Our former governor tried last year to punish school districts that didn’t cut their budgets. The legislature rejected the idea. The plan wouldn’t work the way it was supposed to, House members said. And, they noted, it violated the equity principle established in the Vermont Supreme Court’s 1997 Brigham decision. Well, this year the proposal has been resurrected and turned on its head. Rather than punishing “bad” towns, the House Ways and Means Committee has decided to reward “good” towns.

This proposal –Section 4 of H. 436, the annual miscellaneous tax bill — will be taken up by the full House this week. The proposal wasn’t a good idea last year, and it’s not a good idea this year. Below are the reasons why.

But first, you should know that there are some interesting politics swirling around H. 436, despite its seemingly innocuous title of “miscellaneous tax bill.” The politics have to do with an effort to get as many representatives as possible to buy into other proposals.

Sometimes, if you have to give a little to get more, compromises are made. And the “more” in this bill is much bigger than a school tax break.

There’s a provision that levies an .8-percent tax on health insurance claims, payable to the state’s “health care resources fund.” Another provision raises the tax levied on hospitals from 5.5 percent to 6 percent. Assessments on home health agencies and nursing homes are increased, too. Tobacco taxes are raised. Burlington’s “tax increment financing” agreement is fine-tuned.

Discussion around H. 436, therefore, will pop off the debate over this year’s signature issue, health care reform, if it hasn’t started already.

The school tax provision has a bit part in the total scheme of things. Nonetheless, there are good reasons to oppose the provision. We see four, and they are all rooted in equity:

1. A town spending $15,000 per pupil meets its spending reduction target by cutting its Russian language and swim programs. Under Section 4 of the bill, its school tax rate is reduced a penny. A town spending a third less — $10,000 per pupil — feels it just wouldn’t be right to cut a calculus course and reduce phys ed time to meet its spending reduction target. Even though the second town is spending far less per pupil than the first town, it doesn’t get a tax break. In fact, its tax rate is set marginally higher to cover the costs of the tax break given to the higher-spending town. This is not equity.

2. A punishment-and-rewards budget-cutting system ignores expenses the state has told schools must be covered — at all costs. The addition of two special needs students with severe disabilities can mean $400,000 in new budget expenses for a district. A punishment-and-rewards budget-cutting system also ignores additions of any students anywhere. A school can, in fact, cut its per-pupil spending costs and be running more efficiently because new students have moved into town — yet it may not be meeting budget reduction targets. School tax rates are directly related to spending per pupil, not to the size of a school’s budget.

3. The tax rate reduction is given to ALL towns in a supervisory union, regardless of whether each town’s schools met their target. As long as the SU collectively meets the Challenges for Change target for that SU, all towns get a break.

4. The $1 million in “rewards” that the miscellaneous tax bill offers may be seen as “inconsequential” given the size of the state’s overall education spending. But creating another “carve-out” by allowing an unequal draw on school funds trims another corner from the equitable school funding principle the state has followed for 15 years.

Here’s the bottom line: Our current school funding formula already has a built-in, equitable mechanism for rewarding efficient management of tax dollars. Tax rates go up when per-pupil spending rises. Tax rates go down when per-pupil spending falls. An inequitable second system is not needed.

Admittedly, crafting the annual miscellaneous tax bill is a difficult job. But this is one tax provision that is not sound policy.

VTDigger

Lately there has been a lot of talk about Challenges for Change, a joint legislative-executive exercise from last year which was supposed to result in $37.8 million of savings for the general fund in fiscal year 2011 and $72 million in FY12 – such savings to be achieved through greater effectiveness rather than simple cutbacks in services delivered. I was the Douglas administration point person for Challenges so it’s fair to blame me for the parts that didn’t work, either because I didn’t lobby effectively enough for the needed legislative authorization or because execution was faulty. You can read this post as informed or biased or both.

Although much of what we tried to accomplish in Challenges didn’t work – often, but not always, because the legislature refused authorization to try, there is much that did work.

Although much of what we tried to accomplish in Challenges didn’t work – often, but not always, because the legislature refused authorization to try, there is much that did work and will make the state government more effective in the future. There’s a lot to learn both from the parts that worked – because we ought to do more of them – and from what didn’t work. Some of the things that didn’t work need to be tried again.

Because I re-retired in September, I don’t know the current status of all the Challenges in detail. The final first year results won’t be known until the state fiscal year is closed at the end of June. I do know that it is likely that most – but not all of the first year savings goal will be achieved but some through the use of one time funds and some through plain old cuts. The second year goal won’t be reached through first year momentum; reaching that goal will require more legislative action this year.

Below is a post I wrote just after the legislature adjourned giving the status of Challenges as authorized. There are some marked updates based on later events. Next week I’ll write more on lessons learned.

Challenge Glass: Half Full or Half Empty?

Before adjourning, the Vermont legislature passed a Challenges for Change Bill which is supposed to result in more effective government while saving $37.8 million in the general fund for fiscal year 2011 and $72 million for FY12. But is the bill adequate to achieve these goals? What happens if the goals are not achieved?

The short answer is that the bill does enable some needed sustainable change in State government; it will save money; but there were also opportunities missed. Moreover, about $5 million of the FY11 savings comes from using one-time federal money (which there is a small probability that we won’t get at all and which we won’t have in FY12); and there is a huge potential problem in education funding, which was not adequately addressed for FY12.

The administration asked the legislature to authorize actions the administration estimated would save $31 million in FY11 and said that it could find another $7 million in restructuring savings without additional legislation. The legislature actually authorized restructuring which should save about $23.5 million (by my estimate) plus it said to use $5.16 million of federal funds, which leaves the administration the task of finding about $9 million in savings. It’s a hard job but not impossible.

If the saving goals are not met for FY11, the administration does have the flexibility it should have – with plenty of notice to the legislature – to make up the difference with plain old cost-cutting. Hopefully that won’t be necessary; but this is a better alternative than using rainy day funds as a backstop as some people had suggested.

Performance contracting and grant making: That is fully authorized. We will be able to demand that vendors, service providers, and grantees be held to and paid for measurable results. Update: I hear that at least most human services contracts HAVE been written with clear and enforceable performance requirements. This has enormous potential moving forward to assuring we get the results we pay for and don’t pay for results we don’t get. Locking in this gain depends on the current administration strictly enforcing these clauses; there’ll be pressure not to.

