EAI Education Finance BriefingAugust 2014

John McClaughry

How Vermont Finances Education

• Brigham Rule (1996) “substantially equal education tax resources in every district”

• Act 60 (1997) – shark pool; Act 68 (2003) • School district voters adopt budgets• Education Fund MUST pay those budgets – not

negotiable; no state control over voters

Ed Fund Sources (FY2015)

• General fund transfer $295 m• Non-Homestead property tax $595 m• Homestead property tax $580 m• Sales and MV purchase taxes $160 m• Lottery profits $ 23 m

Miscellaneous $ 6 m • TOTAL $1,506 m

Homestead property tax adjustment

• Taxpayers with household incomes below $90,000 can choose to pay homestead school property tax with 1.8% of their incomes

• About 70% of homestead filers do this• So they don’t care what the property tax rates

are• This will require $158 million in FY 2015

Computing Homestead Property Rate

• State base rate is $0.98 per $100 FMV • Increased by % that local spending per ADM

exceeds state “Basic Education Amount” -$9,285 (FY2015)

• Example: District votes $11,820 per ADM• That is 20% higher than BEA• Local homestead tax rate is 120% of $.98 =

$1.176

Vermont Pupil Count

• Public school pupils peaked at 106,000 in 1997• Count has now dropped to 88,000 in 2014• Steady decrease of 1,000+ per year

• But spending per pupil has increased from $10,888 (1997) to $17,700 (2011)

• This is inflation-adjusted

Vermont Education Spending

Why?

• Low pupil to teacher ratio (2nd lowest in US)• Low pupil to “staff” ratio• Large bureaucracy from Montpelier down• Increased state and federal requirements• High fixed costs for underutilized buildings• Health care costs (but not pensions)

One current “solution”

• Regional Education Districts (REDs)• Consolidation voluntary at first, but ultimately

mandated by Secretary• Savings from closing smaller schools• Savings from “administrative efficiency”• Greater transportation costs• Superintendent staffs will mushroom• No political accountability over RED

Real Solutions

• Let money follow the child• Pupils can choose to attend lower-cost schools

they prefer – universal school choice• Move to parental choice and provider

competition• Make public schools compete for pupils• Consider Educational Freedom Districts to

stimulate transformation