Chair Kornheiser and members of the House Ways & Means Committee,
I have worked on education finance and policy issues in Vermont since 2014, including navigating the leadup to Act 46 and its aftermath. The crisis before you today is perhaps the gravest we have seen in decades. Sadly, nearly everyone who is part of the education system is culpable.
The basic facts are that we have more adults in our schools than any state in the country (and it’s not even close), resulting in the second highest cost per student. Over the past decades, we have seen steady spending increases, while staffing levels have persisted. Further, test scores have declined compared to other states who spend less.
This year alone, school spending is set to increase $216M according to the latest AOE numbers. What we are seeing is likely the result of a combination of several factors, including the implementation of Act 127 (which we supported) and the removal of offsetting revenues that have fueled both local school budgets and the Education Fund for the past few years. Despite these challenges, double digit increases in spending are not sustainable, and school districts have become too used to them.
This is not a revenue issue. As previously pointed out, we have the best resourced public education system in the country, so the real question is how those resources are being deployed. These decisions are generally made locally and, at least in recent years, school boards have been reluctant to redeploy staff instead of adding more. This year they will have some tough decisions to make as voters are likely to be less sympathetic than in years past.
The projected spending increase is a staggering amount that overwhelms any offsetting revenue source we could imagine. Having reviewed some of the options on the table, the only proposed source of revenue that would make a meaningful dent in next year’s property tax bills is the elimination of the sales tax exemption. This would be a terribly regressive tax burden to add on low and middle-income Vermonters. Campaign for Vermont would adamantly oppose it. In many ways, the property tax is a preferable mechanism because it is already somewhat progressive in structure, scaling with income and property value. But again, this goes back to spending is the problem, simply shifting the revenue to different sources only masks the problem, it doesn’t address it.
For this year, we would generally encourage the Legislature to let the chips fall where they will. The spending increases that many districts will put forward are likely to be found unfavorable by voters and a number of districts are going to have to cut back their budgets. Eliminating the tax rate cap, as you already know, will be necessary. The fundamental problem was that it created an incentive to spend up to the 10% threshold where the review kicks in.
We would recommend replacing this cap with a mechanism that allows districts to borrow against the Education Fund to buy down their tax rate. There would have to be parameters around this, such as you can’t borrow more than a certain percentage of your budget, you have to pay back the funds (with 0% interest) over a reasonable period of time, you can’t borrow multiple years in a row, etc. What this mechanism offers to districts is a tool to smooth out spikes in property tax rates (much like what the cap was intended to do) but without offering them “free money.” We think this is a reasonable compromise that will give school boards some level of control over tax rates but offers the Legislature cost-containment.
Long term, the Legislature must look at the incentives in the system. While we still support Act 127, it was always going to increase overall spending. Two-thirds of districts were going to gain taxing capacity (aka “free money”) and a third of districts were going to have to make deep cuts to get back to a net-zero impact on the Education Fund. It was always unlikely that the high-spending districts were going to cut spending enough to offset the increase from low-spending districts. Taking a close look at all the incentives in the system and how they interplay with each other will be necessary to incentivize cost-containment in the long term.
Additionally, while looking at this incentive structure, the Legislature should find ways of creating clear lines of responsibility and accountability. One of the inherent challenges of the Act 60/68 framework is that spending decisions are made locally but taxing decisions are made statewide. This disassociation allows for districts and the Legislature to point the finger at each other as the responsible party for increasing tax rates. Both are right, but voters are left wondering who to believe. Clearer lines of responsibility are necessary. Moving to a $1.00 base rate was a step in the right direction, but there may be opportunities to do more.
Another long-term option for reductions in spending is a concept we proposed back in 2014 called the READ model. While the results of district consolidation are dubious, this supervisory union consolidation plan we had proposed would reduce administrative redundancy, offer better post-secondary alignment, and create more stable local tax rates. We believe now may be a good time to revisit this concept.
Finally, I would offer to be an ally in solving these issues. Campaign for Vermont’s goal is to build a thriving middle class in our state, unfortunately increases in the cost of public infrastructure, like the one you are trying to avoid this year, threatens that vision. I do not envy the task before you or the challenges that school board members face this year. It is unfortunate that these factors have come to a head in this way, and it will be a painful process to resolve them.
Campaign for Vermont
 See page 13 of the 2023 JFO Report on Vermont’s Education Financing - https://legislature.vermont.gov/assets/Legislative-Reports/GENERAL-366459-v2-2023_Report_on_Education_Financing.pdf
 See both https://vtdigger.org/2023/09/11/state-education-snapshot-a-mixed-bag-for-vermont-schools/ and https://www.nationsreportcard.gov/profiles/stateprofile?chort=2&sub=MAT&sj=AL&sfj=NP&st=AP&year=2022R3