Charter units: Another solid success. Innovative units of state government can be freed from many bureaucratic restrictions and will be able to deliver better services at lower cost. Lots of good ideas here and all that needed legislative authorization received that authorization with the exception of permission to sell off 500,000 square feet of state office and put it back on the local tax rolls. We weren’t counting on that for immediate savings; but it makes a lot of sense considering that the state workforce has already shrunk by 8%. Update: Forest and Parks did very well with its flexibility in progress towards increasing park revenue and out-of-state visitors and eliminating dependence on the general fund for park funding. Very significant efforts were underway when I left to reduce printing and mailing costs by going online and reducing travel and phone costs and the time employees spend driving by using online conferencing. Achieving results depends on enforcement by the Secretary of Administration and implementation of changes by Buildings and General Services (BGS) and the Department of Innovation and Information (DII). Former BGS and DII commissioners Gerry Myers and Dave Tucker got these efforts off to a great start. I’m very optimistic that former Rep. Michael Obuchowski, who was on the steering committee for Challenges and is now BGS commissioner, will do what needs to be done and more.

Regulatory: The legislature granted considerable freedom to expedite and simplify permits. It encouraged notices of proposed rules to go online but didn’t allow them to be completely removed from newspapers. Online applications will save work for both applicants and the State. However, some strange language in this section of the bill says: “It is the intent of the general assembly that permitting and administrative efficiencies created by regulatory reform component of ‘Challenges for Change’ shall not be used to reduce staffing or resources at the agency of natural resources, the natural resources board, or the agency of agriculture, food and markets.” We can be more efficient, but we can’t use efficiency in this area to save money!

Four challenges to the Agency of Human Services: Lots of good things are authorized including a clinical utilization and review board to reduce unnecessary (and sometimes dangerous) medical procedures, expansion of the successful Blueprint for Health program to include mental as well as physical health, further integration of different services to children and families across formerly distinct bureaucratic silos, and more. There are small cuts in payments to “designated agencies” – nonprofits which have regional state-granted monopolies on delivering certain services to human services clients; even the small cuts were made smaller in a last=minute amendment of the floor of the Senate to attempt to assure that the cuts didn’t simply result in less client service. In the administration view, this is a lost opportunity to require that the designated agencies restructure themselves to deliver services more effectively.

Corrections: Real progress was made here, too. Less people will be in prison AND public safety will be better protected. Diversion will keep some people out of prison altogether and get them the treatment they need. Better reintegration services including transitional housing and job help will make it possible not only to release some people more quickly but to do a better job of keeping all who are released out of trouble and reducing the danger they pose to others (there are very few people we keep in jail forever so we do have to think about reintegrating most offenders at some point). Rare and expensive prison beds will be reserved for those who should not be let out. Until the last minute, the bill contained a prohibition of closing even a wing of a prison – even if it became empty. This restriction was lifted in a compromise that only allows the closing of a prison while the legislature is in session, presumably so the legislature can prevent the closing. There is an irony here: communities usually object to building a correctional facility nearby; but they also object when there is a possibility of closure and associated loss of jobs and business.

Economic development: This is an opportunity missed. The administration hoped to restructure the web of more than fifty state-supported organizations that work on job creation into nine regional service centers offering one-stop shopping to job-creating businesses and communities which want economic development help. The plan would have introduced competitive bidding for state contracts for job creation and had targeted FY1 and FY12 savings of $3 million. The organizations didn’t want to consolidate or to compete for state money; they convinced the legislature that both were bad ideas. In the end there is a token decrease in funding, no consolidation, no competition and less than $1 million/year in savings. There is a baby-step towards performance contracts. The real loss here is that we won’t be encouraging job creation more effectively! Update: I was on a committee – established by the legislature – which was supposed to provide guidance for economic development planning and was supposed to work with the state economists to find measures for economic development success. Ably chaired by Steve Morse and with the active participation of very skilled volunteer members, the committee came up with some useful guidance which is about to be published – and put itself out of business (a very good example). But the disappointment is that the state economists basically said that there is no way to measure the success of economic development efforts in terms of jobs created or salaries obtained. IMHO we ought to vastly reduce expenditures whose effects we can’t measure.

Education funding: To put it kindly, this challenge was side-stepped. To put it bluntly, the failure to require SUSTAINABLE savings in FY11 and the failure to REQUIRE any savings have set us up for a funding disaster in FY12 for the education fund and for the general fund which helps to support it. The plan relies on voluntary local cuts in a system where the pain of cutting is local but the cost of not cutting is spread statewide. The result of these perverse incentives is that the employment of adults in Vermont school systems continues to rise even though our number of students is steadily declining. Update: As everyone knows, the local districts did NOT make the voluntary cuts and Governor Shumlin said onetime federal money would be used to cushion the blow for FY12. We are headed right for a cliff in FY13. We blew an opportunity to change the trajectory of more staff to less students gently; it’ll now have to be done much more abruptly. Too bad!

We will be better off, in my opinion, for having addressed some of the challenges. We will regret, I’m afraid, the challenges we didn’t address. The challenge glass is half-full; that’s better than empty, worse than full.

More posts I wrote while involved with Challenges are at http://blog.tomevslin.com/challenges-for-change/.

VTDigger

Stockxchng image

The state’s budget gap scenario for fiscal year 2012 won’t be cast in stone until Friday, when the economist for the Vermont Legislature, Tom Kavet, presents a revenue forecast to the state Emergency Board. Shumlin administration officials and lawmakers have said they hope tax revenues have increased enough to help soften the blow of a larger-than-anticipated shortfall in next year’s budget.

But it’s not just the revenues that are up in the air at the moment. The expenditure side is also in flux.

State officials can’t seem to agree on what the total budget gap is at this point. Shumlin administration officials say it is $150 million, while several lawmakers have wondered aloud whether that figure includes ongoing reductions in state spending under the Challenges for Change restructuring plan. The Legislature set a Challenges target of $38 million in fiscal year 2011, and $72 million in fiscal year 2012.

Last year, the Legislature removed $38 million from the budget and asked the Douglas administration to identify the equivalent amount of money in savings through a sweeping reorganization plan. In the end, lawmakers and state officials agreed on about $30 million in ongoing reductions through the Challenges process; the final $8 million came from one-time adjustments.

