Reduce school tax volatility

While press and public attention focused last week on the feud over who should negotiate teacher health insurance benefits, the Legislature was making more consequential changes to education funding that will affect schools and taxpayers in the 2018-2019 school year. It’s not clear yet how to mitigate these shortsighted changes next session. But there is an obvious step that needs to be taken to ensure the Education Fund is thoughtfully managed in the future.

We need a formal body, similar to the Emergency Board (which determines the consensus revenue forecasts) or the Debt Affordability Advisory Committee, to recommend education tax rates and use of Education Fund reserves. An Education Fund Stabilization Advisory Committee could help to ensure the long-term fiscal health of Vermont’s education finance system and avoid dramatic school tax increases like we can expect to see next year.

The health care feud ended up being a fight over $13 million, spread over two years. That’s not to be ignored. But out of total school tax collections of more than $2 billion over the next two years, the savings will be barely noticeable.

What taxpayers are likely to notice is $35 million of one-time money the governor and the Legislature agreed to spend in fiscal 2018. They are using all of the unallocated reserves in the Education Fund—$26 million—and they are lowering the so-called stabilization reserve to close to the statutory minimum. That’s another $7.8 million that won’t have to come from taxes in fiscal 2018. While these funds may make people feel better this summer and fall when they get their school tax bills, it sets the stage for some major headaches in fiscal 2019.

Many local school districts spent down their reserves in fiscal 2017 in response to ill-conceived tax penalties imposed by the Legislature on districts that spent more than a prescribed amount. Rather than curb spending, some districts used money from their reserves to avoid triggering the penalties. But now they no longer have funds saved for the next rainy day. And assuming the projections hold, there will be not a cushion in the Education Fund after fiscal 2018, either.

It would be one thing if the reserves were being used for one-time expenditures. But they’re not. They’re being spent on routine, continuing operations, which means taxes will have to increase in fiscal 2019 just to maintain current spending. Any increase in spending will require further tax increases.

Much of the debate this year and the unnecessary upward pressure on property taxes that the governor’s and Legislature’s decisions will cause next year could have been avoided.

An independent advisory committee or board could help the Legislature avoid the roller-coaster effect on tax rates caused by depleting reserves. Such a committee could take the long view and encourage stability of the Education Fund and school taxes over short-term expediency.

The Legislature has adopted sound policies like this in the past. Years ago, the Legislature and the administration used to do separate revenue forecasts and conveniently used whatever numbers suited their immediate needs. If the budget didn’t balance, one solution was to adopt a rosier revenue forecast.

Now we have a consensus forecast. The Legislature and the administration have economists who do separate estimates, but then the two sides come together and agree on one set of numbers that everyone uses. It has reduced the game playing that undermines public trust in government.

It’s time to do the same for the Education Fund.