The latest: Ed funding reform

The Governor and the House plans are in alignment on a lot of the big structural changes to public education in Vermont. Both plans:

• move to a one-size-fits-all foundation amount set by the state for all schools
• impose consolidation to fewer districts
• eliminate the role of local school boards
• upend 50 years of commitment to income-adjusted school taxes with a statewide property-based tax, so school taxes are no longer based on ability to pay. Instead, taxes will be driven by property value with a homestead exemption where a portion of the home value is exempt from taxes
• fail to address the unfairness in who pays
• fail to address the cost drivers out of schools’ control

The House and Governor’s plans differ on other details including:

• The House has a longer timeline for implementation.
• The House has a higher starting amount for the foundation payment.
• The Governor’s plan expands the use of vouchers while the House limits them.
• The Governor’s plan uses a fixed dollar amount for the homestead exemption while the House plan uses a percentage of the value.
• The Governor’s plan consolidates to five districts; the House creates a subcommittee to offer three possible plans aimed at districts with about 4,000 kids—approximately 20-21 districts.

Vermont has a unique education funding structure. And that can be both a blessing and a curse. It means that we have one of the most equitable systems in the country, where the wealth of the town does not determine how much schools are able to spend to educate the children in their community. Where the child lives matters much less here than it does in other states. We’ve succeeded in reducing the disparities in spending between rich and poor communities, where many other states are still struggling with that.

But the uniqueness also means that it can be hard for people to understand the system, especially when what they decide on their school budget doesn’t match what happens to their tax bill. And there are growing pockets of inequities that hit some taxpayers and some districts harder than others, meaning there’s plenty of areas where we can and should improve the system.

PROS – what is working well:

• We strike a balance between state and local control: We pool resources statewide so that all kids have access to the same pot of resources, but local school boards and local voters set local budgets and manage their schools to reflect their local communities’ needs.
• We have less disparity from town to town than other states, and any disparity is driven less by town wealth and more by community decision-making.
• Taxpayers in all towns pay the same rates for the same per-pupil spending.
• For most taxpayers, school taxes are based on income, the best measure of their ability to pay.
• School spending is adjusted in multiple ways to smooth some cost differences across districts.

CONS – the problems that remain to be solved:

UNFAIRNESS IN WHO PAYS SCHOOL TAXES

• • The system is regressive at the high-end: Low- and middle-income Vermonters pay a bigger share of their income in school taxes than taxpayers with the highest incomes.
  • Income sensitivity is out of whack. Because income and property thresholds haven’t been changed in decades, taxpayers can see sudden spikes in their bills—sometimes thousands of dollars—in any given year even when school spending doesn’t change.
  • Tax bills are often disconnected from school spending because of property values: if your town’s property values go up more than the state average, you will be expected to contribute more to that slice of the pot than you were last year.

THE BIGGEST COST DRIVERS ARE OUTSIDE OF SCHOOL DISTRICTS’ CONTROL

• Certain costs hit some districts harder than others, and spending cuts won’t address those disparities.
• Many of the cost drivers in FY25 continue to affect schools, and they are out of districts’ control. These aren’t school funding problems; they’re societal issues like the cost of healthcare or the need for mental healthcare services. Spending cuts or a one-size-fits-all approach won’t make healthcare cheaper or bring down inflation.

Are Vermonters ready to take control of education spending away from local voters and cede it to the Agency of Education?

• Reverting to a foundation system would take control over school spending away from local voters and give it to the legislature and the governor. Instead of building a school budget based on the needs of their kids and community, local schools would be given a fixed amount per pupil.
• Vermont’s prior foundation system and foundation systems in other states resulted in stark disparities in resources between rich and poor towns. Although the House plan attempts to limit that with caps on spending above the foundation amount and tying spending to what poorer districts can raise, there are still concerns that returning to a foundation system will increase disparities across schools.
• There will be downward pressure on the foundation amount because public education is such a big part of state spending: one-third of the total budget. In the system we had before 1997, the foundation amount was often underfunded to balance other parts of the state budget. And before 2018 there was a General Fund transfer to the Education Fund that was regularly held up until the budget was resolved, which is why the state eliminated it.
• The one-size-fits-all approach does not address the biggest cost drivers that hit some districts harder than others, like mental healthcare for kids and transportation.
• Eliminating voters’ say in school budgets is anti-democratic and will reduce community engagement with and connection to their schools.
• Schools will be starting from different places in a standardized foundation system. Some schools have already made cuts to programing and need additional funds to catch up, some are in the middle of construction projects.

For hundreds of years, Vermonters have gotten together on Town Meeting Day to decide on how much they want to spend on their local schools. Are we ready to walk away from this connection to our schools? Both the governor’s and House’s plan would dismantle democratic participation in schools in two big ways:

• eliminate local votes on school budgets on Town Meeting Day and take control of spending decisions for all districts
• eliminate the majority of local school boards, meaning many fewer Vermonters would serve on school boards and school boards would be further removed from their communities. Currently, more than 900 Vermonters serve on local school boards and local school board meetings provide regular opportunities for community members to weigh in on key decisions impacting their schools and communities

Who should decide where and when to consolidate? How do we measure the value of a school to a community and how do you weigh that against any potential savings?

