Heather Bouchey (Interim Secretary, Agency of Education) and Nichole Lee (Director of Finance, Agency of Education) joined the Senate Finance Committee on Tuesday to discuss the cost drivers in education spending. The survey was put out in the field mid-January and most results came back in late January and early February. The survey sought to understand what districts are spending money on this budget cycle that may be driving the $230M in new spending. Lee identified rising health care premiums, the “ESSER cliff” as federal funds go away, capital construction projects, salaries & benefits, and inflation as primary reasons for spending increases.

Districts are asking $40M in new spending on special education, the impact of this is almost evenly split between the Education Fund and local tax rates. Capital improvement costs (among the 43 respondents) totaled $38.8M which were mostly funded by bonding and not capital reserves (so also hitting the tax rate). Most of those planned expenditures were categorized by districts as a new initiatives instead of delayed maintenance or health/safety concern.

Health insurance (which is what teachers, administrators, and school boards are pointing to as the big cost driver) came back at $33.8M, but Lee flagged that there are still some unanswered questions around this because actual spending number’s don’t match. However, because this is based on a statewide contract, districts don’t have control over this.

Rolling up responses around new staffing shows $30.8M in new spending for FY2025, about half of which were positions previously funded by ESSER monies that are now going away. According to FY2024 data, 512 Full Time Equivalent (FTE) employees were funded by ESSER.

Mental and behavioral health accounted for a projected $52.8M with 790 FTE staff. Lee noted that these staff here have increased significantly in recent years. Looking back at FY2022, only 142 FTE’s were employed in this space.

Staffing increases and pension plans have contributed a project $84M increase in salaries and a $130.1M increase in benefits for FY2025. This seems to largely be due to salary increases instead of actual new positions. Average salary increases appear to be around 7.5%.

Next, Lee reviewed the preliminary budgets from school districts. Based on the latest data, districts are still showing a 13.52% ($231M) increase in spending. Some of these budgets have been revised down after the Governor signed H.850.

Chairwoman Cummings reiterated her concern about small schools being unsustainable. Bouchey agreed that she “didn’t see a way out of this conversation without addressing it.” She believed work was already happening around this and that the question for the Committee would be whether or not to “hurry the process along or let it happen organically.”

Cummings added that they are concerned that lots of school districts hired behavioral interventionists during the pandemic and will be left without funds. Bouchey noted that they can actually use the funds through FY2025 as long as the funds are “encumbered” by September of this year.

Senator Chittenden asked about the rapid increase in staff expenditures and whether that was related to the “ESSER cliff.” Lee responded that her intel is that many of the collective bargaining decisions were made a year or two ago and did not hit in FY24 but are hitting now.

Chittenden noted that small communities are asking them to reconsider the way we raise monies, and “we need to better think about state standards, and state insight, state transparency, and state oversight and peeling back some of the local control to ensure our kids have equal access to educational opportunity.”

Cummings added that they “see cuts happening” while at the same time other schools are “on a spending spree.” That juxtaposition is “causing some stress in this building” she said, and “schools are telling us… its time… the state cannot sustain these kinds of increases.”

Nicole Lee reviewed the survey later that afternoon for the House Ways & Means Committee. Her presentation was nearly identical to what she provided the Senate (above).

Julia Richter (Senior Fiscal Analyst, Joint Fiscal Office) joined the Committee. She noted that there was still a lot of analysis to do, but nearly every category of spending is seeing increases at nearly twice the rate of inflation.

Chairwoman Kornheiser commented that one of the things that she has tried to center her thought process around is not whether or not we are spending the right amount per student overall but to lessen the gap between high spending districts and low spending districts. She noted that JFO has struggled to find correlation between education spending and any other factor. Richter confirmed this.

Committee members lamented that they didn’t have more specific data on how districts were actually spending that money.

Richter walked through the latest Education Fund Outlook. After H.850, the new tax rate projection shows a 19% increase in homestead property tax rates. Kornheiser asked Richter to model adding a cloud tax, which would add about $20M in new revenue and reduce the increase to 17.6%.

In order to address the lag in property tax credit, which is the mechanism used to create “income sensitivity” where households pay based on their ability. The Committee is considering a one-time additional credit for taxpayers in FY2025 to lessen the impact since the credit is based on the previous year’s property tax bill and people wouldn’t see an offsetting tax credit for this year’s increase until next year.

Options the Committee is considering include credits that would buy down the FY2025 rate to effectively a 10% increase or a 17.6% increase. However, these credits would need to be funded out of the non-homestead rate or with new revenues.