Legislative Update


The first month of the legislative session is typically very quiet, but this year it has been anything but subdued. As you may have heard, there had been considerable pressure to soften an interim education cost containment mechanism that was build into Act 46. A inordinate amount of time was spent on this issue during the month of January, culminating in a vote shortly after 1 a.m. on Saturday, which you can read about here and here.

What ultimately passed the House and Senate was a compromise - one that recognized the need for cost containment, while also acknowledging the reality that a one-size-fits-all approach presented challenges for some school districts.

I voted to support this compromise; before I explain why, let me start with some background.

Since the passage of Act 68, Vermont's education finance mechanism has had a mechanism to contain education expenses - that mechanism has traditionally been known as the "excess spending penalty." In very simple terms, the mechanism would penalize school districts that spent over a certain cost per pupil, based on a percentage of the prior year average of statewide spending per pupil. The threshold was originally 125 percent, but has been reduced slightly in recent years in an effort to constrain education spending.

The problem with the Act 68 excess spending penalty is that it only ever captured a few extreme outliers, which were almost always small, rural school districts. These were districts with low population density and low student counts, making it difficult to realize cost efficiencies that come with economies of scale. As a practical matter, the Act 68 excess spending penalty caused extreme financial distress for a few rural communities with small school budgets, and did almost nothing to contain the growth of statewide education spending.

Urban communities have greater population density, which affords the economies of scale that allow them to provide many more educational opportunities at a lower cost per student. For this reason, a community like Burlington can offer five world languages (Spanish, French, German, Latin, Mandarin) in its high school, while many rural communities can only afford to offer two or three languages, even though the cost per student (and tax rate) in a rural school district might be 10 to 20 percent higher than Burlington's. In my view, this dynamic made the Act 68 excess spending penalty inequitable and unfair from day one.

In the waning hours of the last year's legislative session, there was a proposal to dramatically reduce the Act 68 excess spending threshold down to 110 percent of prior year average per pupil spending. This proposal, which very nearly became part of Act 46, would have had disastrous consequences for many rural school districts - and likely would have impacted every school district in our legislative district - while allowing urban school districts to continue driving the growth of statewide education spending. I objected to this proposal and offered an alternative - which is ultimately what was enacted into law under Act 46.

Under Act 46, the old Act 68 penalty mechanism was suspended for two years (FY17 and FY18), and replaced by a mechanism that applied a variable spending growth threshold to the per student cost for each school districts across the state. The thresholds are growth percentages set on a sliding scale - low spending districts have a higher allowable growth threshold, while high spending districts are allowed less room to grow expenditures. Any expenditures above the threshold are counted twice when calculating the tax rate (i.e. a 100 percent penalty). This approach ensures that ALL school districts are responsible for restraining the growth of education spending, including Vermont's largest school districts.

It will be a few weeks before we start seeing reliable data at the statewide level, but early indications are that this mechanism has provided the incentive necessary to generate meaningful cost savings across the state. As an example, the Burlington school district is asking its voters to approve a budget that includes $1.4M in cost savings. And Burlington is not exactly cutting down to the bone. In a budget presentation on their website, the Burlington school district outlines how they found savings by "right sizing staffing", "adjusting staffing for small class numbers," and "[consolidating] small classes," even though "all current programming" will be sustained in their elementary and middle school.

Some have argued that local voters provide the only cost containment mechanism that we need. In fact, during a debate on the issue on the House floor last week, one of my colleagues shared the story of how Burlington had experienced several years of large increases in the school budget, and that the voters ultimately replaced several members of the school board and rejected a budget. The point made was that local voters will ultimately decide when they have had enough.

The problem with this argument is that it fails to address the fact that we have a statewide funding system. So while the good people of Burlington voted for several large increases in their school budget, the financial impact of their local vote was exported to property taxpayers across the state. The same is true of every school district across the state.

But just as cost increases are shared across the system, so are savings. If the voters of Burlington approve a school budget that includes $1.4 milion in savings, the benefit accrues to all taxpayers across the state. And Burlington is not alone - from news accounts I have read, many of Vermont's largest school districts, including Rutland and Springfield, were able to find significant cost savings without compromising educational quality. These savings all add up to meaningful relief for property taxpayers across the state.

As effective as this mechanism has been, it is not perfect, and has had an outsized impact in some districts, particularly those that have experienced large declines in their student population. In response to these concerns, I supported a plan that would have lowered the penalty from 100 percent to 25 percent. This approach would have kept a threshold for school boards to manage to, but with a softer penalty. This plan passed the House, but met with resistance in the Senate. Ultimately the two bodies compromised on a plan to exempt school districts with per pupil spending below the statewide average (we don't have any of those in our area), with a penalty of 40 percent for those that exceed their allowable growth thresholds for FY17 only.

I supported and voted for this approach, but I did so in the hopes that we will take what we learned from FY17 and work to develop an effective cost containment mechanism for FY18 and beyond.

Over the long term, meaningful property tax relief will only come about through some rationalization of our education system, which will require difficult decisions at the local level. Urban communities need to work more aggressively to right-size their education systems and take advantage of their economies of scale. Rural communities will need to break down traditional silos and start thinking about regional systems that can make more efficient use of shared resources to eliminate redundancy, while offering more educational opportunities at a lower cost.

Rep. Oliver Olsen represents a district in the state legislature that includes Jamaica, Winhall, Stratton, Londonderry and Weston.


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