As school boards start to budget for next year, the forecast for school spending is grim.
Rebecca Holcombe, the secretary of the Agency of Education, says Vermonters are looking at a 7-cent to 9-cent increase in the statewide property tax, unless the state can find millions of dollars in cuts.
“I’m increasingly concerned about the fiscal situation in the state,” Holcombe said.
The state’s education fund has been hit hard. Lawmakers used one-time surplus money ($38 million), reserves ($9 million) and clawed back $8.5 million from school districts in the last legislative session.
Meanwhile, local school districts have used up rainy day funds to avoid tax penalties.
Next July, the state will start 2019 in the hole no matter what school districts and voters decide to spend on Town Meeting Day in March.
Rep. David Sharpe, chair of the House Education Committee, said the education fund will be a priority when the Legislature convenes in January. “The December letter is going to be ugly. We are looking at an 8-cent property tax increase across the state,” Sharpe said.
In December, the Vermont Department of Tax issues an estimate of what property taxes will be in the coming fiscal year. At the end of January, the books are closed on the previous year. The previous two years, the Agency of Education has had an unusually large amount of special education money left over. When special education services were moved from the local districts to the supervisory union, money was saved. But now that the agency has accounted for the change, a surplus is not anticipated.
There won’t be any extra cash at the local level either. In the 2016 fiscal year, towns burned through reserves in order to keep spending down because lawmakers threatened tax penalties if they spent more than prescribed. Each town was given a specific, allowable increase of between 1 percent and 5 percent, based what they spent the year before. Special education costs, inflation and an unexpected 8 percent increase in health care costs drove many school districts to raid reserves rather than incur penalties.
Even if school districts spend at the rate of inflation — 2.9 percent for education — the state faces financial challenges. Schools won’t be able to hold the line at inflation because of increases in the cost of health care.
Last week, the Vermont Education Health Initiative announced hikes of 10 to 17 percent in teacher health care costs. At the same time, school boards across the state have been renegotiating contracts and believed there would be savings from switching to new health plans. Many boards put that extra money into salaries and programming.
The Agency of Education broke down the $47.3 million budget gap:
• $38 million in one-time money (surpluses from past years, reserves, sales tax, lottery).
• $9 million needed to refill the reserve.
• $600,000 to bring the reserve back to 5 percent.
Sharpe said the Scott administration helped dig that hole.
“Part of the reason there is a $45 million hole is because of our agreement with the governor’s office to lower property tax rates by 2.2 cents,” Sharpe said. “That will need to be made up.”
Lawmakers are required to have a reserve of cash in the ed fund of between 3.5 percent and 5 percent. They used about $9 million to lower property taxes this year. The reserve is currently at 3.6 percent.
During the legislative session, Nicole Mace, head of the Vermont School Board Association, testified that last year’s legislative decisions would create a very difficult budgeting process for 2019.
“School board members have been called upon — over the last three years — to do one heavy lift after another,” Mace said.
She ticked off the challenges: finding merger options under Act 46, budgeting for Act 46 spending thresholds, putting flexible pathways and personal learning plans into place, providing services for more children living in poverty, and renegotiating contracts because of major changes in health insurance for school employees.
Mace said she hopes policymakers make changes before school budgets are set.
“They deserve more than a little respect, and that means being asked to sit at the table with policy makers early on. To have a shared conversation around what approach is going to be taken and to address this problem. We can’t expect folks to cut $100 million overnight,” she said.
Former Rep. Adam Greshin, who now heads the Department of Finance and Management, was on the House education committee last year. He said Gov. Phil Scott wants to work with school boards.
“We are in the process of researching where we are and determining where we want to be. The governor hopes to work with the Legislature and school boards to fund education at a sustainable level,” he said.