by Anne Galloway vtdigger.org An ad hoc group will release education finance proposals next week. The 10-member working group was called together by the House Speaker’s office and represents a wide political spectrum and geographic regions of the state. The group has met in private every two weeks since the beginning of September to develop ideas for overhauling the state’s complex education finance system.
Three basic concepts have emerged from the meetings: a “renovation” plan, which would reduce school spending; a variable income tax proposal, based on H680, which would shift the burden for education finance away from the property tax; and a “regional block grant model,” which would result in a major overhaul of the education finance system. The last two plans would replace the Act 60 finance system.
Members of the group caution that both proposals are “just ideas” at this point, and are not yet part of any legislation drafted for the new biennium. The plans will be presented to House Speaker Shap Smith on Dec. 12.
House Speaker Shap Smith in his office at the Statehouse. Photo by Tom Brown/VTDigger
“The proposals they’re putting on the table, and other proposals out there will give us a good jumping off point for work in the coming session,” Smith said.
Lawmakers are under pressure to lower spending in the wake of property tax hikes over the past three years that amount to a roughly 11 cent to 15 cent increase on the statewide rates. The homestead rate will be $1 per $100 of property value if the Legislature agrees to a 2 cent increase this year; the non-residential rate will be $1.56. Over the past 15 years, student enrollments statewide have dropped by 20 percent, and the state has the highest per pupil spending cost and lowest student-teacher ratio in the nation.
Smith has made property tax reform his highest priority this year, and he says he is willing to spend political capital on the issue, just like he did last year. H.883, a bill that would have restructured the educational governance system, passed the House last session and failed in the Senate, but Smith believes it was an important prelude for this legislative session.
Lawmakers this session will decide whether to tinker with Act 60 and Act 68, or replace the state’s unique statewide property tax system with a new formula for funding education. The other looming question is whether lawmakers will institute cost controls that would put a damper on school spending.
Rep. Dave Sharpe, D-Bristol, says for the past six to eight years, the discussion in the Legislature has been stagnant. Adamant supporters of Act 60 and 68 refused to consider changes to the system, while others demanded repeal.
Sharpe said he hopes the Legislature and the Shumlin administration “agree that we have a problem” so that lawmakers can move ahead with solving it. The proposals developed by the working group will help to jumpstart the process, he says. “I don’t support everything we’ll present, but it’s important that we put fresh ideas on the table and have an honest discussion about how we educate kids in our state,” Sharpe says.
The speaker says Vermonters want the Legislature to act on property tax reform now, but he cautions that anything lawmakers do in the coming session will have a lag time and won’t affect tax rates right away.
“My discussions with people go like this,” Smith said. “They say, ‘I want you to lower my property taxes.’ I say, ‘What would you like me to do to lower your property taxes?’ Everyone has different ideas.
“The challenge we have as a Legislature is trying to bring consensus on how you solve the articulated problem most people feel, which is lower my property taxes,” he continued.
There are only a couple of ways to do that, Smith says: cutting costs and shifting the revenue mix. The state can only contain education costs if it takes over local control of school spending, he says, but it’s unclear that there is enough consensus among lawmakers and constituents to shift away from that key component of Vermont’s tradition of home rule.
“The bigger issue is a structural one, and it’s a longer term one we can’t solve next year,” Smith says. “The question is how do you right size the ship to the number of students we have now. It’s not something we can do in one year, but it will have a long-term impact on cost if we do it right.”
An overview of the working group proposals
Renovation plan
The “renovation” plan is a bundle of cost control ideas that have been developed by the House Ways and Means Committee over the past four years. The proposals include setting a threshold for staff-to-student ratios and phasing out small school grants and phantom students for schools that have seen large declines in student enrollments. The plan also recognizes that schools with high numbers of children in poverty need more financial support and that distribution of resources should be shifted accordingly.
The proposal that generated the most discussion is staff to student ratios, according to Rep. Bill Johnson, R-Canaan.
Rep. William Johnson, R/D-Canaan, listens to a presentation on student-staff ratios in Vermont public schools. Photo by Hilary Niles/VTDigger
“Eighty percent of cost in education is in salaries,” Johnson said. A moderate adjustment to staffing would have huge impacts on education costs. If the state went from the current average staff to student ratio of 1 to 4.75 to an average staff ratio of 1 to 5.5, the state would save $75 million a year.