The new Challenges figure for fiscal year 2012 is roughly $33 million — on top of a recently widened budget gap of $150 million.

Whether it’s fair to lump those two figures together has become the subject of some debate and speculation.

In a recent interview, Jeb Spaulding, the new secretary of the Agency of Administration, said he was trying to determine whether there is any overlap between the Challenges calculation and the gap analysis.

When asked whether the Challenges should be added to the total gap figure, Reardon said: “I’m sticking with the $150 million.”

Jane Kitchel, chairwoman of the Senate Appropriations Committee, said on Tuesday that finding $33 million in structural reductions on top of the $150 million deficit “makes the fiscal year 2012 budget challenging.”

The Challenges were to be pursued in the spirit of improving government services while reducing expenditures. But in the deepening recession, after the federal stimulus money has been spent, the perception, however, is that in many cases the result has been cuts more typical of the traditional budgeting process.

On Wednesday, the Government Accountability Committee will deliver its quarterly progress report to the Legislature. The 114-page document on the Joint Fiscal Office Web site is a recapitulation of the baseline data for programs, in addition to “outcomes” and “measures” developed last summer by the Douglas administration.

At a meeting on Tuesday in Senate Appropriations, Reardon told senators that there are no surprises in the budget adjustment figures, which will come in at about $6 million. A human services budget transfer will make the BAA figure budget neutral, Reardon said.

Read the Challenges report.

Brouhaha boils over Sanders’ e-mail solicitation citing the Arizona shooting rampage

Vermont hasn’t been immune from the political fallout surrounding the shooting of Rep. Gabrielle Giffords, D-Ariz., and 18 more victims on Sunday, six of whom died, including a federal judge and a 9-year-old girl.

Sen. Bernie Sanders, I-Vt., on the floor of the Senate where he filibustered on Dec. 10, 2010 for 8.5 hours.

Sen. Bernie Sanders, I-Vt., was roundly criticized by national news outlets, from the Huffington Post to The Washington Post and Politico, for sending a letter to supporters that describes the massacre and then segues into a fund-raising pitch.

The Associated Press overview

The Huffington Post: “Sanders office defends letter”

Weekly Standard: “Sanders fundraising off Arizona murders”

In a statement to the press, Vermont Republican Party Chairman Steve Larrabee demanded that Sanders “return any contributions raised from this desperate fundraising plea.”

“Since the senseless tragedy in Arizona, Americans of all political persuasions have come together with prayers for the victims,” said Larrabee. “Unfortunately, there are some who are trying to score quick political points in this time of mourning. Senator Sanders’ fundraising appeal is perhaps the most blatant attempt to do so. By using this tragedy to demonize those he disagrees with, the Senator is doing exactly what he pretends to deplore.”

The Tea Party Express used a similar tack.

Politico: “Mixing fundraising and tragedy”

In a statement, a spokesman from Sanders’ office defended the e-mail newsletter to supporters.

USA Today: “Sanders explains pitch citing Giffords shooting”

“This quite long newsletter gives the senator’s views on the major issues facing our country. Most of the space in this newsletter dealt with the senator’s views on the economic implications of what will be happening in the new Congress. Given the enormity of the tragedy in Arizona, however, it would have been absurd not to comment on what happened there.

The main point that the senator made about Arizona is that given the fact that Rep. Giffords’ office was attacked last year after her vote for health care reform, that a protester had previously brought a gun to an event she held, that Arizona Rep. Raul Grijalva had to close his district office when someone shot a bullet through his window, that former Rep. Harry Mitchell had to suspend a town meeting in his district because of threatening phone calls and that Judge John Roll had received numerous threatening calls and death threats, one should not have been completely surprised by the tragedy of last Saturday. There is clearly a pervasive climate of fear and violence in Arizona and the senator very much hopes that the state’s leading public officials will do what they can to create more civility so that people there can express their political views without fear.

As he always does, the senator devoted one sentence in a four-page newsletter to thanking his supporters and another sentence indicating that their support in the future would be appreciated.

The aforementioned sentences happen to be at the beginning of the letter, which is pasted in its entirety below:

VTDigger

The Harwood Union High School Board will soon complete deliberations on the budget for the 2011/12 school year. This year, the budget process is particularly frustrating for board members who believe that transparency and accountability are necessary for taxpayers to make informed decisions about the school budget.

In our case, the Harwood Board will vote on a budget – and try to convince our voters to support a budget – without being able to answer the most fundamental question of all: What impact will this budget have on property taxes? Without knowing the answer to that question, how are voters expected to make a sound decision about whether to support the budget or not? The “Challenges for Change” legislation and the federal education stimulus funds make this year especially uncertain.

Last spring, the Legislature needed to make cuts to balance the budget, but there was little support for additional program cuts. As an alternative, it passed the “Challenges” legislation. Among other things, the legislation included voluntary spending reduction targets for school districts. If school districts made these $23 million in cuts, the legislature would not have to transfer money from the general fund to the education fund and that money could be used to avoid making deeper reductions in other programs.

The Challenges legislation generated significant opposition because it was poorly designed.

The Challenges legislation generated significant opposition because it was poorly designed. For example, it required both high spending and low spending schools to shoulder the same percentage cuts. Many school boards throughout Vermont, not wanting to make spending reductions and citing inequities in the Challenges law, refused to go along. As a result, only $4 million of the $23 million in Challenges spending reductions were pledged by School Boards. In our supervisory union, for example, only two of the six boards will meet the targets.

This $19 million shortfall meant that the legislature, already facing a $150 million shortfall in the general fund, would need to find another $19 million in order to meet its legal obligation to transfer money to the education fund.

Along comes the $19 million in federal stimulus money. The Legislature had used federal stimulus funds for the previous two years to supplant money that would have been transferred from the general fund to the education fund. This allowed the state to avoid bigger spending cuts to general fund programs. Governor Shumlin, after meeting with legislative leaders, decided that instead of continuing that approach, he would allocate the federal money to the school districts and let local Boards decide how to use it.

The net result: Schools would not be required to meet the challenges targets, and they would also have the opportunity to spend an additional $19 million in “one time” money. Boards can now choose one of the following options or some combination:

• Use the federal money to supplement what schools were already planning to spend, resulting in even higher spending and higher taxes;

• Use the federal money in lieu of the cuts needed to meet the Challenges target, resulting in the same spending but lowering taxes somewhat; or

• Continue to meet the Challenges targets and use the federal money to lower property taxes.

