is time to finally put the state on the hook for using the state’s education fund to ensure equity for all students instead of the Hunger Games scenarios we repeatedly set up in rural and poor Vermont districts.

Pledges to keep property taxes level or lowered are admirable.  They need to be partnered with a sense of responsibility for ensuring we aren’t violating (or exacerbating existing violations) of our constitutional requirement to ensure all Vermont students have substantially equitable educational opportunities.

“The difference between school and life? In school, you’re taught a lesson and then given a test. In life, you’re given a test that teaches you a lesson.” – Tom Bodett