“The staff to student ratio is the one that really sticks out, and that’s one that could be addressed fairly readily and expediently,” Johnson said.
Rep. Jeff Wilson, D-Manchester, says another feature of the plan is a local surcharge that would replace the excess spending cap now in place. The surcharge would go into effect when schools exceed a per pupil spending threshold set by the state. If a school spends say 10 percent more per pupil than the threshold, local taxpayers would be liable for that 10 percent, Wilson says. If the spending rate is 30 percent more, for example, local taxpayers would pay 30 percent more. The percentage would be added to the penny rate.
Wilson says the surcharge would drive spending down, spur more efficiencies and “inspire more creative ways for schools to work together.”
“We just can’t afford to continue on the road we’re on,” Wilson says.
Variable income tax
Under the variable income tax proposal, Act 60 and 68 would be replaced and a large percentage of the revenues for education would come from the income tax. The residential property tax rates would be a fixed, uniform rate statewide. The non-residential tax rates to business, land, hunting camps and second homes would remain the same and would also be fixed statewide. Both property tax rates would be insulated from local decisions.
The remaining revenues would come from an income tax that would be variable, depending on local school spending levels. The state would collect both the education income tax and the education property tax. (The Education Fund is already supported by the General Fund transfer, lottery, sales and use taxes.) The income sensitivity, property tax rebate and renter rebate programs would no longer be necessary. About 70 percent of Vermont homeowners currently participate in the income sensitivity program.
On Town Meeting Day, voters would approve a local income tax rate for local spending beyond the base funding made available through a statewide property tax.
If the revenue side of this proposal sounds familiar, it should. Reps. Jim Condon, Adam Greshin and Oliver Olsen proposed this very same income tax/property tax hybrid, H.680, in 2012.
The variable income tax proposal would be paired with some of the cost control measures from the renovation plan.
Regional block grant model
The “regional block grant model” would set in motion a major transformation of the system, including changes to education funding, spending and governance structures, according to Olsen, I-Londonderry.
Olsen says it’s time for the state to reinvent the system.
“We have an inflexible finance and governance structure that has not been responsive to the shifting needs of our student population,” Olsen says. “At this point, we need to put the sacred cows out to pasture and start thinking outside the box.”
Rep. Oliver Olsen. VTDigger file photo
Under the regional block grant model, the state would be responsible for raising all revenues for education. The Legislature would set tax rates based on the estimated statewide student count and a per pupil spending target recommended by the secretary of the Agency of Education. All education funds would be collected and distributed by the state. Money would be allocated in block grants to regional entities to be determined. The regions would then distribute funding to local school districts, which would be guaranteed to receive a minimum per pupil allocation. From there, the regions and districts could direct spending to suit the unique needs of communities, Olsen says. The excess spending threshold would disappear, and cost savings could be reinvested within the region instead of being absorbed by the Education Fund.
Under the block grant model, regions would have autonomy and could organize their governance structures however they wish. Some could have centralized control; others could delegate authority to school districts. “The whole model is designed to get regions and local school districts focused on education,” Olsen says.
Because the money would be distributed regionally, the variability between school districts could be smoothed out, Olsen says. The region would figure out how much each district needed, how best to share services and how to allocate funds equitably. “Spending would be controlled by the size of the appropriation to block grants awarded each year through the appropriations process,” Olsen says.
“Tax rates would be uniform across the state, income sensitivity would be eliminated, and residential property tax rates substantially lowered, with more revenue shifting to other broad base taxes (i.e. the income tax),” Olsen says.“The current residential property tax rate, coupled with income sensitivity, is just an income tax, so the idea is to eliminate that complexity.”
The result would be “no more finger pointing between Montpelier and local school boards,” Olsen says.
If constituents don’t believe their schools are being funded adequately through the education block grant system, they can hold their local lawmakers accountable and vote accordingly on Election Day, he says.
The idea is to give the regions autonomy, flexibility and greater accountability, Olsen says.
The regional block grant model is conceptual — details about how regions would be created and how the transition would take place, for example, have not yet been worked out, Olsen says.
“My hope is that the ideas developed by this working group will spark new and innovative thinking about how we can restructure our education finance and governance system to better serve our students at a cost we can afford,” he said.