While the federal money was a nice windfall for schools, the state still has a problem. Neither the $19 million in Challenges cuts nor the $19 million in federal funds are available to lower the transfer from the education fund. This adds another $19 million hole on top of the $150 million shortfall. How will this hole be filled?

In December, the Tax Department and the Education Department told boards that their budgets should be calculated assuming a statewide tax rate of $0.86 per $100 in assessed value and a base spending amount of $8,618. Those figures are used to calculate each district’s tax rate: the more a district spends above the base spending amount, the higher the tax rate. For example, a school spending $10,000 per pupil (16.1% above $8,618) would generate a tax rate of $0.998 (16.1% above $0.86).

In early January, after the Harwood Finance Committee had already built these assumptions into our budget worksheets, the Education Department provided new guidance to the Board that we should use a statewide tax rate of $0.87 and a base spending amount of $8,544. This guidance was based on the decision to allocate the $19 million in federal money to school districts. Apparently, the Department of Education expects the Legislature to approve a lower base spending amount and increase the statewide property tax by a penny.

All Vermont taxpayers, even those in districts where School Boards meet the Challenges targets, will likely pay higher taxes due to the decisions of the majority of school boards to ignore the targets.

What impact would this have on property tax rates? In the example above, the school spending $10,000 per pupil would be 17 percent above the (lower) base spending amount and the tax rate would be $1.018 (17 percent above $.87). Thus, the answer to the question posed above. The hole will be filled by increasing statewide property taxes.

The Harwood Board’s Finance Committee has forwarded a budget to the full Board for consideration on Jan. 19 that would meet the Challenges targets as requested by state law. It would reduce spending by $134,000 and, under the original tax rate assumptions ($0.86 tax rate; $8,618 base spending amount) would have produced a tax rate of $1.261. Under the new, higher tax rate assumptions, we now face a tax rate of $1.287, even meeting the Challenges target.

Harwood also qualifies for $173,000 in federal education stimulus funds. If the Board decides to apply all $173,000 to reduce local property taxes, the resulting tax rate will be $1.265 – slightly higher that what it would have been under the previous tax rate assumptions if Harwood met the Challenges targets.

Bottom line, what does this all mean?

First, it means that all Vermont taxpayers, even those in districts where School Boards meet the Challenges targets, will likely pay higher taxes due to the decisions of the majority of school boards to ignore the targets. This should not be surprising. One reason why school spending is difficult to control is because our school finance system creates what economists call a “prisoners dilemma.” Simply put, when expenditures are collectively borne by a group, each individual in the group has an incentive to spend more than if each individual were responsible for paying for their own decisions. Everyone at the table orders steak or lobster when the bill is equally divided.

Second, the complexity that I’ve described in this article will be impossible to explain to voters, either in a conversation on the street or even at our annual district budget meeting. There is just no simple way to describe to the voters the convoluted logic that starts with our budget proposal and ends with the taxpayer’s bill. (This article does not even address income sensitivity or the impact of property values and the Common Level of Appraisal, two other complicating factors.)

Finally, to top it all off, everything I’ve said above is speculation because the legislature usually does not actually set the tax rate and the base spending amount until after Town Meeting day anyway. The Legislature could ultimately decide to approve a higher or lower statewide tax rate, a higher or lower base spending amount, or some combination. So everything we tell voters leading up to the budget vote is subject to change by legislative action.

When making public policy, governments struggle to balance the competing demands of simplicity, equity, and accountability. Vermont’s school funding system, the most complex in the country, elevates equity above all other policy considerations. It prevents either School Boards or Legislators from being accountable for our decisions.

Some school board members view themselves primarily as education advocates, while others view themselves primarily as taxpayer advocates. Most of us try to find a balance between the two. However, Vermont’s convoluted school finance system makes it difficult for even the most diligent Board members to fulfill our responsibility to balance education quality and taxpayer affordability in a way that is accountable to voters.

VTDigger

John Nelson, foreground, talks to reporters. Standing behind him: Jeb Spaulding, left, Armando Vilaseca, right

Editor’s note: A write-thru with updates was made at 11:30 a.m., Dec. 23, 2010.

Vermont schools have been given a reprieve from Montpelier’s budget ax.

Gov.-elect Peter Shumlin said on Wednesday the state will not impose $23.2 million in reductions on schools for fiscal year 2012.

Shumlin held a press conference in response to news that 39 out of 62 supervisory unions across the state did not meet individual targets set under Challenges for Change. Last summer, the Vermont Department of Education gave each supervisory union a predetermined reduction figure. On average, schools were asked to cut their budgets by 2.3 percent. On Friday, the department announced that only a handful of districts had cut their budgets by the prescribed amount.

Read previous story.

On Wednesday, Shumlin said he would not trim funding to school districts in fiscal year 2012.

Instead, the state will use $19 million in federal funding as a one-time “bridge” for school districts.

According to a press release from Shumlin’s spokeswoman Alex MacLean: “Local school boards and communities are best left to make their own budget decisions and he (Shumlin) will not ask the Legislature to enforce the voluntary education spending cuts recommended under Challenges for Change. At the same time, he said that local school districts will still receive $23.2 million less from the state this year. While much of that should be made up with the nearly $19 million in federal education stimulus money that the state received earlier this fall, the $19 million is a one-time allocation of funds and school districts should continue to develop fiscally sound budgets so as not to result in increased property taxes.”

“What we’re saying is the arbitrary targets that were imposed on school boards by Montpelier will go away,” Shumlin said at the presser. “The bridge money will be used for its intended purpose — to ensure that we don’t have 350 hardworking teachers and support staff laid off at a time when our schools need them and they need a job.”

Shumlin said the $19 million in temporary funding from the federal government will give “our hardworking school board members and communities the time they need to reduce spending.”

Shumlin will be sending the money directly to schools, and it will represent a 1.67 percent increase over the fiscal 2011 school budgets. At the same time, the state will reduce the General Fund transfer to the Education Fund by $14.4 million, the net amount of the Challenges savings for fiscal year 2012. (The total Challenges amount is $23.2 million — $8.8 million is to be used for a reduction in property taxes.)

Download the Department of Education chart that estimates the amount available to each school district: Estimated Allocation of Federal Education Jobs Fund.

