Thirty-four municipalities out of 246 towns rejected school budgets on Town Meeting Day, according to the Vermont School Boards Association. Two hundred nine passed budgets, 12 have not reported results and 19 towns will hold budget votes later.

Typically, about a dozen or so school budgets go down each year. The last time budgets were defeated in such large numbers in Vermont was in 2003. That year, 41 school budgets were rejected just before the Vermont Legislature passed Act 68, a funding reform law that eliminated the spending pool from so-called "gold towns," the state's wealthiest communities.

This year about 6 cents of the tax increase came from changes the Legislature and the governor's office made that have eroded the Education Fund and the General Fund transfer to the Education Fund.

Gov. Peter Shumlin put the onus on school boards to cut costs before Tuesday's Town Meeting Day votes.

On Wednesday, the governor said the voters had spoken.

"As we saw in communities throughout Vermont on Town Meeting Day, local control over school budgets is alive and well," Shumlin said in a statement to the press. "Vermonters are clearly frustrated by high spending, high property taxes, and the complexity of the statewide education funding system. In a number of communities, voters scrutinized their budgets and per pupil school spending, and asked school boards to go back and make adjustments. Vermonters know that their property taxes are too high and expect action to reflect that concern, locally and at the state level. We are all in this together, and in Montpelier we will redouble efforts to improve the system to get better outcomes for our kids at a lower cost."

Lawmakers who are leading education governance reform efforts that would consolidate school boards and create larger, unified districts say the budget defeats give them impetus to move forward with their plans. The legislation now in the House Education Committee does not address the financing system and would take four years to implement.

The budget defeats, Rep. Peter Peltz, D-Woodbury, said, "send a message that the status quo needs to be looked at, at the very least."

Eventually, school districts, which could be consolidated from 285 to as few as 30, could see savings, according to Peltz, who is vice chair of House Education. Those savings could take a while to realize, he said, but could include sharing expenses for audits, business management and administration at the supervisory union level.

Stephen Dale, executive director of the Vermont School Boards Association, said half of the defeats this year were the result of increases in taxes not related to significant hikes in education expenditures. In those school districts, spending was held to between 2 percent and 4 percent. Meanwhile, taxes are slated to go up by double digits in many cases. The tax increases are related to the erosion of the Education Fund by legislative decisions, shifts in property values and other factors.

Taxpayers, Dale said, are trying to send a message to Montpelier about the statewide property tax formula.

"They're saying to the state, we don't like what's happening with property taxes, and we want you to do something about it," he said.

The other half of the budgets were rejected because of apprehension over 6 percent to 30 percent increases in school spending, Dale said. In those towns, voters were expressing dissatisfaction with local decisions about spending, he said.

Dale said education is a joint responsibility between the state and local boards. The state is responsible for setting the tax rate and distributing reimbursements for students statewide; local boards must ensure students get a good education for a reasonable cost to taxpayers.

"In this instance, what you're seeing is that dichotomy," Dale said.

Bill Talbott, chief financial officer for the Vermont Agency of Education, says enrollments have declined 20 percent over the last 15 years and school boards have not cut budgets accordingly. K-12 public school student enrollment hit 103,000 at its peak and is now down to less than 80,000. Talbott has deducted pre-K and students tuitioned out to private schools (that are not part of the public system) from these totals. 

In Talbott's view, the statewide property tax, which is based on a per pupil reimbursement system, is working as it is supposed to. When schools spend higher amounts per pupil even as student enrollments decline, the result is higher tax rates locally, and statewide. The state reimbursement rate per pupil is $9,151; the average cost per pupil is $18,571. The difference is picked up by local taxpayers.

"It puts pressure on boards and voters to consider what to do when there are fewer kids," Talbott said. "It's not a happy pressure. Boards all worked hard and they've done their best some believe, and some can't respond any more, and that is the reality. If boards can't respond maybe consolidation needs to be looked at more closely."

House Speaker Shap Smith has said he will work with the House to push forward a new education governance model. "We do have a challenge with decreasing enrollment and increasing costs and that is unsustainable," Smith said in an interview.

The other challenges? Federal stimulus money for special local programs has disappeared, meanwhile local property taxes are increasing at double digit rates - even in towns where school boards have kept spending down.