Vermont has a long history of educating our kids in local, community schools. State imposed consolidation:

1. • hurts small schools and rural areas by contributing to population decline, reduced property values, loss of social capital, and difficulties attracting and retaining families
   • doesn’t necessarily save money or improve outcomes, based on the results of Act 46
   • takes away the democratic involvement and agency of community members

For more information: https://vtruralschools.org

Are we ready to walk away from the 50 years of precedent that taxation for public education should be based on residents’ ability to pay and that a person’s income is the fairest measure of that ability?

• Since the 1970s, the state has been moving towards basing school taxes on income because the value of your primary residence is not a good measure of your ability to pay. For low- and middle-income Vermonters with mortgages, the value of the primary home overstates their ability to pay because their home equity is less than the home value. And many taxpayers have other debt so may even have a negative net worth. And at the high end, the primary residence is a small share of their wealth and understates their ability to pay.
• Any homestead exemption structure perpetuates the regressivity of the current system—meaning that higher-income taxpayers pay a smaller share of their income in school taxes than middle-income Vermonters. So the proposed system will continue to hit middle-income Vermonters the hardest.
• Because higher-income taxpayers are excluded under both the Governor and the House plans, it’s just redistributing the taxes among Vermonters under $115K or $125K in household income and creating different winners and losers. In aggregate, the group will bear a similar share of the taxes and continue to subsidize higher-income taxpayers.
• Taxpayers with the same income will have very different tax bills because they’re driven by the value of the primary home rather than their ability to pay. The way the system works now, taxpayers with the same income who qualify for income sensitivity—those under about $115K in income this year—pay the same bill if their towns have the same per-pupil spending and their income is below $90k and their home value below $400k, which is about 70% of them.
• The proposals retain all of the complexity and frustration with the current property tax system—the Common Level of Appraisal (CLA), the disconnect between bills and school budgets. And they retain all of the complexity of the current hybrid system because it’s also based on the interaction between income and property value. People will still need to cross-reference their incomes, their property values, the CLA and the exemption levels to understand their taxes.

House Ways & Means Committee Testimony—April 3, 2025: Homestead Exemption Increases Unfairness

In all of the education reforms of the last decade, we’ve heard that the way to improve schools is to spend less:

• Act 46 in 2015 was supposed to improve outcomes and save money through school consolidation.
• Act 173 in 2018 was supposed to improve outcomes and save money by changing how we fund special education.
• Act 127 in 2022 was supposed to improve outcomes by providing more money for kids in weighted categories (and save money by pressuring higher-spending districts to spend less).

But we have not had good evaluation of any of those policies, in part because we haven’t really given them a chance to work before adding more changes into the mix. What limited information we have does not reflect much in the way of cost savings or improved outcomes. And now, after these major reforms of the last 10 years, we’re hearing again that a whole new system will save money and improve outcomes.

Act 46 of 2015
Act 46 of 2015 began a multi-year, multi-phase effort at school consolidation, with the goal of spending less but improving outcomes. While there has not been a comprehensive evaluation by the Agency of Education, other research has found limited costs savings or improvement in outcomes from the mergers and raised concerns about the effects of Act 46 mergers on communities.

Did Act 46 work? It’s complicated (Vermont Public)

Act 46: State Board of Education’s Final Report of Decisions and Order (Vermont Agency of Education)

MERGERS AND IMPOSITIONS: A CRITICAL LOOK AT VERMONT’S ACT 46 (Vermont Law Review)

Last Stand: Vermont School Districts Vow to Fight Forced Mergers (Seven Days)

Act 173 of 2018
Act 173 of 2018 changed how the state funds special education services, by converting a per-kid reimbursement system to district-based block grants. The promise was that it would save money while also providing schools with more flexibility in how they spent the money. But the block grants were calculated based on the total number of pupils in a district, not the kids that need these services. The result was that the majority of districts saw a decrease in funding and policymakers delayed the final implementation multiple times because of backlash from districts. Act 173 also required an evaluation of Vermont’s pupil weighting system, which led to Act 127 of 2022.

Vermont is changing how it funds special education. Some school districts say it’s not being done fairly. (VT Digger)

Lawmakers asked to delay special education reform law (VT Digger)

New Vermont special education law could affect local taxpayers (Vermont Journal)

Act 127 of 2022
Act 127 of 2022 changed Vermont’s pupil weighting structure, to be fully implemented by this year, fiscal 2025. Vermont has long counted pupils in different categories as more than one pupil because they need more resources, including those facing economic disadvantage, multi-lingual learners, and those at different grade levels. But Act 127 changed those weights and how they were calculated significantly, with the goal of making it easier for districts with more kids in these categories to spend more on education. But the implementation process had unintended consequences, contributing in part to the tax and spending increases in FY25. So the law has not really taken effect or been evaluated yet, even as the governor and Legislature propose an entirely new system for spending and weighting.

