Sharpe, ed panel ‘missed’ change to funding formula

David Sharpe

Rep. David Sharpe, D-Bristol, is chairman of the House Education Committee. File photo by Amy Ash Nixon/VTDigger

Lawmakers were told about an education funding formula change in November, but legislators say they weren’t aware that there was a problem with the calculation at the time.

Last week, in testimony before lawmakers, representatives from the Agency of Education said they misinterpreted a section of the law dealing with the new allowable growth spending thresholds and unintentionally provided school districts with erroneous per pupil spending amounts for fiscal 2017 for the budgets they are currently putting together.

The Agency of Education removed exclusions from local school budgets for principal and interest on capital construction expenditures; excessive special education funding over $50,000; payments districts make into the state teacher retirement fund; and other items that were included under the old system of excess spending thresholds. Agency officials believed these exclusions would not be included under the new allowable growth percentage mechanism in section 37 of Act 46.

Brad James, finance manager for the agency, told the House Committee on Education how he was calculating the threshold amounts under Act 46 at a hearing in November, but it was not clear to lawmakers or members of the Joint Fiscal Office that there was an issue with his interpretation.

“I did tell the committee in mid-November at the hearing how I was calculating the threshold – exemptions were not taken out,” James said in an interview.

The House panel met late last year to consider ways to tweak the allowable growth percentage threshold. Lawmakers have been under pressure from school boards and the governor’s office to relieve pressure on districts that face a hefty financial penalty under the spending caps. At the meeting, James told lawmakers that AOE was not including exemptions for special education and capital construction in the calculations.

During his testimony, James first explained how he arrived at his calculations:
“What is happening in the FY17 budget, the way it is currently structured right now, the way the language was written, was all of the calculations for what the growth is for FY17 come from FY16 data, so any new exclusions you have for FY17 don’t show up because all FY16 information is what we are making the calculation based on,” said James.

James then recommended that lawmakers tweak AGP by putting the exclusions that were allowed under the old excess spending thresholds back into the law to help localities meet their allowable growth thresholds.

“Another idea would be to carve out some of the exemptions in the FY17 numbers to reduce those costs so you end up squaring it up a bit more,” he said.

Brad James

Brad James is education finance manager for the Agency of Education. File Photo by Amy Ash Nixon/VTDigger

Rep. David Sharpe, chairman of the House Committee on Education, said at first that he must have missed James’ explanation, but after reviewing a videotape from ORCA media, Sharpe pointed to two different times he questioned James to clarify what he meant, and James was “less than clear,” Sharpe said.

Rep. Sarah Buxton, D-Tunbridge, also questioned James about the exclusions. “I thought you were talking about education spending with exclusions,” Buxton said.

“I am,” James replied. “The spending per pupil number that would drive your tax rate is offsetting exclusions that are in current statute for what was the current excess spending threshold. So before I start this process, I’m taking Tunbridge’s real spending per pupil and I’m subtracting out those exclusions on a per pupil basis and that is what you are seeing here — so you are starting out with a lower number.”

“I missed it,” Sharpe said, “clearly, the committee missed it — our Joint Fiscal Office was there.”

On Jan. 8, Sharpe understood better what had happened. “It only became clear to me when our legal staff at Legislative Council came to us and said this is a problem,” he said.

On Tuesday, James testified before the House ed panel that he had been interpreting section 37 of Act 46 differently than the Joint Fiscal Office and the legislative office. He believed that under the new law the exclusions for construction principal and interest payments, some special education costs, payments districts make to the state for teacher retirement and some others that were part of the excess spending thresholds in the old system no longer applied. Because of this school districts had received the wrong fiscal year 2017 per pupil threshold amounts — but their allowed growth per pupil and their allowable growth percentage, or AGP, remain correct.

“It was listed right out of the previous language, so I don’t understand how it could have been interpreted differently,” Sharpe said. “It is a big concern of ours that it was not interpreted as we intended in the first place.”

The excess spending thresholds in place before Act 46 allowed the agency to compare spending per pupil after the exclusions were backed out. Lawmakers thought that was what would happen under the new spending thresholds. Now the exemptions have been calculated back in and will alter many districts’ allowed per pupil spending.

“As far as I understand, for school districts that have the exact same amount of exclusion costs year after year, this makes no difference in their calculation. For school districts (where) exclusion costs are increasing, they will have more room to spend and stay under the thresholds that are now correctly interpreted by the Agency of Education,” Sharpe said.

Much of the outcry from school districts over the allowable growth thresholds has been around uncontrollable costs such as those that might now be excluded by many districts.

“Business managers or legislators from districts have told me they are OK now that the threshold is being calculated differently,” Sharpe said.

Districts that will feel a negative impact and have a tougher time staying under their AGP are those with decreasing exemptions — such as fewer special education students, less in construction costs, or a bond that has been paid off.

“There may be a number who thought they were under but now aren’t,” said Sharpe. “It is a real problem that we do not know what those exclusions look like in FY17 from district to district.”

The allowable growth percentage assigns each school district an amount it can increase spending, ranging from 0 to 5.5 percent, based on the previous year’s per pupil spending. If a district votes to spend more than the allowed amount, it is penalized with a double tax on each additional dollar.

The House Education Committee is proposing to increase every district’s allowable growth percentage by 0.9 percentage point to help accommodate an unforeseen 7.9 percent rise in health care premiums. The Senate Committee on Education has introduced a repeal of the allowable growth mechanism. The administration also favors delaying or repealing the AGP.

The confusion over how to interpret the law and the continuing debate over whether to adjust the AGP or repeal it is happening at the same time that school boards are finalizing their budgets to meet deadlines for Town Meeting Day on March 1. This has led some to side with repealing AGP and reverting back to the former excessive spending thresholds for fiscal 2017 in the interest of time.

“The only responsible course of action is to repeal,” said Nicole Mace, executive director of the Vermont School Boards Association.

Sharpe isn’t giving up. He is spending the long holiday weekend trying to figure out a solution. Right now he is considering allowing school districts to use either per pupil threshold calculation with or without the exemptions plus the 0.9 percentage point increase in their allowable growth rate.

“School districts can either calculate the old way of doing it or the new, whichever is more beneficial and helps them stay under the thresholds. That plus 0.9 will bring many more school districts into compliance with Act 46,” Sharpe said.

Tiffany Danitz Pache

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