Smith said there is confusion about how school boards can cut or restrict spending and still see "such a large increase in property tax rates, and I think that's a real challenge. In the four towns he represents, rates are increasing between 8 cents per $100 of property value to 26 cents.

"I've been asked a couple times, will you change the financing system?" Smith said. "If anyone has a silver bullet, I'm open to ideas, but to the extent we're dealing with declining enrollments and increased cost, I'm not interested in dealing with financial issues without getting at the underlying issue of cost."

Change is hard, however, Smith says.

"People have concern about changing anything whether it comes out of property tax or income tax or some other revenue source, if we don't address the tension between local control and state funding, we are going to wind up where we are right now," he said.

In their own backyard

Tuesday's Montpelier school budget defeat is a microcosm of the tensions at work locally. For more than a decade, school budgets in one of Vermont's most liberal bastions have passed with little fanfare, but this year there was organized opposition to a 13 percent increase in the property tax rate.

Charlie Phillips was a teacher and principal of Montpelier schools for 37 years and he has been a member of the board for 11 years. Four of his grandchildren attend the city's schools.

Phillips says voters' rejection of the school district's $18 million budget was a signal, and the board needs to redouble its efforts. Phillips says residents say they just don't have the money to pay more in property taxes. It's also a message to lawmakers that something must be done to address declining enrollments, higher costs and educational quality.

"I think people were really torn," Phillips said. "We heard over and over again (from voters), 'we value the school system, we think it's a great school system, but taxes have reached a point we can't afford to live in Montpelier.'"

The overall school spending rate would have increased 2.2 percent; taxes meanwhile were slated to go up 13 percent.

At one point, Phillips suggested that the board save $200,000 by shaving $25,000 on new positions (putting caps on experience and union pay levels for a teaching and an administrative position) and applying part of the carry-forward from its $700,000 surplus to bring down next year's school costs. The board rejected the idea. Later, when it approved a $3,500 debate program, tensions boiled over, Phillips said.

"We were careless. I include myself in the fact that I didn't argue persuasively, or whatever," Phillips said. "But it's easy for me to say if we had made a token gesture the results would have been different."

Phillips says the statewide funding formula has exacerbated Montpelier's woes.

"A huge portion of the tax increase comes from the state's formula, the equalized amount for each student in the state," Phillips. "I do believe it is a message to the Legislature. I think legislators anticipated this might happen and had already talked about it and decided we've got to do something."

Phillips believes it's time for Montpelier to consider merging with the neighboring U-32 school district. Taxes, he says, are now so high people can no longer afford to live in Montpelier. A merger would save money and increase the quality of education, Phillips said.

"When you have a class that is a specialized, high-level class in biology and chemistry and only five students, you have to question whether you can afford to do that," Phillips said. With a larger student population, courses of this type are easier to pay for, he said.

Thierry Guerlain, a city council member who voted against the budget, disputed the notion that there was an organized effort to defeat the school spending proposal. Vibrant and Affordable Montpelier, a local group, never came out against the budget, he said.

Guerlain said it's possible the city could see a 40 percent education property tax increase over a three-year period. Last year the rate went up 9 percent; this year would be 13 percent and next year the rate will go up another 13 percent, he said.

"It always comes down to we love our schools, forgetting people have to pay these taxes," Guerlain said.

School budgets that were defeated include: Ferrisburgh, Vergennes, Barre City Elementary, Currier Memorial Elementary in Danby, Blue Mountain, Miller's Run, Westford, Underhill Town and Underhill ID, Mount Mansfield Union High School, Colchester, Fairfield, Burlington, Mississquoi Union High School, Fairfax, Georgia, Alburgh, Grand Isle, Elmore, Milton, Montpelier, Holland, Hardwick, Stannard, Rutland City, Brandon, Middletown Springs, Poultney, St. Johnsbury, Bennington Elementary, Plymouth Elementary, Leland and Gray High School, Vernon and Reading.

Vermont is the only state in the nation that has a statewide property tax system for funding local K-12 public schools. The system was put in place with the passage of Act 60 in 1997 after the Vermont Supreme Court ruled in the Brigham decision earlier that year that the state's education system did not provide students equal access from town to town for an adequate education. Poor towns were not able to raise enough money to support schools sufficiently, while wealthier towns could generate larger tax revenues because of higher property values.