Experts: Education Fund stable despite state budget woes
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By Cristina Kumka Herald Staff - Published: December 1, 2008
Vermont's $1.3 billion state Education Fund is described as "healthier" this year compared to prior years, despite a $14 million drop in nonproperty tax revenues normally flushed into the fund.
The Education Fund is slated to receive an estimated $6.7 million increase in contributions transferred from the state's General Fund by fiscal year 2010, from $291 million to $297.8 million, because of inflation or growth in the price index, according to Mark Perrault, a fiscal analyst with the Vermont Legislative Joint Fiscal Office.
Although the state budget is facing a deficit of $60 million due to lagging revenues and a weakening state economy labeled by state officials as "grim," the Education Fund's multimillion-dollar hit isn't worrying education finance experts.
A $14 million dive in sales tax and purchase and use tax revenue throughout the state will do little more than bruise the fund because of a crucial mechanism that isolates it — state law protecting the fund from sways in the economy and cost-shifting by the Legislature, experts say.
Perrault said the Education Fund is so stable that the Legislature can keep tax rates flat without placing a burden on the fund.
"Right now, if we maintained the base tax rate of .87 on homestead and $1.36 on the nonresidential rate, the fund looks healthy enough that it (the rates) may even be reduced a penny or so," Perrault said.
Although property tax rates in each municipality aren't set in stone due to a complex calculation that factors in individual school budgets and growth property values, confidence in the Education Fund and the $297.8 million estimated transfer is.
The reason — because the state's funding law solidifies the funding, according to information provided by Tax Commissioner Tom Pelham.
Title 16, Chapter 133, Section 4025 of that law states, "For each fiscal year, the amount of the general funds appropriated or transferred to the education fund shall be $280,200,000, increased by the most recent New England economic project cumulative price index, as of Nov. 15, for state and local government purchases of goods and services from fiscal year 2008 through the fiscal year for which the payment is being determined, plus an additional one-tenth of one percent."
The fund is not only guaranteed "all revenue paid to the state from the statewide education tax on nonresidential and homestead property," but also the state lottery, property taxes from Vermont Yankee, Medicaid reimbursement funds, one-third of all revenues raised from the purchase and use tax, and one-third of revenues raised from the sales and use tax.
Money from the fund can't be used for anything else other than education, unless the Legislature opts to not put certain money into the fund to begin with, Pelham said.
If money from the education fund were to be directed to non-educational funds, then the statewide property tax would become "null and void," he said.
"This mechanism was put in place to make sure the Legislature wasn't robbing general funds from the education fund to fund priorities elsewhere," Pelham said.
While the Legislature is faced with cutting the state's Transportation and General Fund budgets, "there is no reason why it (the education fund) should be affected," Perrault said.
Pelham agreed, although was more hesitant to say that the fund will remain immune to a receding global economy in years to come.
"Unless they decide to change the law, they (the Legislature) are bound by their provision," Pelham said.
But he said, "the Legislature can go a different course … they can give more or less, just for this one year or forever."
Reporter Louis Porter of the Vermont Press Bureau contributed to this story.
Contact Cristina Kumka at cristina.kumka@rutlandherald.com.
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