Link to Challenges summary spreadsheet.
Read the Ed Fund Outlook spreadsheet.

Gov. Jim Douglas proposed mandating $23.2 million in cuts to local school districts and using the $19 million to pay down the teacher’s retirement debt obligation.

Unlike his predecessor, Shumlin said his administration would not send a letter to school boards requesting that they find more savings in fiscal year 2012 as the Douglas administration did before the 2010 legislative session.

“We forget sometimes in this discussion that it has become a Montpelier versus school boards conversation over the last few years,” Shumlin said. “Yet we’re all one state with one common goal. And there’s no one who wants to reduce spending with more vigor than our local school boards. The evidence is they had zero based budgeting last year. Why did they do that? They listened to the same voters we did. The message of this team behind me is we’re one family, one team, working together with the best interests of Vermont’s children and the best interests of Vermont’s taxpayers. We understand we need to serve both.”

Vermont has reduced its contribution to the Education Fund two years in a row, thanks to federal stimulus monies. In fiscal years 2010 and 2011, the federal government gave the state $38.6 million in funding for schools and $18.4 million directly to schools. In addition, in 2011, schools reduced their budgets by 2 percent, or about $23 million, which kept the statewide property tax flat.

The state’s General Fund contribution to the Education Fund was roughly $240 million in fiscal years 2010 and 2011; federal stimulus money helped to bring the total amount down. Under statute, the state is required to contribute $303.9 million in fiscal year 2012. According to the Joint Fiscal Office, the Challenges amount, $14.4 million, would be deducted from the General Fund transfer to the Education Fund. In addition, the state must find $18.4 million to replace a General Fund transfer reduction made in fiscal years 2010 and 2011.

The governor-elect isn’t prepared to say how the state would make up the difference in fiscal year 2012 until he presents his budget address on Jan. 25.

Shumlin was flanked by Jeb Spaulding, the secretary designee for the Agency of Administration, Armando Vilaseca, the commissioner of the Vermont Department of Education, and representatives from the Vermont-NEA, the Vermont School Boards Association, the Vermont Principals Association and the Vermont Superintendents Association.

Speaker of the House Shap Smith thanked school board members for making “tough choices.” “Those challenges,” he said, “haven’t gone away.”

Smith said while education system is the “foundation of not only our economy but also our society,” he acknowledged that the state will have to address school spending.

“We know we have difficult times ahead,” Smith said. “We are all going to roll up our sleeves to meet those challenges together with an understanding we have a commitment to keep to our communities and to our students, but we also have a commitment to keep with our taxpayers.”

The advocates all remarked on the difference between Douglas’ stance on education (the governor often railed against rising school spending) and Shumlin’s interest in working with local school boards.

Jeff Francis, the executive director of the Vermont Superintendents Association, said Shumlin’s approach is “refreshing.”

“We have committed local officials, who in my view, act in the best interests of their communities,” Francis said. “At the policy level we have policymakers who are striving to contain costs and contend with all the challenging issues that we face. I think working together we will do better with those issues than we would working apart.”

John Nelson said the timing was important, as after the holidays many school boards need to move ahead with the budgeting process. He also praised Shumlin’s willingness to cede control over spending to local boards.

“Decisions about spending in local school districts will be made where they should be made and that’s locally and that’s the most important aspect to me of this proposal,” Nelson said.

When asked how school boards can be expected to keep expenditures in check under the statewide property tax system, Shumlin defended Act 68, the education finance law. He described it as the fairest system in the 50 states. Shumlin also said it has a simple mechanism for controlling costs: “The more you spend, the more you pay, the less you spend, the less you pay.”

“Does that mean people like it?” Shumlin asked rhetorically. “No. Why is that? Because as a nation we fund our most important obligation as a democratic society, which is the education of our children, through the most regressive tax we can imagine, which is the property tax. I have often said it is beyond me why some president or some candidate doesn’t pass a federal education tax that sends a block grant back to every child to every state for their children so that we minimize the amount of money raised through the property tax.”

Shumlin said he would support the voluntary merger incentive system. He did not say whether he would recommend a change to the small schools grant program, which provides financial support for schools with fewer than 100 students. Rep. Johanna Donovan, D-Burlington, chair of the House Education Committee, said in an interview that she plans to take testimony on the program.

Editor’s note:

Revisions to clarify the following grafs with new information were made at 11:30 a.m. Dec. 23, 2010.

Shumlin will be sending the money directly to schools, and it will represent a 1.67 percent increase over last year’s school budgets. At the same time, the state will reduce the General Fund transfer to the Education Fund by $14.4 million.

Vermont has reduced its contribution to the Education Fund two years in a row, thanks to federal stimulus monies. In fiscal years 2010 and 2011, the federal government gave the state $38.6 million in funding for schools and $18.4 million directly to schools. In addition, 2011, schools reduced their budgets by 2 percent, or about $23 million, which kept the statewide property tax flat.

The state’s General Fund contribution to the Education Fund was roughly $240 million in fiscal years 2010 and 2011. Under statute, the state is required to contribute $303.9 million in fiscal year 2012. According to the Joint Fiscal Office, the Challenges amount, $23 million, would reduce the transfer to $280 million in fiscal year 2012. In addition, the state must find $18.4 million to replace a General Fund transfer reduction that was made in fiscal years 2010 and 2011.

The governor-elect isn’t prepared to say how the state would make up the difference in fiscal year 2012 until he presents his budget address on Jan. 25.

VTDigger

Crossett Brook School

Most Vermont school districts balked at the Challenges for Change target reductions for fiscal year 2012.

In the aggregate, Vermont schools will be $15.8 million short of the Challenges goal. The Department cited the target number as $19.9 million; the Legislature asked schools to voluntarily reduce their budgets by 2.3 percent or $23 million.

The Vermont Department of Education released preliminary findings on Friday with 53 of the state’s 63 school districts reporting. In all, 39 school districts did not meet the targeted reductions, according to department figures. The Challenges targets were tailored for each district based on weighted formulas created by the department.

Download a PDF of the preliminary results. Challenges for Change results Dec. 16, 2010

Under Act 146, the Department of Education is required to compile estimated budget amounts from supervisory unions and technical center districts. The reporting deadline was Dec. 15.

The results were released at 4:20 p.m. Friday afternoon. With 53 schools reporting, 39 did not meet the targeted reductions.

