With the start of school budget season, districts brace for new education finance law
Students get picked up at the end of the day outside John F. Kennedy Elementary School on Monday, September 28, 2020. Dismissal times are staggered and students are separated by class into specific areas for pick up. Photo by Glenn Russell/VTDigger
For school districts, mapping out finances for the upcoming academic year has been more complex than normal.
Federal Covid-19 pandemic aid will cease by September 2024. Employees’ health care costs have risen about 16% statewide, according to school officials. Vermont’s tight labor market is driving up wages. And student needs, such as mental health challenges, have also required increasing investment, school officials say.
On their own, all those factors would make for an unusual budget season. But there’s one more piece to the puzzle: Act 127, a 2022 Vermont law that amounts to a dramatic shift in how the state funds education.
“People build on their budgets. They want to have answers, they want to have certainty, and there isn’t any certainty right now,” said Brad James, education finance manager for the state Agency of Education. “There’s more uncertainty this year than usual.”
The intent of Act 127 is, put simply, to direct education money toward students who need it more.
The law is based on the understanding that certain categories of students cost more to educate. Those categories include low-income students, English language learners, and students at rural and small schools.
Lawmakers and school officials have long said that Vermont’s education finance system has not adequately accounted for those extra costs. Hence, the creation of Act 127, which was designed to remedy those longstanding inequities.
To do so, the law requires that education officials count all the students that fit into those underfunded categories. Vermont’s education system uses the term “pupil weights”: Students who fit into those more expensive categories are “weighted” more, and the more weight a district has, the more money it can spend without raising local tax rates.
Act 127’s changes don’t take effect until the 2024-25 school year. But districts are starting to draft those budgets now.
Taxing and spending
In Vermont’s education funding system, the money that pays for public school budgets flows from one pot, the roughly $2 billion state education fund. District school budgets, though, are drafted locally, and the amount a district spends per student helps determine local residential property tax rates.
If a district is more heavily weighted — for example, it enrolls a high number of English language learners or low-income students — Act 127 could allow districts to raise more money and take some pressure off local tax rates.
Districts that are wealthier, less rural, or educate few English language learners, however, could see their “weights” decrease — meaning their tax rates could increase even without big spending jumps.
The new system includes a provision intended to protect communities from any huge homestead tax increases from one year to the next. If a district’s spending would cause a jump of 5% or more in the local homestead tax rate, the increase will still be capped only at 5% — and the education fund will make up the difference. The law implements 5% caps on tax rate increases for five years.
But that does not necessarily mean that districts can spend with abandon. If a district’s spending per student increases by 10% or more from the previous year, it will trigger a review by the Secretary of Education, per the law.
If the secretary finds that the budget “contains excessive increases in per pupil education spending that are within the school district’s control and are not supported by good cause,” the district’s tax rate increases will not be capped at 5%, the law reads. Instead, the district will pay the actual tax rate that is proportional to its spending.
‘Ways that could hurt’
In other words, Vermont’s already extremely complicated school funding system is getting even more confusing.
“I wouldn’t say that it’s all uncertain,” Neil Odell, a school board member in Norwich and president of the Vermont School Boards Association, said in an interview. “I would say that, though, that there are some things about this that we don’t know how (they’re) going to turn out until it happens.”
Many pieces of the puzzle have still not yet materialized, such as the Dec. 1 Letter, a document in which state tax officials lay out their projections for the education fund and school spending statewide.
But in at least some parts of the state, the new system is already causing anxiety.
“There’s a little shock and awe going on in the community,” Montpelier-Roxbury Superintendent Libby Bonesteel said in an interview.
In drafting its budget for the upcoming year, the relatively urban, relatively affluent Montpelier-Roxbury district will need to find roughly $400,000 worth of savings to avoid a tax rate review, Bonesteel said.
“We need to decide, as communities, whether or not we want to bring down the tax rate, which means significantly cutting our budget in ways that could hurt, or (whether) we want to significantly increase our tax rate,” Bonesteel said. “Those are essentially the two choices that we have in front of us over the next five years.”
Norwich is another district that is expected to be squeezed by the funding changes.
“I think we have the distinction of being the single town that possibly will have the single highest tax rate increase as a result of this change,” said Odell, the Norwich School Board member. “I’ve run the numbers on this various times. And it’s ranged anywhere between, say, like a 20% increase to somewhere around, like, almost a 30% increase.”
That increase is expected to be capped at 5%. But that could still mean several years of successive 5% tax rate increases — and, once those caps expire after five years, a potentially larger jump in the tax rate.
“I worry that Norwich is going to be facing a fiscal cliff in year five,” Odell said.
The situation in Norwich is complicated further by the fact that its school district spans the Connecticut River and includes New Hampshire schools as well, which are funded through a different system. Odell said he’s worried that could put strain on the interstate relationship.
‘We’re just getting what we’re supposed to be getting’
Meanwhile, some districts that expect to see benefits from the new weighting system are also seeking to temper their communities’ expectations.
“What’s happening is that we will no longer be underfunded,” said Wilmer Chavarria, superintendent of the Winooski School District. “So we’re not gaining; we’re just getting what we’re supposed to be getting after decades of consistent underfunding and being under-resourced.”
But — at least in the first year — the new system will not create a windfall of new cash for the district, Chavarria said. Rather, he expects it to help keep the district out of financial trouble.
“If this projected money was not a reality for next year, we’d be in pretty deep trouble because of all these losses in revenue,” he said.
In the North Country Supervisory Union, many school districts are expected to see benefits from the changes in the funding system. But North Country Superintendent Elaine Collins said she’s not sure what that will look like on the ground.
Collins cited many of the same financial pressures as Chavarria: the tight labor market, wages and health care, the loss of federal pandemic cash. She is also not sure how much money the district will actually be able to raise, given that a 10% increase in per-student spending will trigger a state tax rate review.
“I’ll be cautiously optimistic that we’ll see some benefit,” Collins said. “But until we start to see numbers, I’m not sure what that’s going to look like.”