Students are picked up at the end of the day outside John F. Kennedy Elementary School in September 2020. Schools are facing more uncertainty than usual about their budgets for the upcoming academic year. File photo by Glenn Russell/VTDigger
For school districts, mapping out finances for the upcoming academic year has been more complicated than usual.
Federal COVID-19 pandemic aid will end in September 2024. According to school officials, employee health care costs statewide have increased by approximately 16%. Vermont’s tight labor market is pushing wages up. School officials say increased investment is also needed to address student needs, such as mental health challenges.
In themselves, all these factors will make for an unusual budget season. But there is another piece of the puzzle: Act 127, a 2022 Vermont law that is a dramatic change in the way the state funds education.
“People build on their budget. They want answers, they want certainty, and there’s no certainty right now, said Brad James, education finance manager for the state education agency. “There is more uncertainty than usual this year.”
Brad James is the Education Finance Manager for the Education Agency. File photo: Amy Ash Nixon/VTDigger
The intent of Act 127, simply put, is to direct education money toward students who need it most.
The law is based on the understanding that it costs more to educate certain categories of students. Those categories include low-income students, English language learners, and students in rural and small schools.
Lawmakers and school officials have long said Vermont’s education finance system does not adequately account for those additional costs. Hence, the creation of Act 127, which was designed to address those long-standing inequities.
To do this, the law requires education officials to count all students who fit into those underfunded categories. Vermont’s education system uses the term “pupil weighting”: students who fit into those more expensive categories are “weighted” more, and the more weighted a district is, the higher it will be without raising local tax rates. Can spend that much more money.
The Act 127 changes will not take effect until the 2024-25 school year. But districts are now starting to draft those budgets.
taxing and spending
In Vermont’s education funding system, the money paid for the public school budget comes from a single place, the approximately $2 billion state education fund. However, school district budgets are prepared at the local level, and the amount a district spends per pupil helps determine local residential property tax rates.
If a district is overburdened – for example, it enrolls a large number of English language learners or low-income students – Act 127 could allow districts to raise more money and take some of the pressure off local tax rates.
However, districts that are wealthier, less rural, or have fewer English language learners may see their “weight” reduced – meaning their tax rates could rise even without a big spending jump.
The new system includes a provision to protect communities from any substantial homestead tax increases from one year to the next. If a district’s spending would increase the local homestead tax rate by 5% or more, the increase would still be capped at only 5% – and education funding would make up the difference. The law imposes a 5% increase in the tax rate for five years.
But that doesn’t mean districts can spend recklessly. If a district’s per pupil spending increases by 10% or more compared to the previous year, it will trigger a review by the Secretary of Education, according to the law.
If the Secretary finds that the budget “excessively increases per pupil education spending that is under the control of the school district and is not supported by good cause,” the increase in the district’s tax rate will not be limited to 5%. , says the law. Instead, the district will pay an actual tax rate that is proportional to its spending.
‘Methods that can cause harm’
In other words, Vermont’s already extremely complex school funding system is becoming even more confusing.
“I wouldn’t say it’s all uncertain,” Neil O’Dell, a school board member in Norwich and president of the Vermont School Board Association, said in an interview. “However, I will say that there are some things about it that we don’t know until they happen what the outcome of (those) will be.”
Many pieces of the puzzle still haven’t materialized, like the Dec. 1 letter, a document in which state tax officials lay out their projections for statewide education funding and school spending.
But in at least some parts of the state, the new system is already causing concern.
“There’s a little bit of shock and awe in the community,” Montpelier-Roxbury Superintendent Libby Bonesteel said in an interview.
Bonesteel said that in drafting its budget for the upcoming year, the relatively urban, relatively affluent Montpelier-Roxbury district would need to save about $400,000 to avoid a tax rate review.
Bonesteel said, “As a community we need to decide whether we want to lower the tax rate, which means cutting our budget in ways that may hurt, or (what) ) We want to increase our tax rate significantly.” “Those are essentially the two options we face over the next five years.”
Norwich is another district expected to be pressured by funding changes.
“I think we have the distinction of being the city that will probably have the highest tax rate increase as a result of this change,” said Odell, a Norwich school board member. “I have run the numbers on this several times. And it’s anywhere between, let’s say, a 20% increase to about a 30% increase.
This growth is expected to be limited to 5%. But that could still mean several consecutive 5% tax rate increases for several years — and, once those caps expire after five years, a potentially bigger jump in the tax rate.
Odell said, “I am concerned that Norwich will face a financial crisis in its fifth year.”
The situation in Norwich is further complicated by the fact that its school district spans the Connecticut River and also includes New Hampshire schools, which are funded through a separate system. Odell said he is concerned it could put a strain on interstate relations.
‘We are getting what we should get’
Meanwhile, some districts that expect to see benefits from the new weighting system are also trying to temper their communities’ expectations.
“What’s going to happen is we’re no longer going to run out of money,” said Wilmer Chavarria, superintendent of the Winooski School District. “So we are not making any profit; “After decades of chronic underfunding and under-resources, we are still getting what we should have.”
But — at least in the first year — the new system won’t create a windfall source of new cash for the district, Chavarria said. Rather, he hopes it will help keep the district out of financial trouble.
Chavarria said rising costs, the withdrawal of federal pandemic aid and changes to the way the state funds special education are expected to impact Winooski’s school budget next fall.
“If this projected amount of money had not materialized for next year, we would have been in deep trouble because of all these losses in revenue,” he said.
In the North Country Supervisory Union, several school districts are expected to benefit from changes to the funding system. But North Country Superintendent Ellen Collins said she’s not sure what it will look like on the ground.
Collins cited many of the same financial pressures as Chavarria: tight labor markets, wages and health care, a drain on federal pandemic cash. He’s also not sure how much money the district will actually be able to raise, given that a 10% increase in per-pupil spending would trigger a review of the state tax rate.
“I would be cautiously optimistic that we will get some benefit,” Collins said. “But until we start seeing the numbers, I’m not sure what that will look like.”