Vt. school superintendents appeal to lawmakers to change Act 127 (Times Argus)

‘Not intended as free money’: Lawmakers scold schools over spending (Vermont Public)

Act 127’s School Tax Impacts Appear To Be Greater Than Expected (The Bridge)

A Bill to Address Vermont’s School Finance Mess Advances, Despite Criticism (Seven Days)

More and more Vermonters pay for schools through a combination of income and property taxes. When their incomes or house values pass certain thresholds their tax bills can jump even when school spending doesn’t change. Updating the thresholds this year would ensure low- and middle-income Vermonters benefit from income sensitivity.

However, the plan in Montpelier is a rate buydown for FY26—that means taking one-time money to lower people’s education tax bills. But the problem is that they are proposing a buydown for everyone—meaning even those highest-income taxpayers who are already getting a tax break will get a bigger break, and that low- and middle-income Vermonters will continue to pay more than the richest.

Instead of a rate buydown that gives even the highest income Vermonters a tax break, we can immediately reduce the school tax bills for over 50,000 low- and moderate-income Vermont households this year by updating the income sensitivity thresholds for inflation. This will help income sensitivity work as intended and ensure people can afford their school tax bills this year.

More:

House Ways & Means Committee Testimony—January 29, 2025

Property tax relief for Vermonters: three-part plan

Vermont has been moving towards an income-based school tax system for more than 50 years, starting in the 1970s when the state started to implement income-sensitivity to ensure that education property tax bills wouldn’t drive seniors on fixed incomes out of their homes. It’s time to finish the transition and move to a completely income-based education tax system.

Under the current system, higher-income Vermonters pay their school taxes based on property value because it’s cheaper for them than paying based on income. But those of us who pay based on income—and that’s 2/3 of Vermonters, everyone under about $125,000 in household income—pay a bigger share of our income in school taxes. And because of those cliffs, some pay a MUCH bigger share.

By giving higher-income Vermonters the property option, we’re letting the people with the most income off the hook on school taxes—they have 2/3 ofthe income in the state, but we allow them to pay school taxes based on property. And we rely on low-and moderate income Vermonters to subsidize their substantial tax break.

An income-based school tax would not only be more fair, it would be more straightforward, easier to understand, and help reconnect local voters to their school budgets.

Further reading:

How to make school taxes fairer this year and beyond

Until the late 1990s Vermont schools were funded through a foundation system. The state determined a minimum amount necessary for an adequate education. If a town couldn’t raise that much on their own, the state would make up the difference. But state aid only got towns to “adequate” funding.

To spend more, they were on their own, which for poor towns meant much higher taxes for very little additional money per student. But for richer towns—towns with a ski resort or lots of other property wealth—a small bump in their tax rate would yield a lot more money to spend on their schools.

The foundation amount essentially served as a floor for rich towns and a ceiling for poor towns. As a result, where a student lived had a really big impact on the resources available to them. And that’s still true in most states across the country, unfortunately.

And then in the mid-nineties, the Brigham family who lived in an under-resourced district sued the state under the common benefits clause of the Vermont constitution and  won. The court’s decision emphasized the goal of protecting local control while pushing for greater equity across districts.

To keep a democracy competitive and thriving, students must be afforded equal access to all that our educational system has to offer.
– Vermont Supreme Court, Brigham Decision, February 5, 1997

The subsequent changes to Vermont’s education funding system are grounded in three central principles: fairness for students, fairness for taxpayers, and protecting local control. Here’s what that means:

FAIRNESS FOR STUDENTS comes from the fact that school taxes are statewide taxes that go into one big pot that we all share—we are one of two states that have a statewide education tax (Hawaii is the other). That means in Vermont, school funding is not dependent on the wealth of the particular community.

LOCAL CONTROL means that local school boards and local voters determine local spending and governance.

FAIRNESS FOR TAXPAYERS means:

• Taxpayers pay the same tax rate for the same per-pupil spending, regardless of their town’s wealth. Towns with more spending per pupil have higher tax rates; those with less spending per pupil have lower rates, and towns with the same per-pupil spending have the same rates. That may sound simple, but it wasn’t true before 1997.
• We currently have a system based on income, the best measure of ability to pay.

Further reading:

Brigham Decision: Shared responsibility for funding education

20 years ago, Act 60 fundamentally changed the way Vermont pays for public education

Quick reads:

20 years ago, Act 60 fundamentally changed the way Vermont pays for public education

How to make school taxes fairer this year and beyond

A fairer, simpler way to fund education

Education funding: The three cliffs problem

Education spending: What’s true

FAQ’s

publicschoolsvt.org

Citizen’s guides:

A Citizen’s Guide to School Funding: Vermont’s Act 68

A Citizen’s Guide to the CLA: Vermont’s Common Level of Appraisal Adjustment for School Taxes