House, Senate rankled by spending plan

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MONTEPELIER — The Scott administration brought its school funding plan to money committees in the House and Senate on Wednesday and was greeted with a litany of grievances, not the least of which was that the plan was introduced with less than two weeks left in the legislative session.

Lawmakers were cold to the idea of using $58 million in one-time funding to avert a property tax increase, and they raised questions about the process used to project future savings that would theoretically pay the money back over the next five years.

Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, grilled the commissioners of tax and finance.

"I want to see documentation for those numbers," Cummings said of the savings.

Pointing to projections compiled in the administration's memo outlining the plan, Cummings said, "that chart looks like an exotic mortgage explaining how a 20-year-old with their first job can afford a $250,000 condo when they can't."

Tax Commissioner Kaj Samsom received similar treatment from Rep. Janet Ancel, D-Calais, chair of House Ways and Means, who said she can't figure out how Gov. Phil Scott plans to "use one-time money as a loan payoff and do investments [in education] and buy down tax rates with the same money."

Scott's proposal would use $58 million in one-time money from a tobacco settlement, revenue surpluses and other sources to plug a hole in the education fund. The Legislature fills the gap by increasing property taxes by 5 cents for homeowners and 7 cents for nonresidential property owners.

The governor's plan effectively carries forward the deficit to next year, but pays the money back over time through a series of cost-savings proposals over the next five years.

Those cost-containment measures include paying for special education through district block grants, laying off 1,000 workers over time, implementing a statewide health care benefit for teachers and tweaking the income sensitivity tax break.

Property taxes would remain flat, at 2017 levels, through 2025, under the Scott administration's proposal.

"The five-year plan assumes the full payback for the one-time money, no property tax increase and approximately $300 million in net savings," Samsom told senators. "That is your margin of error, even if $300 million doesn't appear, property tax rates will remain level over five years."

Cummings wasn't convinced.

"I'm looking for background documentation that says this isn't a 'hope for,'" she said, noting that a proposed task force that would look into how much savings could be booked from staff vacancies hadn't even convened.

"I want to know what happens if those savings don't appear," Cummings said.

"If the savings don't appear then property taxes would go up in the out years," Samsom said. "We are confident they will not go up."

The master plan

Samsom explained how the administration developed the proposal.

"We started with the assumption property tax rates would not change for five years — consistent with the governor's position — then we said, where does that leave us in FY19?" Samsom told members of the House Ways and Means Committee. "That leaves us with a $58 million hole that needs to be filled."

Adam Greshin, the commissioner of the Department of Finance and Management, explained that $27 million of one-time money will be used to partially pay off a loan for retired teachers benefits, which will free up the same amount of money in the general fund while also creating "significant" long-term savings.

Most of the money from a projected $20 million surplus had already been booked by the House and Senate for programs supporting the young, vulnerable and mentally ill. Samsom asked lawmakers to hold off on funding those programs.

"People have other ideas for those one-time funds and we are asking them to wait," Samsom said. "They will be restored over these five years and can be used then."

Rep. Jim Masland, D-Thetford, said he is hesitant to jump on board because "We don't know how this will play out."

The greatest share of the savings would come from school districts reducing staff through "natural attrition," vacancies that occur when a teacher retires or leaves, according to the administration.

The Agency of Education based its assumption on an average statewide teaching staff-to-student ratio of 1 to 5.15 in fiscal year 2019 after excluding bus drivers, cafeteria workers, janitors, special educators and prekindergarten staff. The statewide average for all workers is 1 to 4.25.

Then in fiscal year 2020, the ratio would move to 1 to 5.40, garnering $32 million in savings, according to the administration. Eventually, the ratio would be bumped up to 5.75.

Samsom said about 1,000 school employees retire or leave education annually. The savings were based on school boards not refilling 400 to 500 positions statewide in fiscal year 2020. The proposal calls for a task force to help school districts manage vacancies.

The governor's plan calls for lawmakers to ratchet down the excess spending threshold from the current 121 percent of average per pupil spending to 119 percent next year, and dropping the threshold by 2 percent a year until 2025 when it would be 110 percent. Districts are assessed a double tax for every dollar spent over the threshold.

Scott also wants to change the property tax adjustment system that allows some homeowners to pay based on their income rather than the full value of their property. The total cost of the existing income sensitivity program is $170 million, which the administration says translates to more than 20 additional cents on the average property tax bill.

About 70 percent of homeowners use the rebate program. The maximum house site value has been set at $500,000, but lawmakers changed it to $400,000 in H.911, the income and education tax bill. The administration wants to reduce the maximum home value to $250,000 for anyone buying a home after July 1, 2018. Currently, 80 percent of households that receive rebates are in homes that cost $250,000 or less.

Ancel didn't like the idea of setting up a parallel system. "This is a non-starter for me. Putting that aside, I would still like to know the impact of these changes on the typical family," she said.

Much of what the administration hopes to achieve is already in the works, Ancel said, thanks to growing property values, rising sales tax revenues, natural attrition to school staff, special education reforms and a statewide teacher health care benefit.

"There is a lot of this in motion as it is so I keep asking why do we have to have this end of session drama and use of one-time money?" Ancel asked.

Samsom said the plan would prevent a property tax increase. But Ancel said voters OK'd the hike in property taxes when they approved local budgets on Town Meeting Day.

Samsom argued that the nonresidential property tax for second homeowners and business owners increases at a higher rate, and those people don't get a vote.

"That is a concern for economic development," he said, adding "there is a reason to be disciplined and keep a close eye and intervene and keep tax increases down even when they are voted on."

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