UPDATED: Senate votes to repeal part of Act 46; House wants more testimony

Dave Sharpe, Mark Perrault

Rep. Dave Sharpe, chair of House Education, and Mark Perrault, an analyst with the Joint Fiscal Office, talk about tweaks to the school spending cap. Photo by Tiffany Pache/VTDigger

Editor's note: This story was updated 12:20 a.m. Jan. 20.

[A]n effort to reverse a controversial part of last year's education law sailed through the Senate on Tuesday. Meanwhile, a bill that would have softened the caps on school spending stalled in the House.

The Vermont Senate has voted to repeal the spending threshold provisions in Act 46 that penalized communities for spending more than allowed under a new cap.

The repeal passed the Senate unanimously on a voice vote in less than half an hour Tuesday morning.

The House, which was set to take up H.566, a bill that would have given school districts more leeway for unanticipated education costs, sent the question back to its Education Committee. Some House members favor repeal, others want to soften the penalties, and others want to keep the cost containment measure in place. The total cost of penalties to communities is estimated to be $7 million, lawmakers said.

Inaccurate information from the Agency of Education led to renewed calls for repeal in the House on Tuesday.

Agency of Education officials misinterpreted the spending cap provisions of Act 46 and unintentionally provided school districts with erroneous per pupil spending figures. Lawmakers thought some spending — including special education costs over $50,000 and capital construction — did not count toward the cap, while the agency thought those costs did. As a result, some communities cut budgets more than necessary in order to stay under the penalty threshold.

The impact of the “confusion” on school districts statewide is $1 million, a Joint Fiscal Office analyst told lawmakers on Tuesday. But that gave lawmakers little comfort, and a handful of Democrats in the House held a press conference in which they questioned whether a “tweak” to the spending caps is enough to protect schools from the agency’s mistake.

Rep. Dave Sharpe, chair of House Education, said he hoped his committee could sort out what to recommend by the end of the day Tuesday and that the full House could vote Wednesday on what to do next. But it was not clear what direction the House would go Tuesday evening. At that point, Sharpe was still trying to rebuild consensus for a 0.9 percentage point tweak that would help school districts stay under the spending cap.

What is Act 46?

Act 46 is the state’s school district consolidation law. The state statute requires each school district to consider merging with neighboring districts. The objective of the law is to help communities share resources at a time when many rural districts have seen dramatic declines in student enrollments.

The law, enacted in May 2015, also included a controversial spending cap provision known as the allowable growth percentage.

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 provision penalizes communities that spend above a state-designated threshold, called the allowable growth rate, and are double taxed on amounts above that level. Some communities have said the measure is too restrictive.

The House Education Committee is proposing to increase every district’s allowable growth percentage by a 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.

“We had no choice” but to send it back to the Education Committee to try to figure out the impact of the miscommunication on schools, Sharpe said. “Every day we delay creates a bigger problem for communities.”

House Speaker Shap Smith, D-Morristown, said he was confident the House would ultimately come through, either by increasing the threshold or through an outright repeal, like the Senate.

"I'm sure it will all work out," Smith said Tuesday afternoon.

"There is still a substantial group of people who want to either keep it the way it is or adjust it by a 0.9 percentage point, and I think we need to just go back and do a count to see if that has support. And if it doesn't have support, then we'll just repeal it," he said.

The speaker also said he would support waiving the excess spending penalties that would kick back into place if the thresholds in Act 46 are scrapped. He said it would be unfair to penalize communities that might meet the Act 46 spending caps but fail to meet excess spending limits under the old law.

Sen. David Zuckerman, P-Chittenden, who reported the bill for the Senate, said it was his understanding there was only one community that would face a penalty under the old law that would not also have been penalized under the new law.

Smith said he thought the confusion between the agency and lawmakers was not intentional. "It sounds like there's a disagreement between the agency and the committee about what was intended for the bill and those conversations went on in committee and amongst the staff," the speaker said. "I'm not in a place to really place blame, I can say that the Education Committee felt it was misinterpreted, that its intent was misinterpreted by the agency."

Smith said he would “not suggest that anyone was deliberately doing anything.”

"I look at the actors involved and take them at their word,” he said. “I think that they're a bunch of people who try to act in good faith."

Asked if repealing the Act 46 provision would make a difference at this point in the budget process for communities, Smith said: "I think that's a good question right now, I think that most communities have set their budgets, so whether you repeal or not I think the impact of the thresholds has already been felt."

Even with the confusion, positive results have been achieved in trying to slow costs, he said.

"They were intended to slow the rate of growth in education spending and I think that even if they were repealed they would probably have that impact. At least for this year," said Smith.

The amount of the difference the "confusion" created is roughly $1 million out of a state education budget of $1.6 billion, Smith said.

"So, we're talking about $1 million, but the thing is, where is that million dollars occurring and I think that's the big difference,” Smith said. “I mean, if it's all of a sudden your district, being impacted by the penalty, when they didn't think the penalty for the threshold was going to be hit, that's a big problem. And that changes people's views of what the budget looks like and that's tough."

