Education Fund needs new management

Unlike last year, nobody seems to be panicking over education funding as legislators prepare to return to Montpelier. But that doesn’t mean we should forget about the Education Fund. In fact, now, when the Legislature’s hair is not on fire, is a perfect time to reform management of the $1.7 billion fund.

Why do we need reforms? 

Because the Education Fund, which funds pre-K to 12 public education and accounts for almost 30 percent of all state spending, has become more susceptible to political manipulation.

In recent years, there have been attempts to shift inappropriate costs to the Education Fund, which really means shifting costs onto the property tax. In his first year, Gov. Phil Scott proposed to move costs for higher education, teachers’ retirement, and early education into the Education Fund, which would have increased spending by $50 million—most of which would have come from property taxes or forced cuts to pre-K to 12 public education.

And both the Legislature and the administration have succumbed to the temptation to use one-time money to artificially lower school tax rates when they were fearful that voters would complain about property taxes. The problem with using one-time funds or dipping into reserves like this to lower tax rates is that it typically creates a rate spike the following year when the extra funds are no longer available.

When added to the Legislature’s penchant for changing the funding system every year, Town Meeting voters face increasing confusion and chaos.

There are signs that more manipulations may be ahead related to 2019-20 school tax rates.

In early December, in his annual forecast of education tax rates, the tax commissioner reiterated an idea floated by Gov. Phil Scott to divert some unexpectedly robust sales tax revenue from the Ed Fund to early care and learning. Vermont clearly needs to invest more in early care and learning, but this is not an expense the Ed Fund was set up to cover. Skimming money from the Ed Fund in a good revenue year is not only unsustainable. It also cheats the public education system of needed—and legally allocated—resources and puts upward pressure on property taxes.

In December, the Legislature’s Joint Fiscal Office also released the consensus outlook for the Education Fund for next year. The outlook is based on preliminary estimates of local school budgets and forecasts of the revenue expected to cover those budgets. The outlook assumes the use of $20 million in one-time surplus money to pay for regular, continuing education spending. That would mean a tax cut next year that taxpayers would have to make up the following year.

Revenues to the Education Fund do fluctuate. But those changes don’t have to create wild swings in school tax rates if the fund is managed with an eye toward long-term stability—rather than the next election. 

The Legislature has faced this type of problem in other areas and wisely made reforms in the interest of sound fiscal management. Debt and revenue forecasting used to be subject to political manipulation, but Vermont has largely eliminated those risks by having an outside board evaluate the state’s borrowing capacity and outside economists agree on how much revenue the state is likely to collect in any given year.

It’s time to do the same with the Ed Fund by creating a quasi-independent commission or committee to manage the fund with a focus on long-term stability.

An Education Fund Stability Advisory Committee could function like the Capital Debt Affordability Advisory Committee, which helps to manage Vermont’s long-term borrowing, or the Emergency Board, which sets the consensus revenue forecast that both the administration and the Legislature use in fiscal planning.

Such an advisory panel also could make impartial recommendations about the use of Ed Fund money. There could be legitimate one-time uses for one-time surpluses—for example, to help with school construction costs or to make up for past underfunding of teachers’ retirement payments. But a panel committed to the long-term health of the Ed Fund probably would frown on siphoning money off to other areas of state government. Such a panel, in addition to recommending tax rates each year, could produce a short, user-friendly annual report to help Vermonters understand the school financing system.

Even without last year’s sense of urgency, changes to Vermont’s education funding system are sure to be proposed this session. But whatever happens with funding, the Ed Fund itself will benefit from better management, and so will Vermont taxpayers.