More cost shifts to the Education Fund

The Vermont Legislature is pushing ahead with school consolidation on the promise that it will produce better educational opportunities for Vermont children and lower costs for taxpayers. But if consolidation is such a good idea, why won’t lawmakers—to borrow a well-worn phrase—put a little skin in the game and invest General Fund dollars in the reform effort?

The education reform bill approved by the Senate Education Committee offers inducements—either tax breaks or direct payments—to get school districts to consolidate. The cost of these inducements, however, won’t come out of the General Fund. They will come from the Education Fund, which means school districts that don’t consolidate, including those that aren’t required to merge, will pay higher property taxes for the Legislature’s sweeteners.

Consolidation will become another cost shift, not unlike the cost shifts the Legislature says it wants to eliminate.

The education committee’s reform bill offers five years of tax breaks to certain school districts that agree to consolidate in fiscal 2016. The incentive is designed to persuade supervisory unions with at least 900 students to become supervisory districts. A supervisory union might comprise, say, five towns, each with its own elementary school, and a union high school that serves all towns. In a supervisory union, each school has a separate school board. If this same group of towns became a supervisory district, there would be one school board to oversee all of the schools.

Only a small number of districts are in a position to consolidate this way by the end of fiscal 2016. (The actual consolidation has to be completed by the end of fiscal 2017.) But those that do will be eligible to have their taxes reduced 10 cents in each of years one and two, 8 cents in year three, 6 cents in year four, and 4 cents in year five. The reduction lowers school tax rates from what they would have been each year under the regular education funding formula.

The Agency of Education estimates that four supervisory unions might consolidate under this plan, costing property tax payers statewide about $5 million in year one for the incentives. The first-year cost is almost as much as another school tax break the Legislature wants to eliminate—the so-called “phantom student” provision that slows the rise of property tax rates in communities with rapidly declining enrollment.

While the initial round of consolidation bonuses is expected to affect relatively few districts, the Senate also proposed a three-year extension for incentives that might appeal to many more communities. The tax breaks aren’t quite as generous for towns that form Regional Education Districts (REDs), and REDs require a minimum of 1,250 students or the consolidation of at least four existing districts. However, if Vermonters come to believe that the Legislature is going to force consolidation one way or the other, they may decide not to resist the inevitable and go for a few years of reduced property taxes.

And who covers the cost for the incentives to create REDs? You guessed it—property tax payers. The cost of tax incentives available to REDs is borne by the Education Fund.

If consolidation is really successful and everybody does it, the consolidation incentives will become a mirage. The Legislature will have to raise school taxes on everyone to cover the incentives to everyone. Towns will end up paying themselves to consolidate.

What a deal!