Education Finance - Feb 23, 2024

On Friday, Jeff Fannon (Executive Director, VT-NEA) joined the Senate Finance Committee. “Too often the conversations around education revolve around money,” he said, blaming the current education challenges on a “shattered societal safety net, a global pandemic, economic upheaval,” and that schools must be “staffed adequately.” He also pointed to school construction and inflation as additional factors.

He believes that schools are doing the best they can for students and to provide for their futures, and that is why school budgets are going up so significantly, he claimed. Chairwoman Cummings responded that they might be doing that, but a 20% increase in property taxes “will put people out of their homes.” She is looking at a $3k increase herself, and wondered how “middle class people, who are the heart and sole of our communities, can afford to live here.”

Fannon pushed the Committee to consider taxing second homeowners at a higher rate than residential property taxpayers. Cummings agreed they needed to do this, but that the Tax Department was a year away from being able to. “Necessity is the father of invention,” stated Fannon, “I think they can do it this year.”

Cummings felt that they “couldn’t possibly provide” quality education with such small schools. Fannon claimed that was the intention of Act 46, which was sold as a mechanism to “consolidate school governance to improve educational opportunity.” However, he noted that “nobody has looked back to see if that was really the right thing.”

Senator Brock pushed back on this, saying that Act 46 was really sold to the public as cost reduction, and we still don’t really know the result. He also wondered if there was an actual way to measure “apples-to-apples” comparisons with other states. Fannon didn’t know of one.

Fannon pushed the conversation back towards the mental health issue, by saying that this has been a cost shift from the General Fund that schools are now picking up.

Mark Hage (Benefits Director, VT-NEA) and Bobby-Jo Salls (Vermont School Boards Insurance Trust) joined the Committee to talk about the Vermont Education Health Initiative (VEHI) which oversees the teacher’s health insurance program. Hage set the stage for why insurance costs are growing to such a degree. He pointed to a report called “It’s the prices stupid.” Price inflation, not utilization, is the driving issue in health care costs, he claimed.

75% of the expenditure in the VEHI plans was in hospital bills, outpatient services, and pharmaceuticals. Specialty medications account for over half of pharmaceutical expenses. He believes that the extensive patent protection for pharmaceuticals in the United States and the fact that there is no price negotiation (prices are set by manufacturers based on what the market will bear) are the leading factors in why the costs are so high in the US compared to other developed countries.

Senator Chittenden wondered if they had looked at whether changing the out-of-pocket costs from the employee to scale based on income. Hage said they hadn’t looked at that yet but were just starting a review of future benefit plans. Salls didn’t think that would address overall cost, but Chittenden countered that it might drive utilization down to some degree.

Chittenden also pushed for a common chart of accounts so they would have more visibility from a statewide vantage point.

Ram Hinsdale shared that her perspective that they have “asked a lot” of Education Fund in the last couple years without adding new revenues. She sees the spending increases this year as “setting a new plateau” of what the new education spending levels will be.

Chittenden pushed back, saying that he doesn’t think this is a plateau and that with the existing funding formula and incentive structure in place. He wants to see where the money is actually being spent. The excess spending threshold was one concept that he thought they should bring back.

The conversation moved back towards consolidation as the Committee argued about the effectiveness of the Act 46 consolidations and the efficacy of small schools. Cummings injected that “if we don’t do something about these property taxes, our state will turn into a theme park for the rich.”

A number of different sources of new revenue were discussed, including sales tax exemptions, cloud tax, ATV sales, sugar sweetened beverages, and out of state property owners.

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