There’s no Education Fund deficit

Pssst. Did you hear about the $60 million deficit in the Education Fund?

Guess what. It’s not true.

Given the headlines and news stories in recent weeks, Vermonters may be surprised to hear there is no deficit in the Education Fund. ¹ That’s because funding for schools—like funding for municipalities—doesn’t work like the state budget, and never has. Citizens vote directly on their school and municipal budgets. Their elected representatives vote on the state budget. That makes a big difference.

A gap or deficit in the state budget occurs when anticipated revenues, based on current tax rates, fall short of anticipated expenditures. Our elected representatives in the Legislature must approve both spending and revenue plans to balance the budget. In recent years, projected gaps have been closed more often by cutting spending than by increasing revenue, although the Legislature has passed some small fee and tax increases. Typically, to balance the state budget, the Legislature adjusts spending to match the available revenue to avoid a projected deficit.

For school funding—and funding municipal services—we have a direct-democracy process that works the other way around. School boards or select boards determine their spending needs for the coming year and present their budgets for voter approval. Once voters pass the budgets, tax rates are set to generate the money needed to pay for the approved expenditures. There can’t be a budget gap because when voters agree to the school or municipal budget, they are also agreeing to the taxes required to cover the cost.

And so it is with the Education Fund. Some of the revenue going into the fund comes from taxes with fixed statewide rates. Other revenue comes from homestead taxes, paid by Vermont resident homeowners, with rates that vary by school district based on per-pupil spending. Districts with the same per-pupil spending have the same tax rates. And districts with higher spending have higher tax rates. Local residents vote on their school budgets. The state sets tax rates for each town to insure that the revenue going into the Education Fund will be sufficient to cover the voter-approved budgets and the other education costs paid out of the fund.

It’s true that homestead taxes are projected to increase more than usual next year, but that is not because there is an Education Fund deficit. A year ago, the administration and the Legislature decided to use some reserve education funds to artificially reduce school tax rates for the current year. Next year’s tax increase looks bigger than usual because this year’s rate was artificially low.

If you think about it, the budget process for schools and municipalities makes sense. Budgeting should start with an assessment of the cost of delivering needed services and performing the duties Vermonters expect from schools, municipalities, and state government. Then when voters agree on what they want their local or state government to do, it’s up to elected officials to see that there are sufficient revenues to get the job done.

The warnings about an Education Fund deficit appear designed to further the notion that Vermont has an education-funding crisis—one that requires dramatic spending cuts. But from fiscal 1992 to 2015—the latest data available—the share of state and local taxes going to education in Vermont has been trending down, reaching its lowest point in 2015.

Meanwhile, there has been little coverage of other Vermont education news. Earlier this year, Education Week rated Vermont third in its annual Quality Counts national rankings of state school systems.

Where exactly is the crisis?

1. The first reference to an Education Fund deficit we could find was the vtdigger publication of an October 7, 2017 story originally published in the Valley News.[↩]