The Scott administration proposed a plan on Tuesday to plug a $58 million hole in the education fund with $19 million from a tobacco settlement, $20 million from state surplus revenues, $7 million in reserves and $12 million from other sources.
The money will be paid back over time, mainly by asking schools to reduce the size of educational staff over the next five years, according to Susanne Young, the secretary of the Agency of Administration.
If the lawmakers and the Scott administration don’t fill the funding gap — which was created due to the use of one-time money last year — taxpayers will be on the hook for about a 5-cent to 7-cent increase in property taxes this coming fiscal year.
Gov. Phil Scott is sticking to his “no new taxes” campaign pledge and adamantly opposes a property tax increase. His administration said that a short-term funding solution this year, combined with longer term commitments to cost-containment measures, can keep taxes stable for years to come. Reducing school spending and putting a lid on the property tax rate is central to that promise, Young said.
“Our staff ratio is the lowest in the country and our per pupil spending is one of the highest,” Young said. “We have perennial challenges with deficits, (and) with a declining student population, we are very enthusiastic about the fact we have drawn on bipartisan ideas.”
Lawmakers immediately opposed the plan. The legislative session is set to end on May 12, but Senate leader Tim Ashe is skeptical about how the Legislature and the Scott administration will resolve their differences. Scott has threatened vetoes over any increases in taxes or fees; Senate leader Tim Ashe has said he will not schedule a veto session.
“We’ll work with the administration in the coming days, but I already see the storm clouds moving in,” Ashe said.
The one-time funding proposal not only reins in rates at 2017 levels for the coming fiscal year; it also is part of a plan that keeps rates level over a five-year period by reducing school teaching and paraprofessional staff statewide by about 500 positions a year, or about 2,500 jobs, through retirements and other job vacancies. There are about 18,000 educational workers in the state.
The savings over the five-year period would be about $262 million, according to estimates from the Department of Finance and Management.
Scott said the reductions in force through attrition are necessary because of the 25 percent decline in student enrollments over the past 20 years. There currently are 76,000 students in Vermont, down from a high of 104,000. The Agency of Education estimates that number will drop to 69,000 students over the next five years.
“Stepping back as to why we have to act, and it is important for all of us to come to consensus and act now, Vermont has great schools and great teachers and delivers a great education, but demographic challenges contribute to a K-12 educational system that is inefficient, outdated and unaffordable,” Young said. “It is actually denying opportunity to kids if we do nothing.”
Young and Heather Bouchey, the interim secretary of the Agency of Education, say they will form a task force that will help schools adapt to fewer personnel and restructure programs.
“I think we are not talking about immediately cutting current jobs,” Bouchey said. “We are talking about a plan that will naturally occur in the system.”
The governor has said that the average statewide staff-to-student ratio at the current ratio of 1 to 4 is too low. In his proposal, the administration estimates that the state could save $262 million over five years, starting in fiscal year 2020, if the ratio is ratcheted up first to 1 to 5.15, and eventually to 1 to 5.75.
Instead of proposing an explicit mandate for the higher staff-to-student ratios, Young and Bouchey said the administration will work with school boards, lawmakers and other stakeholders to shift the statewide ratio.
But there is a hammer in the plan — the school excess spending threshold for per pupil spending, which now is set at 121 percent of the statewide average, would be lowered to 110 percent. Schools that spend above that level pay tax penalties.
House and Senate Reaction
Both Senate President Pro Tem Tim Ashe and Speaker of the House Mitzi Johnson have rejected the idea of one-time funding to plug the education fund hole this year. They have said that will only exacerbate the state’s school spending woes, as it essentially would create the same problem next year by artificially buying down taxes this year.
But the two leaders also signaled that they would be willing to negotiate with the governor — both on the $58 million gap and the staff-to-student ratio issue. Still, Ashe put the onus on Scott to come to the table.
“I believe if the governor is willing to compromise, there is plenty of room to get out of here without a veto session,” Ashe said. “The problem is, we have a non-negotiable position, too. We are not going to willy-nilly slash staff at schools.”
The one-time money earmarked by the Scott administration already has been tapped by the General Assembly. The Senate already had earmarked the $24 million in anticipated surplus for programs in the budget. The House spent the tobacco money on addiction treatment and paying down teacher pension obligations to make up for underfunding in the 1990s.
Ashe said there might be a need for some one-time money to reach a deal, but that $58 million in one-time money would be “unprecedented.”
“I think the Senate for sure will have to think long and hard before it agrees to use $58 million in one time money to buy down rates for one year,” Ashe said, especially considering the other things it could be used for, including paying down pension obligations.
The Senate leader described it as a tradeoff between “instant gratification versus fiscal conservatism.” Ashe said the governor was using level funding property taxes as a wedge issue for the upcoming election instead of ensuring that long-term retirement debt is kept in check.
“This would really scoop from almost every reserve we have for the purpose of delivering that tax pledge from the governor,” Ashe said. “It would certainly be going in the opposite direction from what those ratings agencies are looking for.
“Vermonters want long term sustainability and being able to provide long-term fiscal prudence and to show Wall Street that we deserve the outstanding credit ratings we have by keeping our reserves filled and paying our bills,” Ashe said.
Johnson agreed Vermont should be saving some of its reserves rather than spending it all during a period of economic growth.