Rate hike prompts calls for spending controls
By Peter Hirschfeld
Vermont Press Bureau | November 27,2013
MONTPELIER — In its newly sprung effort to curb school spending across Vermont, the administration of Gov. Peter Shumlin is asking top legislative leaders to consider ramping up financial penalties on districts whose annual budget increases exceed certain thresholds.
The policy suggestion arrived in a letter Tuesday to the heads of the Vermont House and Senate, alongside a recommendation that lawmakers increase the statewide residential property tax rate next year by 5 cents to keep pace with the rising cost of public education.
Precise tax rates for fiscal year 2015 won’t be codified until late winter, after local school districts get voter approval for next year’s budgets on Town Meeting Day.
But Tax Commissioner Mary Peterson says that with those budgets forecast to rise collectively by 3.8 percent, lawmakers will need to increase the statewide residential tax rate from 94 cents per $100 of assessed property value this year to 99 cents in fiscal year 2015.
Peterson recommended a 5-cent rate hike for nonresidential property owners as well, who would see their statewide assessment jump from $1.44 to $1.49 per $100 of assessed property value.
If the proposed increases go through, it would be the second consecutive nickel hike in statewide residential rates. Peterson is required by law to present rate recommendations to lawmakers by Dec. 1.
The complexity of Vermont’s education-financing system, known as Act 68, means that numerous variables are affecting the rate-setting formula. But Peterson said increases in school spending play a significant role in the projected rise in tax rates next year.
“Spending has increased at a greater rate than inflation, and also at a greater rate than the growth in the revenue sources dedicated to education,” Peterson wrote in a 10-page letter to House Speaker Shap Smith and Senate President Pro Tem John Campbell. “(L)ocal decisions to increase spending lead to higher spending adjustments, which are in turn driving the growth of our total education spending statewide.”
The Democrats that control the governor’s seat and wield super-majorities in the House and Senate have long defended the local control that defines the state’s education system. But an increasing number of Democratic politicians, Shumlin among them, say flaws in Act 68 are begetting spending levels beyond the means of the property owners footing the bill.
Peterson on Tuesday urged lawmakers to consider exerting heightened influence over local spending decisions via structural reforms to the funding law. She said stiffer penalties for excess spending, combined with lowering the threshold at which those penalties begin to accumulate, might compel local districts to moderate budget increases.
“There is now an opportunity … to examine in a comprehensive way how the formula is functioning overall … and to consider the underlying question of whether there are appropriate incentives or disincentives to limit spending to a sustainable, affordable level,” she wrote.
Peterson’s letter referenced a study commissioned by lawmakers in 2012, which concluded Vermont has a high quality education system, administered to students equitably across school districts.
“The question raised by the study, however, was whether Vermont could achieve those results at a lower cost,” Peterson wrote. “Vermonters spend a higher proportion of income per capita on education than any other state, and although the academic results are impressive, peer states have seen comparable achievement at a lower price.”
Lawmakers early next year will consider not only how to curb spending, but whether the state ought redistribute the obligations over various classes of property taxpayers. Efforts to cushion the effects of increased school spending on households of more modest means has concentrated the effects of higher spending on homeowners with household incomes of more than $92,000 — the point at which taxpayers cease being eligible for a subsidy known as “income sensitivity.”
Households that benefit from “income sensitivity” still see incremental increases in their tax obligations when the districts in which they reside approve per-pupil expenditures above a certain amount. But many lawmakers, joined recently by the governor, say the income-sensitivity provision has diminished the financial disincentive that might otherwise prompt greater voter scrutiny of local budget proposals.
Steve Dale and Jeff Francis, the heads of the Vermont School Boards Association and Vermont Superintendents Association, respectively, said Tuesday that lawmakers and administration officials have a legitimate interest in finding ways to curb school spending, especially as student enrollment continues on a years-long decline.
But Dale said the state needs to make sure that the mechanisms it employs take into account the unique challenges faces by school administrators and board members, and that parameters established in Montpelier don’t “micro-manage” the operations of the state’s more than 250 separate districts.
Francis said his organization appreciates that the education funding reform effort is beginning early in the legislative process — a late-session push for fund overhauls in 2013 caught many schools off guard.
But he said any discussion about the funding structure needs also to include an analysis of the cost-drivers responsible for climbing tax rates.