Are Vermont's Education Spending Caps Working? It Depends Who You Ask

Feb 19, 2016

Remember those controversial spending thresholds that lawmakers used to try to control school spending in Vermont? Well, they worked. Or not, depending on who you talk to. And new budget numbers from districts across the state have done little to resolve the debate over education spending.

House Speaker Shap Smith has taken lots of heat over the last year for a piece of legislation that sought to keep school-budget growth below 2 percent this year. The numbers are finally in, and according to preliminary data from the Agency of Education, proposed Town Meeting Day budgets are up by only about 1.5 percent on average this year.

“So my reaction is that Act 46 is working,” Smith says.

Based on the budget-growth number alone, Smith might be right: it’s less than half the increase districts came in with last year. But numbers can be deceptive, and many say that the budget-growth figure is a misleading one. 

“Did [the thresholds] work in terms of drastically reducing expenditure at the local level? I don’t think it did,” says Nicole Mace, head of the Vermont School Boards Association. 

Mace says overall education spending is up by closer to 2.5 percent in fiscal year 2017, about the same as last year. Here’s the difference between the two numbers: one includes all the offsetting revenues districts can use to depress their tax bills; the other does not.

"My reaction is that Act 46 is working." - House Speaker Shap Smith

Mace says it appears as though districts tapped one-time reserve funds to stay below the Act 46 thresholds, lest they suffer the financial penalties that come with exceeding them.

Brad James, education finance manager at the Agency of Education, says the use of offsetting revenues is up five-fold over last year. 

“That’s a significant increase,” James says.

James agrees with Mace that the influx was likely a direct result of schools using one-time monies to maintain spending levels without running afoul of the threshold penalties.

The thresholds were initially supposed to be in place for two years. Lawmakers however have since scrapped the caps for next year. House Minority Leader Don Turner led the charge against that change.

“If the goal was to contain costs, you needed to do it at least two years to achieve a real significant impact,” Turner says.

"The majority has artificially lowered property taxes for education spending this year and we’re going to see significant increases next year.” - House Minority Leader Don Turner

Since many districts depleted their reserves this time around, Turner says next year’s thresholds would have forced some actual reductions in overall spending. Losing the thresholds now, Turner says, removes the fiscal pressure at the time when it’s needed most.

Local districts aren’t the only ones using one-time monies to depress tax rates this year. Legislators are considering the use of a $20 million surplus to in the education fund to buy down the statewide property tax rate this year.

Mace, whose organization opposed the use of spending thresholds this year, and supported the abolition of them for next year, says that would be a mistake. 

“And I think that sets up for a potentially significant problem in FY18 in terms of needing to make up a combined local and state revenue,” Mace says.

Turner says the timing of the fiscal maneuvering shouldn’t come as a surprise.  

"I think that if we think the caps are the reason for this moderate spending, we're dreaming." - Gov. Peter Shumlin

“Vermonters need to understand that this is an election year,” Turner says. “The majority has artificially lowered property taxes for education spending this year and we’re going to see significant increases next year.”

Smith, however, says the incentives in Act 46 to streamline education governance will begin yielding new savings next year. 

Gov. Peter Shumlin, who supported getting rid of the caps next year, says he doesn’t think the spending thresholds had any meaningful effect on school spending this year.

“I think that if we think the caps are the reason for this moderate spending, we’re dreaming,” Shumlin says. “Those caps weren’t very well designed, and they were easy to work around by just drawing down reserves.”

Shumlin says the enduring benefits of Act 46 will accrue from the district-consolidation requirements it contains. He says the majority of districts in the state are now engaged at least informally in consolidation talks.