Just Say No to Election-Year Temptation

On opening day of the 2016 legislative session, House Speaker Shap Smith had this advice for his colleagues: “There will be those who suggest that because this is an election year, that we will focus on politics rather than the people’s business. I reject that premise. I know each and every one of you and know that you are here because you believe that we can help make Vermont a better place.”

A good way for legislators to heed the speaker’s suggestion would be to resist the temptation to spend all of the Education Fund surplus just to hold down taxes in an election year. It will come back to bite their constituents next year.

At first blush it might seem like a good idea: it is taxpayers’ money after all. But using all of the surplus will be one-time relief that will be have to be made up the following year. In fiscal 2018, voters will see a double tax increase: they will have to make up the amount covered by the surplus in fiscal 2017—currently projected at about $20 million—plus whatever normal increase occurs in fiscal 2018.

Vermont’s school funding system is based on the idea that all students have equal access to the educational resources of the state, so our statewide tax base provides all communities with equal capacity to raise education funds.

To that end, the Legislature sets a homestead education tax yield that applies to every community: the amount per pupil to be generated for each $1.00 on the homestead property tax rate or 2.0 percent of household income for Vermont resident homeowners who qualify to pay an income-based school tax.

Local communities determine how much they want to spend per pupil, and their tax rates vary up or down accordingly using the yield amount as the base. For example, if the homestead property tax yield was set at $8,000 per pupil, a district that voted to spend $16,000 per pupil would have a $2.00 homestead tax rate. A district spending $12,000 would have a rate of $1.50.

The Legislature is currently considering a yield of $9701 per pupil, which represents a slight tax cut from this year—about 0.5 percent. But to achieve that yield, the Legislature is proposing to use all of the surplus anticipated for the Education Fund.

At the same time that the Legislature is proposing to spend down its Education Fund surplus, many districts around the state are depleting their own reserves and surpluses to avoid being penalized by the Legislature for increasing their budgets too much next year. (Any spending increase covered with surplus funds doesn’t count toward the penalties.)

A better approach than using the surplus all at once would be to develop a long-range plan, one that projects the ups and downs that are likely to occur with Education Fund revenues. Any surpluses could be used to stabilize the education tax rates, rather than amplify the peaks and valleys.