Editor’s note: This op-ed is by Scott Mackey, a Waterbury resident, and the chair of the Harwood Union High School Board. The opinions here are his own, not necessarily those of the Harwood board or its members.
The Harwood Union High School Board will soon complete deliberations on the budget for the 2011/12 school year. This year, the budget process is particularly frustrating for board members who believe that transparency and accountability are necessary for taxpayers to make informed decisions about the school budget.
In our case, the Harwood Board will vote on a budget – and try to convince our voters to support a budget – without being able to answer the most fundamental question of all: What impact will this budget have on property taxes? Without knowing the answer to that question, how are voters expected to make a sound decision about whether to support the budget or not? The “Challenges for Change” legislation and the federal education stimulus funds make this year especially uncertain.
Last spring, the Legislature needed to make cuts to balance the budget, but there was little support for additional program cuts. As an alternative, it passed the “Challenges” legislation. Among other things, the legislation included voluntary spending reduction targets for school districts. If school districts made these $23 million in cuts, the legislature would not have to transfer money from the general fund to the education fund and that money could be used to avoid making deeper reductions in other programs.
The Challenges legislation generated significant opposition because it was poorly designed.
The Challenges legislation generated significant opposition because it was poorly designed. For example, it required both high spending and low spending schools to shoulder the same percentage cuts. Many school boards throughout Vermont, not wanting to make spending reductions and citing inequities in the Challenges law, refused to go along. As a result, only $4 million of the $23 million in Challenges spending reductions were pledged by School Boards. In our supervisory union, for example, only two of the six boards will meet the targets.
This $19 million shortfall meant that the legislature, already facing a $150 million shortfall in the general fund, would need to find another $19 million in order to meet its legal obligation to transfer money to the education fund.
Along comes the $19 million in federal stimulus money. The Legislature had used federal stimulus funds for the previous two years to supplant money that would have been transferred from the general fund to the education fund. This allowed the state to avoid bigger spending cuts to general fund programs. Governor Shumlin, after meeting with legislative leaders, decided that instead of continuing that approach, he would allocate the federal money to the school districts and let local Boards decide how to use it.
The net result: Schools would not be required to meet the challenges targets, and they would also have the opportunity to spend an additional $19 million in “one time” money. Boards can now choose one of the following options or some combination:
• Use the federal money to supplement what schools were already planning to spend, resulting in even higher spending and higher taxes;
• Use the federal money in lieu of the cuts needed to meet the Challenges target, resulting in the same spending but lowering taxes somewhat; or
• Continue to meet the Challenges targets and use the federal money to lower property taxes.
While the federal money was a nice windfall for schools, the state still has a problem. Neither the $19 million in Challenges cuts nor the $19 million in federal funds are available to lower the transfer from the education fund. This adds another $19 million hole on top of the $150 million shortfall. How will this hole be filled?
In December, the Tax Department and the Education Department told boards that their budgets should be calculated assuming a statewide tax rate of $0.86 per $100 in assessed value and a base spending amount of $8,618. Those figures are used to calculate each district’s tax rate: the more a district spends above the base spending amount, the higher the tax rate. For example, a school spending $10,000 per pupil (16.1% above $8,618) would generate a tax rate of $0.998 (16.1% above $0.86).
In early January, after the Harwood Finance Committee had already built these assumptions into our budget worksheets, the Education Department provided new guidance to the Board that we should use a statewide tax rate of $0.87 and a base spending amount of $8,544. This guidance was based on the decision to allocate the $19 million in federal money to school districts. Apparently, the Department of Education expects the Legislature to approve a lower base spending amount and increase the statewide property tax by a penny.
All Vermont taxpayers, even those in districts where School Boards meet the Challenges targets, will likely pay higher taxes due to the decisions of the majority of school boards to ignore the targets.
What impact would this have on property tax rates? In the example above, the school spending $10,000 per pupil would be 17 percent above the (lower) base spending amount and the tax rate would be $1.018 (17 percent above $.87). Thus, the answer to the question posed above. The hole will be filled by increasing statewide property taxes.
The Harwood Board’s Finance Committee has forwarded a budget to the full Board for consideration on Jan. 19 that would meet the Challenges targets as requested by state law. It would reduce spending by $134,000 and, under the original tax rate assumptions ($0.86 tax rate; $8,618 base spending amount) would have produced a tax rate of $1.261. Under the new, higher tax rate assumptions, we now face a tax rate of $1.287, even meeting the Challenges target.
Harwood also qualifies for $173,000 in federal education stimulus funds. If the Board decides to apply all $173,000 to reduce local property taxes, the resulting tax rate will be $1.265 – slightly higher that what it would have been under the previous tax rate assumptions if Harwood met the Challenges targets.
Bottom line, what does this all mean?
First, it means that all Vermont taxpayers, even those in districts where School Boards meet the Challenges targets, will likely pay higher taxes due to the decisions of the majority of school boards to ignore the targets. This should not be surprising. One reason why school spending is difficult to control is because our school finance system creates what economists call a “prisoners dilemma.” Simply put, when expenditures are collectively borne by a group, each individual in the group has an incentive to spend more than if each individual were responsible for paying for their own decisions. Everyone at the table orders steak or lobster when the bill is equally divided.
Second, the complexity that I’ve described in this article will be impossible to explain to voters, either in a conversation on the street or even at our annual district budget meeting. There is just no simple way to describe to the voters the convoluted logic that starts with our budget proposal and ends with the taxpayer’s bill. (This article does not even address income sensitivity or the impact of property values and the Common Level of Appraisal, two other complicating factors.)
Finally, to top it all off, everything I’ve said above is speculation because the legislature usually does not actually set the tax rate and the base spending amount until after Town Meeting day anyway. The Legislature could ultimately decide to approve a higher or lower statewide tax rate, a higher or lower base spending amount, or some combination. So everything we tell voters leading up to the budget vote is subject to change by legislative action.
When making public policy, governments struggle to balance the competing demands of simplicity, equity, and accountability. Vermont’s school funding system, the most complex in the country, elevates equity above all other policy considerations. It prevents either School Boards or Legislators from being accountable for our decisions.
Some school board members view themselves primarily as education advocates, while others view themselves primarily as taxpayer advocates. Most of us try to find a balance between the two. However, Vermont’s convoluted school finance system makes it difficult for even the most diligent Board members to fulfill our responsibility to balance education quality and taxpayer affordability in a way that is accountable to voters.
