Douglas' school funding math: Does it add up?
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Gov. James Douglas FILE PHOTO |
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By LOUIS PORTER
Vermont Press Bureau - Published: January 31, 2010
MONTPELIER – Perhaps in no area of public policy has the administration of Gov. James Douglas and the Democrat-led Legislature clashed with more frequency and stronger disagreement in recent years than over how to pay for public education.
This year legislators and administration officials have taken a different approach with both sides being restrained in their criticism of each other's proposals. That attitude has continued into the early stages of the conversation about the newest Douglas proposals on school spending, despite deep differences that remain.
It would be easy to see the governor's education proposal as more modest in scope than those he has made in past years. This time he is not proposing a complete revamping of the education financing system. Gone also is a proposal to cap school districts' spending.
But that doesn't mean Douglas has given up on trying to reduce how much is spent on schools despite his lack of success in the past. Instead he has concentrated on the portion of education spending the state has more say over – for instance, how many spots are available for teachers in the state-run pension system.
If lawmakers approve portions of this year's school spending recommendations from the administration, they may affect property taxpayers, teachers, students and parents from Barton to Bennington.
The state sets Vermont's property tax rates but has little direct control over those rates. That's because local spending decisions made by Town Meeting Day voters in each district determine school spending.
A statewide tax (at different rates for residential and nonresidential properties) is levied uniformly on parcels in each town, however.
Under current law, if nothing changes, there will be a 2-cent increase in the statewide property tax rate this year (although the effect on each taxpayer depends on many other factors) and a looming hole in the state's Education Fund in future years because school spending is increasing while property values have begun to stagnate or decline.
Douglas says his proposal would result in a 1-cent reduction in statewide tax rates instead, through a combination of cutting income sensitivity (the provision that lets lower-earning households pay school taxes based on their income rather than property value); reducing the number of teachers; eliminating the grants the state makes to small schools, and other measures.
That reduction would happen even if the administration succeeds in moving pension obligations an d school construction aid onto the Education Fund, Douglas says.
His plan would allow a reduction in taxes on average for nonresidential properties (including property above a homestead consisting of a residence and two acres, commercial space and second homes). But it would also effectively mean an increase in property taxes for most households with annual income between $60,000 and $90,000 (the cutoff for income sensitivity).
Douglas says that without an alternative approach, critics are merely ignoring an impending hole in the state's Education Fund.
"Those who attempt to parse my proposals to justify a claim of a tax increase should be reminded that by advocating for the status quo they are, in fact, supporting a $59 million property tax increase," Douglas said during his budget address.
Here are some key aspects of Douglas' education system amendments – and why there are questions already about whether they will save as much money as hoped.
Income sensitivity
Most Vermont households pay education property taxes based on their income, not the value of their homes.
Whether that mechanism, called income sensitivity, is a subsidy – as the administration believes – or a reduction in property taxes – as lawmakers have long held – is partly in the eye of the beholder.
Douglas is proposing reducing the program – effectively increasing taxes – for Vermonters with between $60,000 and $90,000 in annual household income.
Now homeowners whose household incomes are up to $90,000 a year can pay their homestead property taxes based on their income — with a cap of 1.8 percent of income. Under Douglas' proposal, those with household income of $60,000 to $75,000 would pay up to 2.25 percent of their incomes, while those earning $75,000 to $90,000 would pay as much as 3.5 percent. Obviously for some that would result in a substantial increase in their taxes paid, but it would make the system more progressive, according to the administration.
Second, the administration would apply income sensitivity only to the first $400,000 of a property's value. Above that residents would pay based on the value of their property.
The net result would be $25 million in additional property tax revenue. Income sensitivity protection would be eliminated for nearly 16,000 households and reduced for an additional 17,000.
Douglas, who argued unsuccessfully against expanding the income sensitivity program to higher income levels several years ago, has said the loss of revenue due to that expansion is simply unsustainable in the long term.
Douglas also would increase the renter rebate cap – the income sensitivity program for those who don't own their homes — to $54,000 of income, from $47,000.
Public Strategies Group
Lawmakers and the governor have agreed to a government restructuring and savings plan drafted with the help of a consulting firm called Public Strategies Group and incorporated in Douglas' budget. Among those recommendations are two major changes for education.
First, the proposal foresees reducing spending on school administration by $11 million in fiscal year 2011 (the next budget year, which begins in July) and by more in later years. The administration is counting on those savings in its plan to reduce the statewide property tax rates.
But not yet resolved is a question of whether all those savings would be achieved – even if the assumptions in the proposal were to come to pass. Spending less locally on administration means raising less in local school taxes. When that money stays in taxpayers' pockets, it isn't available for the state to apply elsewhere to reduce the statewide tax rate.
According to administration officials, the savings plan drafted in conjunction with lawmakers and the consulting firm is still being completed. In other words, whatever adjustments need to be made to the plan to reach the expected $11 million in savings will be made.
But legislators and their staff are not sure that is right, since the proposal already defines where the reductions are to come from.
The second proposal from the work with the consulting firm, to reduce spending on special education, might run into a similar problem. Since the money spent on special education comes from both the state and local school districts, the local districts would have to agree to lower their spending to reach the hoped-for $6 million in state savings. As with administrative spending, local reductions wouldn't necessarily free up money at the state level.
Teachers
During his annual budget speech, Douglas proposed to "normalize the student-to-teacher ratio" now among the lowest in the country at 10.8 students per teacher. But since the state does not directly hire teachers, another mechanism to limit teacher hiring would have to be found.
That mechanism would, under Douglas' approach, be limits on enrollment in the teachers' pension system, which is run by the state. His proposal — to open one pension slot per every two teachers who left their jobs — would remain in effect until fiscal year 2015 or until the student-to-teacher ratio reached 13-to-1 and would save about $11.4 million in the next fiscal year.
But there are also concerns about this idea. For one thing, it would not apply to teacher's aides – they are not in the pension system – and so might be "the teacher's aide full employment act," as one lawmaker called it recently. It could also result in teacher "poaching" from one school to another, since those already in the pension system would not be affected.
Teachers' health benefits
Under Douglas' proposal, teachers would be required to pay at least 20 percent of their health care premiums. That would result in about $5 million in savings. But because the rest of teachers' compensation would remain subject to contract negotiations, teachers potentially could win higher pay to make up for the added health care expense.
Small schools
The state now gives extra money to small schools because they lack efficiencies of scale.
Douglas would eliminate these grants to small school districts over two years, saving about $3.5 million in the first year. However, it is possible that schools in those districts, unable to cut their spending by the necessary amount, would raise more money through the local property tax.
'Phantom' students
Currently the state protects schools from the effects of declining enrollment by allowing them to count only a 3.5 percent drop even if the actual figure is more. Under the Douglas proposal, this provision would be phased out over three years.
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