Some districts, however, took drastic measures, lawmakers say, to meet the spending caps under Act 46. At a hastily prepared press conference Tuesday, legislators urged repeal because the spending caps were “patently unfair.” Low spending communities were faced with 100 percent penalties for budget increases they couldn’t control.

Kitty Toll

Rep. Kitty Toll, D-Danville. Photo by Roger Crowley/VTDigger

Rep. Kitty Toll, D-Danville, represents Walden, which would be hit with a penalty even though per pupil costs are only $11,700, while neighboring communities, that stayed under the allowable growth limit face no penalty and are spending $16,000 to $17,000 per pupil.

Toll also rued the impact of the bitter controversy over the caps in light of progress communities started to make toward school district consolidation.

"I also feel it's very tragic that the good work in Act 46 that has engaged conversations that have not happened in years regarding consolidation, of governance, of how you can share programs among schools,” Toll said. “There's really encouraging conversations going on and then with the technical spending hit and the budgets came out took away the momentum of the good work being done and everyone is focused on how are we going to stay under these caps, which positions can we afford to lose and my concern is what is the burden on the children in our small schools in Vermont."

Rep. Cynthia Browning, D-Arlington, said it’s not surprising that there are unintended consequences with the cap, which she said was “cobbled together at the last minute.”

"We started considering this issue in November, we're now toward the end of January and we have not had a fix,” Browning said. “The obvious thing to do would have been to repeal it as soon as we got back here, that's what I advocated for, the first week of the session, to repeal or to fix it, or delay it for a a year and fix it."

Senate President Pro Tem John Campbell, D-Windsor, also said the spending caps were a last-minute fix from the House that secured passage of Act 46.

“This is a wake-up call for doing things on the fly,” Campbell said before the vote Tuesday.

The Senate leader said he was leery of replacing the provision with another effort at cost containment, arguing that might be making the same mistake twice, trying to rush through a fix.

If a full repeal were to occur, the spending thresholds and penalties would revert to those in the previous law.

More on the miscommunication

Sen. Diane Snelling, R-Chittenden, questioned how a miscommunication happened between the Agency of Education and lawmakers over what costs to include toward the cap.

Campbell said the Senate is investigating how the mix-up happened.

In House Education on Tuesday, lawmakers reviewed the tape of a November meeting in which the agency explained the change to the per pupil spending formula to House members.

Sharpe said he “clearly didn’t understand” how the agency was changing the calculation until legislative counsel and the Joint Fiscal Office explained it last week.

“I should have asked our staff to work with AOE to help us understand this better,” Sharpe said.

Mark Perrault, the education analyst for the Joint Fiscal Office, said he didn’t notice the change, either, and he should have jumped on it.

Rep. Sarah Buxton, D-Tunbridge, said she also missed the change to the per pupil spending formula. “Watching that again, I am reminded that it is really important that we in our committee not become comfortable with terms like minus exclusions,” Buxton said. “I heard exactly what I thought I heard that the exemptions were being used in 2017 data and I can now see arguably when AOE referred to new exemptions they weren’t referring to exemptions in addition to excess spending threshold exemptions. I think this is a great reminder for us particularly when talking about numbers that we remain very clear in our language. It can be tricky.”

The amendments

The House Committee on Education spent the afternoon reviewing a half dozen amendments to the spending thresholds including a possible twist on the 0.9 percent increase to each district’s allowable growth rate. The new language instructs the Agency of Education to apply the old or the new per pupil spending threshold, whichever benefits a school district.

A slew of amendments were proposed after it was revealed that the Agency of Education and the Legislature were interpreting the language around the spending thresholds differently. School districts have been working with per pupil spending limits that did not include exclusions for capital spending, some special education, teacher retirement and some other costs that had been covered under the old excessive spending threshold system. This -- along with a 7.9 percent increase in health care premiums -- was among the reasons a number of districts are struggling to stay under allowable growth targets.

Sharpe has proposed that the committee consider instructing the Agency of Education to apply either their own formula or the one that includes the exclusions for each district based on what will benefit it the most.

“The law says thou shalt get the best deal,” said Bill Talbot, the CFO at AOE, in reference to what the new version would mean for school districts.

This will be in conjunction with the 0.9 percent increase, and Sharpe believes it will put most places under the allowable growth percentage.

Other amendments included:
• a repeal of the AGP mechanism;
• adjusting the penalties under AGP that now demands a double tax on every per pupil dollar spent over the threshold amount to just 25 percent or 50 percent instead;
• another amendment that would instruct AOE to apply whichever formula most benefits the school district but doesn’t add the .9 percent;
• an exemption from the AGP penalties for Peacham because they combined schools last year in the spirit of the law and reduced spending significantly, from $15,500 to $10,700 yet they are not able to comply with the AGP they have been assigned.

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