[A]n analysis by the Legislature’s Joint Fiscal Office has poured cold water on the Scott administration’s claim that it can hold the line on school taxes and save $300 million over the next five years.
A draft report, which Joint Fiscal Office analysts presented to the House Ways and Means Committee on Tuesday, described the assumptions made by the governor’s office as “questionable,” including the use of one-time funds for ongoing expenses, and the plan’s reliance on “sustained low spending and substantial assumed cost reductions.”
The Joint Fiscal Office was particularly scathing of the five-year outlook. Analysts said the plan “contains some major technical errors” that reduce the administration’s projected savings by $100 million to $160 million.
The errors include “double counting” special education savings, “not filling the reserves, overstating healthcare savings, and seemingly reducing tax rates rather than holding them constant,” according to the draft discussion document the Joint Fiscal Office prepared for lawmakers.
The document is the initial response from the Joint Fiscal Office to Gov. Phil Scott’s plan, based on a preliminary examination of the financial details.
Jason Gibbs, the governor’s chief of staff accused the nonpartisan Joint Fiscal Office of playing politics. “The JFO analysis reflects a desire on the part of legislative leadership to undermine the arguments the Governor is making in his plan” Gibbs said on Tuesday.
Steve Klein, director of the Joint Fiscal Office, dismissed Gibbs’ comments. “Our goal is to get the best information out so people can make better decisions,” Klein said.
The Scott administration says its plan will keep property tax rates flat at fiscal year 2017 levels for the next five years. (Because of property value increases, taxes will actually go up. This year’s anticipated increase is $24 million.)
The governor’s office says the state can save as much as $300 million from fiscal year 2020 through fiscal year 2025 by making changes in the way special education is funded, creating a statewide teacher health care benefit, increasing staff-to-student ratios and doubling taxes for school districts that spend more than 110 percent of the average per pupil rate. The Legislature has expressed interest in working with the governor’s office on special education and the statewide teachers insurance plans, but has rejected the higher ratios.
The promise of savings is “critical” to the administration’s justification of the use of nearly $60 million in one-time funds, which the Joint Fiscal Office report characterizes as a loan from the state’s general fund. The Scott administration plans to use $20 million from fiscal year 2018 surplus and $19 million in tobacco settlement monies and another $20 million in other funds to buy down a 5 percent to 7 percent property tax rate increase.
Next year’s gap in the education fund could be as high as $68 million to $98 million, according to the initial Joint Fiscal Office analysis. That’s because buying down the rates this year results in a carryforward of the gap next year — and the hole is expected to grow by $10 million to $40 million, analysts say.
There are other uses of the state’s general fund that could also benefit Vermont taxpayers, the report points out, including reducing pension fund obligations, meeting current Medicaid obligations, addressing other liabilities and generally shoring up the state’s reserves. The “proposed general fund payback” — repaying the loan — “is theoretical at best,” the report says.
Rep. Janet Ancel, D-Calais, chair of House Ways and Means, said the use of one-time money has to pay off. She questions whether it’s realistic to expect significant savings from the governor’s five-year plan.
“This proposal uses one-time money which we will never have again, to do this one-year fix on the [tax] rates, and you have to have absolute confidence that will pay off over the long run to do that,” Ancel said.
Mark Perrault, education finance analyst for the Joint Fiscal Office, said he isn’t willing to vouch for the administration’s numbers because he doesn’t know how they arrived at $300 million. “So we asked them to send their five year balance sheet so we could figure out what was going on,” he said.
The Joint Fiscal Office immediately found an $86 million mistake. The administration had double-counted projected savings from planned changes in the way special education is funded. The administration counted on immediate savings; the problem is, the savings will take time to accrue, according to Perrault.
Rep. David Sharpe, D-Bristol, chair of the House Education Committee, said under the terms of the special education bill H. 897, the existing reimbursement model would remain in place until 2023. Until then, the state is obliged under federal law to pay for local supervisory union expenses for the program.
“I think there are some big problems here,” Sharpe said.
Gibbs, Scott’s chief of staff, suggested that differences between the governor’s assumptions and the Joint Fiscal Office report are the result of different approaches to accounting. The Joint Fiscal Office is focused only on cash savings, he said. The administration is banking on avoided future costs.
“We believe [the savings estimates] are concrete and achievable cash savings and avoided costs,” Gibbs said. “You are saving a dollar currently being spent in the system today and avoiding not having to spending in the future.”
Gibbs also told VTDigger the Scott administration stood by its numbers. But later on Tuesday the administration sent the JFO a revised outlook that, Klein said, corrected “about $90 million worth of stuff. It looks like they moved closer to our math.”
Klein said more changes in the administration’s proposal are likely before Wednesday morning when Commissioner of the Department of Taxes Kaj Samsom is scheduled to appear before House Ways and Means.
A significant source of savings projected by the administration — $74 million — is increasing the student to staff ratios to 5.74 by the year 2024. The JFO report said the ratio represented the “biggest portion of savings and is critical to the plan,” but there is no mechanism in place to require or even encourage school districts to cut staff.
When an increase in the ratio was first proposed in April, the administration’s initial proposal set specific targets and included fines for school districts that didn’t meet the goal.
The administration also altered its proposal to create a task force that would help school districts manage teacher retirements and other vacancies to reach the target ratio. But over the course of Tuesday, the administration appeared to be backing away from advocating for a specific target ratio.
Adam Greshin, commissioner of the Department of Finance and Management, said the state needed to move slowly.
“We will still have among the lowest ratios in the country and we will still have small class sizes, but we will have a more economic product that has critical mass,” Greshin said.
Greshin acknowledged a one-size fits all approach would not work in Vermont, because of the nature of the state’s rural and urban districts. He said it was the administration’s goal to form a task force to “work within each district’s idiosyncrasies to slowly but definitively move ratios higher and more in line with national averages.”
Gibbs said the administration would have preferred hard targets but softened the proposal to get lawmakers to buy in. The estimated savings, he said, are based on the assumption that the original targets would be met.
“There is no guarantee, but it is not any more or less reliable than the revenue projections the JFO provides to the Legislature around which they build a multi-billion dollar budget,” Gibbs said of the proposal.
