Impasse looming on ed funding

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MONTPELIER — Lawmakers are bracing for another veto session over school spending. Various proposals are on the table to reduce spending over time, but nothing that would come close to the $40 million that Gov. Phil Scott wants to save this year in the name of taxpayer relief.

Scott's administration says it will not dip back into local budgets that have already been passed, but nobody seems to have a better idea for how to push down costs next year, meaning lawmakers are walking right back into the same temptation as last year: artificially buying down tax rates to meet campaign promises, said Senate President Pro Tem Tim Ashe, D/P-Chittenden.

"If we are walking right back down that road, even if we were to accomplish it by cheating with the tax rate, it just means next year we will have the same dilemma," he said in an interview on Wednesday.

Legislators are still working on two school bills that will overhaul how the state pays for general education and special education. Taken together with Act 46's changes to the way schools are run, legislative leaders say the state's education ocean liner is turning in a more affordable direction, and will stabilize and eventually decrease in coming years.

But that isn't soon enough for the administration; Scott wants significant savings starting this year. While the governor supports the special education changes, he is not a fan of the new ed finance plan, which creates a new income tax and creates a mechanism to increase taxes on communities that spend more on their schools.

"The governor has been crystal clear from the beginning of the session that he will not sign any bill that has a tax increase and that includes a property tax increase," said Commissioner of Finance Adam Greshin.

The $40 million shortfall driving the administration's cost concerns came from spending one time money and reserves to artificially lower the property tax rate by 2 cents last year when school spending grew 3.4 percent. Making up the shortfall would require an average 5.5 cent tax hike for Vermonters this year, which the governor says people cannot afford.

Scott still believes there are opportunities this session to get rid of the shortfall, according to Rebecca Kelley, his spokesperson. The administration has put particular emphasis on proposals for a statewide teacher healthcare benefit and setting a target staff-to-student ratio.

Neither of those initiatives would create major savings next year, however, leaving legislators asking what exactly the governor wants them to do this session to further contain costs.

"You can't invent the money. So then what is there, some last minute proposal that will get unearthed that will actually produce that amount of cuts into the system in FY19? If there was an easy one you would think it would have already emerged," Ashe said.

This might be the right time to stop kicking the can down the road, he said, especially because voters on Town Meeting Day approved school budgets that included the tax increases needed to fill the hole.

"In order to make that money [gap] go away you have to pay for it. You have to catch up to those one time payments. If we use gimmicks or tricks to get down to no rate increase for using one time money for ongoing education expenses, it just pushes the a little bit further down the road. We would be dealing with it next year," Ashe said.

This has lawmakers worried the administration will ask them to reach into already passed school budgets as they did last year when they clawed back $8.5 million — another $4.5 million will be taken from schools this year as part of that deal.

"When we did that last year in order to come to a compromise and make sure our government didn't shut down over a budget veto, local schools and voters were pretty angry," Johnson said.

Last year, Scott kept his message simple — taxpayers need relief — and with school spending on the rise nuanced policy statements from Ashe and Johnson didn't seem to have traction outside the Statehouse.

This year, Scott's message is more of a gamble because school budgets came in with less than one percent increase in per pupil spending, far below what even Scott had expected or demanded. Cutting into such slim school budgets could force schools to cut core staff and courses, Ashe said.

"If we feel that in order to meet a veto threat made by someone else that we have to be destructive to our public K-12 system then we are not interested," Ashe said.

Special education reform

Legislators are still working on a proposed bill, H.897, that spreads special education money across the entire student population in an effort to free up teachers and resources to help struggling students sooner and avoid excessive red tape.

The plan, already sailed through the House, is based on several reports, starting with the 2016 Picus report that said Vermont over-identifies students and spends about $140 million more than it should on special education.

This report led to a pilot program with the District Management Council that identified best practices the state should adopt. Another report by the University of Vermont looked at how the state pays for special education services and found that the state could save between $70 million and $80 million a year by moving away from the reimbursement model currently in use.

The plan would reduce the number of paraeducators and ensure special education students and those who struggle are taught in groups by a qualified instructor.

At first the Senate Education Committee gave the bill a chilly reception but has seemingly come around. Sen. Philip Baruth, D/P-Chittenden who chairs the panel, said senators have streamlined it and added guards to make sure students with disabilities don't lose funding or services under the new system.

"People from the disability community like our bill better [than the House version]. I don't think any bill that moves to a census based model will completely relieve their anxiety, but I think our attempt was to make those obligations clearer," Baruth said.

The initial proposal for special education reform would have transitioned to the new plan by 2025, meaning savings would also occur gradually.

Baruth said his committee is still working out the formula for how much funding school districts would receive under the new plan, and a precise timeline for implementation.

Education finance changes

The House has also approved of a new way to pay for schools that shifts some of the cost away from the property tax by adding an income tax surcharge.

It also takes some expenses out of the Education Fund that aren't related to K-12 spending, gets rid of a general fund transfer of millions of dollars and dedicates the sales tax to education. The dedicated revenue stream and additional income tax is expected to stabilize revenue sources, according to Johnson.

There is also pressure to control spending because towns will pay a higher tax for spending above a base amount. The new language would have "every single school pay 1.6 cents instead of 1 cent for every $100 spent over the base amount — it is intrinsic cost containment all throughout the system," Johnson said.

The bill is now in Senate Finance, where it is being further vetted. Ashe said there wasn't a large body of research behind it and the Senate wants to look into how it would impact different groups of taxpayers before giving it a stamp of approval.

The administration doesn't like the plan because it keeps an income sensitivity program and creates a new tax with the income surcharge. Scott says the new plan doesn't reconnect voters to their tax rate or simplify the formula.

Since Act 60 came into force, moving education spending to a statewide system, the governor and the Legislature have been in the line of fire for spending increases that lead to tax hikes, according to Greshin.

"Prior to Act 60 that didn't matter because people made the connection between their vote at town meeting and their tax rate. After Act 60 mixed it up and spun it around and now voters don't make that connection anymore and they blame the state," he said.

Still, Greshen said the administration is open to working with the Legislature on the changes, as long as there is also movement on the governor's cost containment priorities.

"Scott is happy to work with the legislature on school funding formula changes but that is not our focus," Greshin said.

He said a statewide teacher healthcare contract would be a good place to start, though admitted it would only "help in a limited fashion in fiscal '19."

Both Ashe and Johnson acknowledged Scott provided lawmakers with a list of cost containment options earlier in the session, but they say he hasn't followed up with anything that amounts to a proposal or plan.

"The governor has had three months to come to the table with fleshed out ideas on how to make it happen and we haven't seen any. If he is serious about it then we need some details," Johnson said.

Greshin said Scott will not dip into already passed school budgets in order to achieve his pledge not to raise taxes. And while Scott is prepared to veto anything that will increase taxes, Greshin said, "I think we can work something out before that."

"I would love to not have a veto session," Ashe said. "I don't know if that is possible. In order for that to happen the goal on both sides would have to be not to have a veto. I know that is our objective and I hope it is theirs too."

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