Schools in Vermont spend about $989 million a year. Districts across the state identified $4 million in reductions.

A handful of those districts with high target amounts have not budged – their budgets remain static. Here is a listing of supervisory union districts that were asked to eliminate $900,000 or more from their budgets, but did not find the requisite savings: Burlington, Franklin Central, Washington Central, Windham Central, Windham Southeast and Springfield.

Download the spreadsheet of estimated district spending and unmet target reductions. Challenges for Change results by supervisory union Dec. 17, 2010

In an interview Friday night, Gov.-elect Peter Shumlin said he didn’t believe school districts could achieve the $23 million in savings as quickly as originally hoped, that’s why he said he supported using the $19 million the federal government designed to prevent teacher layoffs as  “bridge” funding for Vermont schools. He said he’s optimistic about the future of education in Vermont, “but we have a problem to solve as we transition to better times.”

“First of all, hats off to the school board members who were able to make the tough choices,” Shumlin said. “We all have a lot of that ahead. As I walk through options for balancing the $112 million budget shortfall, it’s sobering, and we’re all going to have to pitch in. I’m grateful to those boards that worked to find savings.”

He warned that the federal bridge funding is temporary. “None of us should mistake the bridge with a lack of resolve to find savings,” Shumlin said. “Everyone is going to have to make a common sacrifice until we create jobs and (the economy rebounds).”

“I’m a realist,” Shumlin said. “I never really believed school boards could have gotten there as quickly as we hoped. Let’s redouble our efforts. We have this bridge money, thanks to our congressional delegation. Let’s use it as a bridge, not a security blanket.”

VTDigger

Speaker of the House Shap Smith gives a speech at the Statehouse on Dec. 10, 2010

Shap Smith, in his first term as Democratic speaker of the Vermont House, led the Legislature in two historic veto overrides in the 2009 legislative session, and last year he led an effort to salvage the bankrupt Unemployment Insurance Trust Fund. Anne Galloway recently interviewed Smith about the major issues the House confronts in the next session. Smith talks about the budget, Challenges for Change, new tax policies and the politics of negotiation.

Q. What shape is the session going to take?

Smith: Well, you know, we’re trying to figure that out right now. I think, clearly, we still are in a place where much of the work we’re doing is defined by our fiscal situation, and I think we’re starting to see the light at the end of that tunnel, but clearly this is going to be a year that finalizes the three-year cycle we’ve been in, and in some ways this may be the most difficult year that we have.

We will have a better understanding of what the structural financial difficulties are. Closing that structural gap is really what is going to be the essence of our budgetary work this year.

I feel optimistic when I look at other states. Our size and our scale is one of our strengths; our problems tend to be more manageable than those of New York, California or Florida.

Q. That structural gap – what is it exactly? How would you describe it to the public?

Smith: Well a structural gap is when you think about (the fact that) we’ve just been through one of the most dramatic financial challenges in our lifetime. In fact, for many of us, it’s the most dramatic challenge we’ve ever faced. Because of outside forces and the overall economic disaster, our revenues have been completely out of whack.

At this point and time with the economy really starting to recover, I think we have a better sense of what the trend line will be for our revenues, and we have a better sense of what the trend line is for our expenses because when you have an economic disruption that is as severe as what we just had, you are going to have incredible pressures on your state budget, and those are unique to that moment, and to understand what our ongoing expenditures would be, we need to be out of that huge economic disruption.

Q. Do you know where we are with demand for state assistance? Are more Vermonters falling into a permanent state of poverty?

Smith: I don’t have a sense of that, other than anecdotally. I do think that there still is significant pressure for people who are at the lower end of the economic spectrum. Even for people who are getting back into the workforce, it is a difficult time, and while you look at the overall inflation numbers, they’re not too bad, but the things you need to survive, like fuel and food, their prices are going up so people are feeling the pressure on their basic needs budget, and I think that’s a problem.

Q. But this becomes part of the structure of the budget, doesn’t it?

Smith: It does to the extent that it’s state dollars, yes.

Q. So what are the ways in which you’re going to change the structure of the expenditures?

Smith: You know, I don’t think any of us have the answers to those questions. The whole concept around the Challenges for Change last year was to sort of rethink how we were going to redeploy services, and it was really colored by the fact that we were doing it in such a difficult budget environment.

It was also colored by the fact that in many instances there was a breakdown in the communication between those served, those providing services and their government partners.

I think the overall notion that we want to be better at providing what people need, and we want people to judge us by some sort of objective standards, is a notion that we ought to incorporate into our state government so that could be part of what we do.

It is clear that the label of Challenges for Change has really poisoned the well with regard to that notion. I think we need to think about how we can revive the need to be more effective with what we’re doing, without having the political baggage that comes with the label.

I also think we need to understand what people need, and maybe we need to give some real thought to what it is that we as a government can provide to people to help make them successful.

Q. Though some structural changes were achieved (through Challenges for Change), and there will be ongoing savings, there were some areas where success wasn’t as immediate. Where do you go from there, whether you call it Challenges for Change or not? You’re sort of committed to moving on with the process, right? Are you going to move on with that process?

Smith: Part of it will be defined by what the new administration wants to do.

Q. Peter Shumlin says he wants as governor to continue with Challenges for Change, right?

Members of the House Democratic Caucus applaud Speaker of the House Shap Smith, Dec. 4, 2010.

Smith: I think that he recognizes that in many respects the way that it all unfolded was problematic, but in many respects it went better than could be expected.

We did set a target for $38 million. We only got to $30 million, but you can also look at the idea that the glass is half full, or much more than half full.

I think that the one thing that we could do is try to divorce the Challenges process from the notion that it is a budget-cutting process. I think that really muddies the waters.

Q. What do you think of the modernization process (for applications for food stamps, general assistance and the state’s subsidized health care programs)?

Smith: I don’t think you can describe it any other way than as deeply troubling.

My understanding is, they are trying to figure out what went wrong and how you can make it successful. It’s important for us to make it successful and look at what went wrong and try to figure out why, so that we don’t run into this problem again.

When I try a case or file a motion and I get a result, win or lose, I first try to understand what the result was, but then I try to understand why we got that result. And I think we really need to understand that, in this instance, we need to say OK, what was the result and try and fix it, but then we really need to go back and take a look at why this happened.

