School Spending Cap (S.220) - Overview & Analysis

S.220, seeks to curb the growth of property taxes by placing temporary limits on school district budget increases.

The Details:

• Imposes a mandatory spending cap on school district budgets for fiscal years 2028 and 2029, prohibiting boards from proposing budgets to voters that exceed either an "allowable growth" limit or a set increase in total budget. Boards can choose whichever method benefits them the most.
  
  
• Establishes a formula for "allowable growth" that permits higher percentage increases for lower-spending districts compared to higher-spending ones, using a calculation based on the gap between a district and the state’s highest spender.
  
  
  • Adjusts allowable spending amounts automatically to account for increases in a district’s student population.
• Indexes minimum total budget growth levels to the National Income and Product Accounts (NIPA) price deflator for state and local government, ensuring caps account for inflation in the public sector. NIPA typically increases between 2-4% on an annual basis.
  
  
• Creates a formal spending review process where districts can appeal to the Secretary of Education if they believe a budget exceeding the cap is necessary.
  
  
  • Establishes an advisory group of three business managers and three superintendents to assist the Secretary in evaluating whether budget increases are due to "good cause" or factors beyond a district's control.
    
    
  • Automatically classifies voter-approved bond payments for life-safety improvements or district consolidations as "good cause" for exceeding spending limits.

Analysis:

By implementing spending caps for fiscal years 2028 and 2029, the bill attempts to address rising property taxes while maintaining the state's commitment to per-pupil equity. The formula is designed to "level up" lower-spending districts, providing them more room to grow, while "leveling down" high-spending districts through tighter restrictions.

A primary trade-off in this legislation is the tension between local democratic control and state-level accountability. While Vermont has a long tradition of voters deciding their school budgets at town meetings, this bill prevents certain budgets from even reaching the ballot if they exceed the cap without prior state approval. This may improve short-term economic security for taxpayers, but it raises questions about the ability of local communities to address unique student needs that the state’s funding formula might not fully capture.

Furthermore, the "good cause" appeal process introduces a layer of bureaucracy that depends heavily on the discretion of the Secretary of Education and an advisory panel. It is possible that a significant number of districts try to take advantage of this appeals process.

Unfortunately, the caps contemplated in the bill are set so high that they are unlikely to constrain spending. If districts can increase their per-pupil spend 3-9%, that is not meaningfully different than the nearly 5% growth we have seen annually over the last 25 years. One of the main reasons why we find ourselves in the current property tax crisis is because spending growth has outpaced organic revenue growth. Any meaningful cap needs to match revenue growth in order to prevent further property tax rate increases.

Current Status:

The bill is under consideration in the Senate Finance Committee.

Last updated: 2/12/2025

DISCLAIMER: Generative AI used to assist in the production of this report.