PAI: Ed Fund needs independent guidance

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PAI: Ed Fund needs independent guidance

Wed, 05/15/2019 - 10:45am -- Anonymous

by Jack Hoffman, Public Assets Institute The Education Fund, for the most part, has stayed out of the headlines this year, perhaps because Governor Phil Scott hasn’t offered the kind of end-of-session surprises we saw in his first two years. But we should be paying close attention even if the Education Fund isn’t in the spotlight. Important decisions are at hand that affect the stability of the fund.

The Education Fund budget approved by the House earlier this year relied on reserves and other one-time sources of revenue to artificially hold down property tax rates. In the House version, Education Fund spending was projected to increase by about $70 million, and nearly half of that additional money would have come from sources the Legislature couldn’t count on in subsequent years. It was another case of confronting today’s problem by pushing it off into next year.

The Senate’s proposed treatment of the Education Fund would be less risky. For starters, it wouldn’t deplete all of the projected reserves, as the House did. The Senate would use a little less than half of the reserves in fiscal 2020 and leave the rest for fiscal 2021. Property tax rates are somewhat higher in the Senate plan, but probably less volatile than in the House version. Using reserves in one year typically leads to bigger tax increases the following year because you have to cover normal growth and plug the hole that had been filled with the one-time use of reserves.

The long-term stability of the Education Fund should be the goal of both the administration and the Legislature. Using reserves to manipulate property tax rates undermines that stability. Waiting until after Town Meeting and after local school budgets have been voted to set those tax rates creates uncertainty for local voters and local school officials. And it doesn’t help when the Legislature dedicates 25 percent of the Rooms and Meals tax to education, as it did last year, and then decides to redirect some of that money for another purpose, as it is contemplating this year.

For the short run, the Education Fund should be less volatile and more stable with the Senate’s plan, which includes slightly higher tax rates but is less reliant on reserves next year.

In the long run, though, it would be better to create an independent commission or panel to provide analysis and advice to the Legislature on Education Fund management. With the help of such a commission, the Legislature could restore the practice of setting school tax rates in January each year, ahead of Town Meeting when school boards are building their budgets. A commission could look to the long-term health and stability of the Education Fund, free of the political considerations that administrations and legislatures find hard to resist.

publicassets.org Montpelier 5.15.2019