Was it the people managing it? Was it the process that was set up?

We know we’re in this technological revolution – and we are going to have to integrate that technological revolution of services we’re providing at this point in time. We better learn how to do it, and we better learn from our failures.

This had a real impact on people, and that’s simply unacceptable.

Q. What do you think about the Vermont Blue Ribbon Tax Commission’s work?

Smith: The tax commission is something I’ve always been very interested in. I spent four years on the Ways and Means Committee; I am very interested in tax policy – it’s my own peculiar illness.

I think there are two things that are going to emerge from the tax commission. I think the work that they’ve done around educating people about the current state of our tax system and some of the myths that surround it and some of the realities has been very useful.

I appreciate the work they’ve done, and I think it will continue on as they publish their work.

I do think it is appropriate for us to take a look at what other states are doing and acknowledge that there is this concept of tax competition that we should be cognizant of. I think it’s appropriate for us to ask the question: Should we change our system to be at least perceived as more competitive?

My hope is they will propose some ideas that will allow us to have that discussion. My general philosophy (regarding) revenue systems in general and taxes in particular is, I like a broader base with a more simplistic tax base with lower rates, and I think they will propose those things. I also think we don’t live in a goods-based economy anymore. Or as much of a goods-based economy as we once had, and our tax system doesn’t necessarily acknowledge that, and I think it’s appropriate for us to broaden our sales tax base to include services, particularly if it would allow us to lower the rates (on the sales tax).

I would encourage them to think more broadly about the services and lower the rate even more. I’ve suggested a 3 (percent sales tax).

Q. Back to the income tax scenario — you’re going from taxable income to adjusted gross income and from a tax base of $10 billion to $15 billion, but as I understand it there’s a bit of a rift forming between the parties involved because the progressivity portion of the proposal may include eliminating itemized deductions. What do you think about that?

Smith: So if you’re going to go to adjusted gross income, it really kind of requires you to get rid of itemized deductions. I think it’s appropriate for us to look at going to adjusted gross income. (AGI) is the base that most other states actually use for their income tax system. By using taxable income as the base for our income tax, it requires us to have higher rates, and that means when people are comparing our tax rates with those of other states, particularly our neighboring states, it’s not an apples-to-apples comparison, and it makes us look like we have higher income taxes than we do in comparison to other states.

Q. If we were taxing at AGI, what kind of rates would you like to see?

Smith: I’d like to see them get the rates as low as possible. I do think it’s a good idea to collapse the brackets.

I would like to retain enough brackets so that you retain progressivity, but I don’t have specific targets I’ve suggested to the tax commission with regard to the tax rates.

I’ve said that would be part of the discussion when it (the report) came back here.

Q. What about the sugar-sweetened beverage tax?

Smith: From my perspective I think that it’s appropriate to let the discussion play out. The one concern I have with the sugar-sweetened beverage tax as a revenue source for health care programs is that it is in part being adopted to discourage people from drinking beverages with sugar in them. If that is your goal, what you’re doing is, you’re hoping for a declining revenue source, and I don’t really like to build programs on declining revenue sources.

If your goal with a sugar-sweetened beverage tax is to change behavior, what is it that you’re doing? Are you raising revenue or are you actually changing behavior? And if you’re changing behavior, you probably are going to have declining revenue, or at least that would be the hope if that was your goal.

Q. Can you tick off a list of things we might see this session?

Smith: I expect we’re going to look at the right-to-know laws and the exemptions. We will be looking at campaign finance. I think that we will continue to look at energy issues. We are eagerly awaiting the governor-elect’s plan on broadband, and we would take that up. The Hsiao report (Dr. William Hsiao has been hired to present three proposals for health care reform to the Legislature) will also be on the list. Those things will be front and center. I think that we’ll be talking about issues around jobs and retraining. Clearly, even though the pressure is relieved on the education challenges, I believe that we need to immediately start a conversation with the administration and with school boards and superintendents to discuss the pressures we’re facing within our education system, and not just the financial pressures.

I believe the education system is fundamental not only for a civil society but also (for our ability) to compete. We need to be one of the top states in the country.

Q. Will you run again in two years?

Smith: I think it’s too early to say. I love being speaker. I’m looking forward to working with the governor-elect and with (incoming Senate president pro tem) Sen. John Campbell. I’ll make a decision in two years.

With Peter Shumlin in the office of president pro tem of the Senate, he was such a veteran of the Statehouse, and he was someone who was clearly on track to be running for statewide office, and that gave me an opportunity to grow at my own pace.

I’m a grizzled veteran now after two years. I’ll be playing a different role. Peter Shumlin and I had disagreements about things, and we were able to establish a process to work through those.

I do feel a different sense of responsibility than the one I felt when I stepped into this role two years ago.

When I have time to reflect, I’m very proud of the work we did for the last two years. I’m proud of the House. I’m proud of how much I’ve learned in dealing with experienced leadership in the Senate and the governor’s office, learning how to work through disagreements.

Q. How do you work through disagreements?

Smith: My job outside the Legislature (as a lawyer) is one where I am constantly faced with disagreements and constantly faced with opportunities to resolve those disagreements. I try to actively listen and to engage in the discussion where I can find areas of agreement in order to reach a broader of agreement.

You try to see if there’s any common ground. That’s the most important thing in working with someone where there are disagreements. Once you can find common ground, it becomes easier.

The governor-elect is very effective at doing that.

I do think we learned how to (find common ground) between the Legislature and the administration in the last year.

It helps to get to know people on the other side, to get to know where the non-negotiable areas are. If you go to those things early in the discussion, they’re going to harden their position. You have to learn to avoid doing that.

VTDigger

Contact: Ginny Colbert 802-828-2148

Secretary of State – Elect Jim Condos Selects
Brian Leven as Deputy Secretary

Montpelier, VT – Secretary of State – Elect Jim Condos has selected Brian Leven of Stowe to be the new deputy secretary of state.

Brian has strong, relevant experience to be the deputy secretary. Brian has spent the last 12 years as an attorney for the Vermont Legislative Council. During that time he has served as counsel for the House and Senate Committees on Government Operations and the Legislative Committee on Administrative Rules. These three committees are important committees for legislation pertaining to activities and operations of the secretary of state’s office.

