by Stephanie Yu, Public Assets Institute If there’s anything that has become clear in this pandemic, it’s just how important schools are to Vermont families.
School staff are feeding kids, providing online instruction, helping connect kids to resources that they need—everything they always do and then some, but under much more challenging circumstances. And with schools working to reach kids who don’t have broadband access and continuing to meet students’ special education needs, they need more funding, not less.
Nevertheless, the Scott administration last week floated a plan to have all school districts re-vote their budgets. In other words, voters, many of them now facing unprecedented economic hardship, should be encouraged to vote to cut school budgets to prevent a big property tax increase.
To put it mildly, this idea was not well-received in the Legislature. Senate Education Committee chair, Sen. Phil Baruth, referred to the governor’s plan as “the first genuinely dumb idea that the administration has put forward during the COVID emergency.”
The administration’s argument is that the tax consequences of voters’ choices have changed with revenue downgrades from the pandemic and they should have the chance to re-evaluate those choices. If the Legislature doesn’t want to authorize budget re-votes, the governor has suggested that the Legislature could instead grant him the authority to cut payments to school districts.
This is an old fight. Every year since Governor Scott has been in office, he has tried to find ways to cut school spending and the Legislature (mostly) has resisted his attempts to override the will of school district voters.
There is no question that the Education Fund is facing challenges that need to be addressed. But there are options other than school budget cuts or a big jump in school tax rates.
The Education Fund has two main sources of revenue: consumption taxes (sales and rooms and meals taxes) and school property taxes. Vermont resident homeowners have the option to pay school property taxes on their homes based on income instead, and about two-thirds of them do that.
Consumption tax rates rarely change, so any variation in revenue from these taxes is the result of the ups and downs of the economy. School tax rates are adjusted every year to raise the balance of the funds needed to pay for voted school spending. So if revenues from sales and rooms and meals taxes are projected to be down, property tax rates go up to make up the difference.
Those consumption taxes are now expected to be down in fiscal 2021. Way down—to the tune of $100 million below previous projections, according to the latest estimates. To make matters worse, some homeowners and businesses just won’t be able to pay their property taxes next year, which could mean a loss of another $50 million or so. These forecasts have been changing from day to day because of the uncertainty caused by the pandemic. But based on the current estimates, if the Legislature followed its normal procedure to keep the Education Fund in balance, property tax rates would go up by 10-15 percent for the coming school year.
Neither the governor nor the Legislature wants that to happen. That’s why the governor wants school districts to re-vote their budgets or reduce spending by other means. But, the House Ways and Means Committee has been clear that they won’t allow either a big property tax increase or a big funding cut to schools.
They do have other options to make up the $150 million to $160 million. The committee is exploring moving forward with the pre-COVID school tax rates and then addressing the pandemic-related shortfall later when they have more information.
One option is to use some of the $1.25 billion Vermont received from the federal Coronavirus Relief Fund (CRF) that is sitting in the state treasury. While the current federal guidance says that CRF money can’t be used either to fill revenue holes or help taxpayers pay property taxes, that is not the final word. States are pushing the federal government to make the CRF more flexible or to provide additional funding without the strings. That debate is ongoing.
Alternatively, the state can get money from other sources, either by raising non-property tax revenue, borrowing, or some combination of the two. While we don’t yet know when state revenues might recover, spreading the cost of this pandemic year over the next five years makes more sense than trying to pay for it all now.
Policymakers have options to address the challenges facing the Education Fund. None of them are perfect, but slashing funding for schools when kids need them most is the last thing that the state should be considering at this point.
Stephanie Yu is the Deputy Director of Public Assets Institute (www.publicassets.org), a non-partisan, non-profit organization based in Montpelier.