As school districts in Vermont embark on the annual budgeting process for the upcoming academic year, they face a unique set of challenges amplified by the impending expiration of federal Covid-19 pandemic aid, a surge in employee healthcare costs, escalating wages in a tight labor market, and heightened investments in student needs, including mental health initiatives. However, the complexity reaches a new level with the introduction of Act 127, a transformative education finance law passed in 2022.
Brad James, the education finance manager for the state Agency of Education, acknowledges the increased uncertainty this year, stating, “People build on their budgets. They want to have answers, they want to have certainty, and there isn’t any certainty right now.”
Redirecting Education Funds towards Students with Specific Needs
At its core, Act 127 aims to redirect education funds towards students with specific needs that incur additional costs. The law recognizes that certain student categories, such as low-income students, English language learners, and those in rural and small schools, demand more resources. Legislators and education officials contend that Vermont’s existing education finance system has long failed to adequately address these disparities, leading to the formulation of Act 127 to rectify these historical inequities.
Employing the Concept of — Pupil Weights
The law mandates that education officials identify and account for students falling into these underfunded categories, employing the concept of “pupil weights.” Students in more costly categories are assigned higher weights, enabling districts with a greater number of these students to receive more funding without raising local tax rates.
While Act 127’s changes are scheduled to take effect in the 2024-25 school year, districts are already grappling with incorporating these modifications into their current budget drafts. The intricate Vermont education funding system involves a roughly $2 billion state education fund from which money for public school budgets is allocated. Local district budgets, based on per-student spending, play a crucial role in determining residential property tax rates.
The Potential to Raise Additional Funds
For districts with a higher student weighting, Act 127 offers the potential to raise additional funds, alleviating pressure on local tax rates. Conversely, districts with fewer students falling into the higher-weight categories may experience decreases in their weights, possibly resulting in tax rate increases without significant spending adjustments.
Act 127 includes safeguards to prevent drastic homestead tax rate increases. If a district’s spending would cause a 5% or more jump in the local homestead tax rate, the increase will be capped at 5%, with the education fund compensating for the difference. This provision imposes a five-year cap on tax rate increases. However, the law does not grant districts unrestricted spending. A spending increase of 10% or more per student triggers a review by the Secretary of Education. If the secretary identifies “excessive increases” unsupported by good cause, the district’s tax rate increases will not be capped at 5%, and the district will pay the proportional tax rate corresponding to its spending.
As Vermont school districts navigate this intricate landscape, the introduction of Act 127 adds an additional layer of complexity to an already challenging budget season. The impacts of these changes will unfold as districts finalize their budgets and anticipate the broader implications for education funding in the state.