In 2002, he staffed the Senate Reapportionment committee which was responsible for redistricting of House and Senate districts after the 2000 US Census. Reapportionment will again be taken up this biennium with completion of the 2010 Census. And, this past year, he served as counsel to the Government Accountability Committee which is monitoring the progress of Challenges for Change.

“I am excited to have Brian join my team,” said Secretary-elect Condos. “His knowledge and experience will prove invaluable as my office continues to serve Vermonters with positive outcomes.”

Brian Leven lives in Stowe, Vermont, with his wife, Jacquie, and two children, Augie and Talula. Brian grew up in Danville and St. Johnsbury, Vermont. He graduated from St. Johnsbury Academy, received a B.A. from the University of Vermont, and a J.D. from the University of Denver College of Law.

In addition to playing music, reading, and enjoying the outdoors, Brian serves as chair of the Stowe Development Review Board.

Jim Condos was elected to be Vermont’s secretary of state on November 2, 2010. Jim has over 20 years of elected public service including 18 years on South Burlington City Council, eight years as a Vermont state senator, along with over 30 years of private sector business experience.

Secretary of State-elect Jim Condos To Attend New Secretary of State Orientation

Montpelier, VT – Secretary of State-elect Jim Condos will attend an orientation for newly elected chief state election officials in Austin TX on December 10-12 – co-hosted by the National Association of Secretaries of States and the Pew Center on the States.

This will be a new member orientation with a focus on elections. Some of the topics to be discussed are: Military and Overseas Voting, Voter Registration, Election Performance, and Redistricting.

“I’m looking forward to meeting with my elected colleagues from around the country,” said Secretary-elect Jim Condos. “It offers a valuable opportunity to learn what other states are doing in the election arena.”

The cost for this trip will not be borne by Vermont taxpayers.
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VTDigger

I am a member of the Williamstown School District board of directors, but I am here expressing my own opinion only and nothing that follows should be misconstrued as representing the thoughts, actions or opinions of any other board member, school district employee, town resident or student.

Seems folks in the federal and Vermont governments have their undies in a bunch about the prolific spending habits of local communities and their representative school boards, but reality is that it is those same folks in the federal and Vermont governments that are driving the increase in our education costs.

Let’s take Williamstown and special education as an example: I’m a 20 year resident and 2 year school board member in that community and quite aware of the competing interests, needs and desires in Williamstown’s pre-K through 12 school system.

The major cost increase driver in our school budgets recently has been and is special education. Within a budget that has stayed at $7.76 million for the last two years we saw special ed costs increase $240,000 last year and expect another $200,000 this year.

Over the course of two years, Williamstown will have had to redirect $540,000 or 5.5% of its total school budget away from regular education and into special education.

VERY IMPORTANT POINT: While the school board can look at a lot of the information regarding special education expenses, what we cannot do is influence the services or where those services are provided. Special education needs are defined by federally and state mandated individual education plans (IEPs), and once those IEPs come out of the planning team that is it – it is illegal for us to even try and change them. Special education cost is a bill that has to be paid as presented. (I am not debating the need for the services – I accept in general they are truly needed, and I have a great deal of trust in the school district representatives who spend their time on planning these IEPs.)

What do the above numbers mean? Last year the increase in special ed costs was 3% of our total budget, but the total budget amount was increased by 0% (yes – zero percent). The end result was that non-special ed costs had to come up with cost reductions matching that 3%! This is, of course, much higher than the “Challenges for Change” targets pulled out of the Arbitrary Hat by ed commissioner Vilaseca. If our preliminary figure of another $200,000 in additional special ed costs pans out for this next budget we will have to repeat the above exercise for another 2.5%!

Can we expect any increase in our local budget? Considering the amount of time and effort the feds and state have spent pounding on the meme that education costs are too high EVERYWHERE, and considering that most people want to and tend to believe our federal and state governments the answer is pretty damned obvious – no. The most likely outcome will be another “level funded” budget that, due entirely to federal and state mandates regarding IEPs and special education service levels, will require we further gut our already thinning non-special ed offerings by another $200,000 (2.5% of the total budget).

This means over the course of two years Williamstown will have had to redirect 5.5% of its total school budget away from regular education and into special education. That $540,000 is a HUGE amount of money for Williamstown.

The ramifications of this should be terrifying to everybody. Our most likely response will be yet more reductions in busing and extra-curricular activities. Also sure to be on the block are the personnel who actively support the non-special ed portion of our student body. Worse is the probability that we will be dealing with even more IEPs next year as we do away with support services, such as counselors and a principal, that offer relatively inexpensive options to moving kids into an IEP environment, and these actions will end up driving even more federal and state mandated IEP funding requiring even more reductions in non-special ed funding.

The good people of Williamstown did as requested and kept school spending to a minimum. The federal and state governments, on the other hand, increased our expenses with direct mandates. Flush your toilet and watch what happens – that is what is in the works for our local schools directly because of the federal and state governments and despite the best local efforts.

Of course one of the suggested solutions coming from the state is to do away with local school boards – something that Act 153 of 2010 made a blossoming reality beginning July 1, 2012.

VTDigger

Dear School Board Member,

Thank you for your hard work to maintain the quality of our public schools and contain costs. I am deeply grateful for your commitment to Vermont’s children. It is due, in large part, to your hard work that our students have access to one of the best education systems in the country. As we both understand well, our state’s economic success and future relies on this quality. In addition, your work to keep FY2011 spending at a level rate is critical and greatly appreciated by all Vermonters.

Given the uncertainty around achieving budget reduction targets and allowing for the Legislature to be involved with the determination of how to best allocate the additional $19 million in one-time funds, it seems prudent to work on the expectation of maintaining the current tax rates for 2012 that the acting tax commissioner has recently recommended.

Download the Tax Department recommendation for statewide education tax rate

I know that this year the task before you is even more daunting as you have been asked to meet Act 146’s directive of reducing education spending by $23.2 million in FY2012. I appreciate your understanding of the need to meet this goal and also understand that it may take a little longer to make the kinds of changes necessary to achieve the savings targets. I remain supportive of using the $19 million in additional one-time federal funds as bridge financing over one or two years to accomplish the necessary cost savings. I look forward to working with the legislature to develop a specific plan in this regard. I do not support using the one-time federal funds for anything other than supporting our schools or lowering property taxes.

Thank you again for your hard work and dedication to our state.

Sincerely,

Governor-elect Peter Shumlin

VTDigger