Education finance panel brainstorms cost containment

By Shawn Cunningham
© 2024 Telegraph Publishing LLC

The Education Finance subcommittee of Vermont’s Commission on the Future of Public Education met for the second time on Monday. In the first two hours of a three and a half hour meeting, the committee received presentations by the Agency of Education and the Vermont Tax Department.  The presentations covered definitions used to count students for education funding calculations. That was followed by a look at the revenue sources of the education fund.

The rest of the session was given over to brainstorming.

The subcommittee’s charge is twofold. In the near term, it is supposed to come up with cost-containment strategies to recommend to the Vermont legislature for its session beginning in January. Then, by the end of 2025, it needs to make further recommendations — along with other subcommittees of the commission — that will result in an “education funding system designed to afford substantially equal access to a quality basic education for all Vermont students.” That last bit comes from Act 183 that created the commission.

During the brainstorming session, subcommittee chair Rep. Emilie Kornheiser used an online application – like a white board – for members to put “sticky notes” containing ideas to control cost drivers, reduce property tax rates and reduce district spending. The suggestions were anonymous and touched on a number of areas including:

• Control employee health-care costs, including returning bargaining to local districts
• Look at ways to control tuition costs – especially out-of-state tuition
• Find optimal sizes of schools and classes and close small schools
• Make adjustments at AOE to cut administrative costs at the district level
• Base education financing on the income tax and tax high earners more
• Find ways to reduce special education costs including more support for younger students to avoid the need later
• Look at the needs for construction and upkeep of facilities
• Make the education fund for education only by moving services schools are obliged to provide to other agencies.
• What is “Off the Table?”

Kornheiser then asked the members to divide the list into short-term measures to address in a report this year and long-term measures to be considered for the commission’s final report next year. She also noted that legislation on some forms of taxing often cannot take effect in the year it’s enacted.

The subcommittee also discussed ways that the state could help districts that are currently discussing mergers or school closures to move forward.

Education taxes as ‘shock absorbers’

Jake Feldman, a financial analyst at the Department of Taxes told the committee that while people see property taxes – especially residential property taxes – as the source of education funding, the picture is more complicated.

In fact, “homestead” property taxes account for less than 25 percent of the fund. “Non-homestead” taxes (second homes, businesses, etc.) make up a little more than 38 percent while sales and use taxes add almost 29 percent to the fund. The remaining amount comes from sources including lottery proceeds, the rooms and meals tax and the purchase and use tax on vehicles.

Feldman said taxes that depend on people spending money means that when consumers tighten their belts, property taxes must make up the difference, becoming in effect, shock absorbers for the larger economy. He noted that the response to the Covid pandemic makes understanding the income and expense picture more complicated. During Covid, the state expected revenue from sales and other taxes to drop but it did not. In addition, federal funds picked up a lot of education-related expenses, but then went away.

Committee member Nicole Mace said the legislature has shifted $300 million in new spending to the education fund to cover new programs like universal school meals and PCB testing as well as retirement payments, which had come from the general fund. Mace said this was outside the local budgeting process and reduced reserves that had been built up.

The subcommittee also discussed property taxes not being collected due to some programs that use tax breaks as incentives, such as Tax Increment Financing and Current Use.

Counting ‘students’ and complex accounting

Nicole Lee of the AOE gave a presentation on defining the term “students” to assess the impact on cost, while Sean Cousino, also of the AOE, discussed the way schools account for spending and revenue.

Lee said that when a question is asked about the number of students in a school or a district, there are several ways to count depending on what the count will be used for.

For example, a straight headcount – or enrollment – is the number of students in the school. However, some students may be more expensive to educate than others, so then the number of “students” increases (weighted) to provide more funding. The simplest weighting consideration is that each K-6 student is considered to be one student, but a 7-12 student is considered to be 1.13 students. The more students a school has, the more per pupil revenue.

There are formulas for weighting but with Act 127, which takes effect in the current fiscal year, those weights change, which makes looking at trends in school data more complicated, Lee said. She told the subcommittee the AOE has massive amounts of information that will need to be analyzed.

Cousino then walked the committee through the state’s Uniform Chart of Accounts, which breaks revenue and expense into multiple categories to show what is being spent, where it’s being spent and what is the revenue source. While this might seem like a great way to track and compare spending over time, the chart has evolved over the years and that complicates comparison.

Public Comment

Sue Ceglowski, executive director, Vermont School Boards Association, and Chelsea Myers, executive director, Vermont Superintendents Association:

Ceglowski read from a memo regarding Short-Term Cost Containment Considerations for the 2025 Legislative Session. In it, the two organizations and the Vermont Association of School Business Officers (each of which has a member on the commission) urged the subcommittee to concentrate on cost drivers rather than “mechanisms that enforce cost-suppression without consideration for equity and quality.”

The cost drivers include personnel, facilities and tuition. But the memo does not explicitly say how these drivers should be reduced.

The memo points out that “when excluding federal revenue, state revenues constitute 51% of the funds dedicated to support K-12 education nationally” while in Vermont state revenues (excluding the property tax) are 36 percent of the education funding. To put Vermont more in line with the rest of the country, the organizations recommend either removing costs from the Education Fund that are not overseen by local boards  or adding new revenue streams to get closer to the national average.

Bill Edgerton, board member, Rochester Stockbridge Unified District:

Edgerton urged the committee to take into consideration the impact of income sensitivity in education funding. He said that many have overstated the impact of recent tax increases without taking into account income sensitivity that makes living in Vermont more affordable for many.