JFO: Vermont's Education Fund structure means district construction can raise statewide property taxes
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Summary
Joint Fiscal Office told the House Education Committee that Vermont's statewide Education Fund aggregates local education spending, so large district construction projects increase statewide property-tax yields; JFO offered examples and warned dedicated revenue sources carry trade-offs.
A Joint Fiscal Office briefing for the House Education Committee explained how Vermont's Education Fund formulas mean school construction choices by one district can affect property-tax rates statewide.
The JFO presenter told the committee the Education Fund is unique: there is no separate state share and local share. "All of the education expenditures are paid for out of the fund even though they are crafted at the local level," the presenter said. Because the fund aggregates district spending, an increase in education spending anywhere raises the total education payment and, unless offset by new non-property revenue, requires higher statewide property-tax yields to cover the difference.
The presenter illustrated the mechanics and scope with examples: a modest local project such as a new roof (about $5 million) will have a limited statewide effect, while a very large project (for example, a $150 million new high school) could meaningfully change statewide yields. The presenter said statewide education spending is on the order of $2 billion, so the relative scale matters.
Committee members asked for concrete case studies. The presenter recommended working with specific district data to produce precise examples and noted some recent cases (Burlington, Colchester, Winooski) could be informative. Members asked whether school construction costs are included in the excess spending calculation; the presenter confirmed recent legislative action exempts pre-7/1/2024 principal and interest from the excess-spending adjustment and that Act 73 reworked the construction-aid approach.
Chris Rupp of the Joint Fiscal Office described the Act 73 framing: the working group's model moved away from old capital-grant approaches toward a debt-service subsidy model, where the state would pay a percentage of a district's debt service but the district remains responsible for borrowing and debt. "No matter how you slice and dice this, the question comes down to where's the money gonna come from," Rupp said.
The presenter warned about trade-offs in dedicating revenue streams. Dedicated funding can shield a program from annual budget choices, but it can also erode legislative prerogative and fail to scale with program needs. Members asked whether alternative revenue sources (for example, dedicating a small share of new tax revenue) could be used; the presenter said that approach merits careful consideration because dedicated streams can ossify priorities.
What happens next: JFO offered to run district-specific scenarios if the committee provides instructions and data. Members requested case-study examples showing the local and statewide effects of recent bonds, and the committee recessed pending further follow-up work from JFO staff.