Act 46 'tweak' helps Manchester, but doesn't eliminate penalty completely


MANCHESTER >> Manchester taxpayers will see some benefit from the recent "tweaking" of the Act 46 spending cap penalty which was revised by the Legislature at the end of January.

The changes made to the spending cap formula during an unusual midnight session of the Legislature on Saturday, Jan. 30, means local taxpayers will see a roughly 2-cent drop from what would have been the tax, from slightly more than $1.57 to slightly under $1.56.

Last spring, when lawmakers were finishing their work on Act 46, legislation designed to encourage school districts to consolidate into larger entities to bring about more efficient, and it was hoped, cost effective districts, a spending cap penalty provision was incorporated into the law to provide an incentive for school boards to tamp down overall education spending. The spending cap was structured on a sliding scale to give lower spending districts more leeway when crafting their school budgets, and to tighten the amount higher spending districts, based on their per-pupil spending, could increase their budgetary bottom lines before triggering a penalty.

Two weeks ago, when Manchester's school directors passed their budget by a 3-2 vote, about 7 cents of the total 10 cent increase in the tax rate was attributable to the penalty based on the district's "education spending," or total expenditures less local revenues, such as tuition for non-resident students attending MEMS or special education reimbursement. Following an outcry that this spending cap provision unfairly punished districts which had tried to hold the line on their budgets and were facing a large 7.9 percent increase in health insurance costs, lawmakers passed a revision that raised by 0.9 percent the "allowable growth percentage," or the amount school districts could increase their budgets before incurring a penalty, and reduced the penalty rate from $1 to 40 cents for each dollar by which they exceeded their spending limit.

The net effect of that was to wipe 5 cents off Manchester's original penalty, but because of the way education finances are structured, that won't translate into a 5 cent tax reduction. Total statewide education revenues still need to yield a certain amount, and a penalty reduction means those foregone revenues have to be made up somewhere else, BRSU school superintendent Daniel French told the members of the Manchester School Board during their meeting on Tuesday, Feb. 2.

That difference will be made up by altering another element in the funding formula, known as the "property yield," which is the amount of spending per equalized pupil that would result if the homestead tax rate were $1 per $100 of equalized education property value. To offset the reduction in the spending cap penalty, the property yield value must also decline, pushing the tax rate higher in turn, French said.

"This is a statewide financial system — there's a bill that needs to be paid," French said. "Basically, the debate is (over) who should pay it, and how much should be paid in the form of a penalty; how much through the broader tax system. But the bill will be paid."

If fewer people are paying in through a spending cap penalty, then others have to pay to make up the difference, he said.

Under the original spending cap formula, Manchester was allowed an increase of 1.83 per cent; that will now be set at 2.73 percent. But since the amount of education spending from the current fiscal year's budget to the one recently adopted by the school board and subject to voter approval at Town Meeting rose by about $410,000, from $9.108 million to $9.418 million, or about 4.5 percent, that still left the school district in the penalty zone.

The split effect of the revised spending cap formula left some of the school directors with somewhat mixed feelings.

Brian Vogel, the board chairman, noted that this would also mean that the tax incentives offered to districts which found a way to merge with neighboring districts quickly under an accelerated track would also have to be recouped somehow.

"It's a beautiful system," he said, with an apparent amount of sarcasm.

The hope is that over the long run savings will emerge from the consolidations, French said.

"But the effect of it will be, and more people will acknowledge this next year, (that) you're eventually going to be paying for those who are (getting the tax incentives), because all those incentives come from a closed system," he said.

No additional money was appropriated by the legislature to finance the incentives, he added.

"The larger issue is that the state is still in a difficult position," French said. "Next year will be just as bad."

Two other school districts within the BRSU, the U.D. #47 district that includes Pawlet and Rupert and the U.D.#23 district of Danby and Mt. Tabor were also in the Act 46 penalty zone, French said.

In the case of U.D. #23, the penalty has been reduced from 20 cents to 8 cents; U.D. #47's penalty, not high start with, was reduced to an insignificant amount, he added.

Other districts were able to use reserve funds if they needed to in order to stay under the penalty threshold, he added.

The recent legislative "tweak" also came well after boards had already finalized their budgets, so none of them will be making any changes in response to that, he said.

In other business, the composition of the merger study committee for the BRSU authorized under Act 46 is coming into focus. The committee, charged with trying to chart a course for Manchester, Dorset, Sunderland, Danby, Mt. Tabor and the Mountain Towns RED (Peru, Landgrove, Weston and Londonderry) to find a way to consolidate into a larger district, will have a total of 17 members. Five of them will be from Manchester, three from Dorset, four from the Mountain Towns RED, two each from Sunderland and Danby, and one from Mt. Tabor. Each district must have at least one school director as part of their delegation, but the other slots will be filled by interested residents of their communities. There is no set format for how to pick the other members, but the Manchester board opted to wait until after March Town Meeting and the reorganization of the board before selecting the board representative and the four other community members.


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