Likely school budget comes with substantial property tax impacts
January 22, 2024 | By Lisa ScagliottiWith a late January deadline to finalize budgets for Town Meeting Day, the Harwood Unified Union School Board has selected the budget draft it would like to put to voters and the bottom-line tax impacts are substantial.
Superintendent Mike Leichliter and Finance Manager Lisa Estler at the Jan. 17 Harwood school board meeting. Screenshot
Taxpayers will likely see the school portion of their tax bill grow by anywhere from $316 for every $100,000 in assessed value in Duxbury to $509 per $100,000 of property value in Warren. The increases in the district’s other four communities fall in between. In Waterbury, the increase is pegged at $389 per $100,000 in value, so taxes on a home valued at $300,000, for example, would go up by $1,167 under the preferred scenario.
The annual financial exercise of preparing the next year’s budget ahead of Town Meeting Day has been particularly complex this year with a new state law in place that significantly alters the already complicated school funding formula. Coupled with inflated home-sale prices over the past three years during the pandemic, school districts across the state are grappling with building budgets that voters will agree to support on March 5 at the ballot box.
The Harwood board next meets on Jan. 31 when it will vote to finalize the version to be printed in the school district’s annual report and on the upcoming ballots. The consensus last week was to move forward with a $50.8 million budget. That represents a total spending increase of 11.94% over the current school year’s $45.4 million spending plan that voters approved last March.
At its Wednesday, Jan. 17, meeting, the school board heard from Superintendent Mike Leichliter and Finance Manager Lisa Estler regarding two draft budget scenarios for the 2024-25 fiscal year that begins July 1.
As the administration and board approached budget discussions over the past several meetings, the board has asked school district leaders to draft a level-service plan which would mean no significant changes in programming across the district’s schools next year. Estler has crunched numbers to present several scenarios along those lines. Given increasing cost for wages and benefits and the loss of federal pandemic relief funding, just keeping programming consistent with the current year’s offerings will cost nearly 10% more next year.
The budget discussions have focused heavily on changes at the state level to revise the already complicated Vermont school funding formula. In 2022, the state legislature passed a new law, Act 127, that significantly alters the calculation in an effort to make funding more equitable statewide.
The new system uses new pupil “weights” to calculate student populations so that students in rural places, those experiencing poverty, and those learning English for example, carry greater weight to reflect the greater costs needed to support their learning.
In that calculus, the system aims to shift more funding to the schools that need it most and this process is intended to play out over five years. Harwood is a district, for example, with relatively few students in the heavily weighted categories. Given the revised formula, officials in such school districts now more than ever need to pay close attention as they build their budgets to the per pupil cost breakdowns.
The new formula encourages districts to keep their yearly spending increases under 10% per pupil. If they exceed that level, there would be extra scrutiny from the state Agency of Education to justify such a jump.
As an incentive, the formula says that all budgets with per pupil cost increases under 10% will have their homestead tax rate increase capped at 5%. The state education fund is to make up the difference in revenue needed beyond the 5% increase.
In Harwood’s case, the administration presented two budget scenarios, both with per pupil cost increases under 10% and over 5%.
The first scenario was a $49.8 million budget where per pupil costs would increase by 5.81%. The second scenario (labeled as “scenario 4” in the meeting slide presentation) is the $50.8 million draft the board picked and its per pupil increase is 8.31%.
Despite the million-dollar difference, both budgets would cost local taxpayers the same amount, Estler told the board. “Whether we add the million dollars or we don’t, we’re still at that capped rate,” she said.
The 5% homestead tax increase cap means the equalized tax rate for the 2024-25 year would be $1.51, which is a 7.2-cent increase from the current year. That works out to $72 per $100,000 of assessed property values.
The rub comes when the CLA values are factored in. This is the common level of appraisal adjustments that account for appraised values of homes over the past three years differing from market rates. In all of the Harwood district’s communities, assessed values are substantially below the real estate market values.
The million-dollar difference
The $1 million difference in the two budget scenarios reflects a choice to add in revenue to district reserve accounts. It shows up on two budget lines: $500,000 added to the Maintenance Reserve fund and another $500,000 that would be put into a new general reserve account that voters would be asked to approve creating.
The Maintenance Reserve Fund is familiar to voters who routinely consider – and approve – ballot questions to add money into the fund each year. The fund contains savings to be used specifically for facility improvements and repairs.
On Town Meeting Day, voters usually see a question asking to allocate the surplus revenue from the prior budget year.
All of the budget scenarios drafted in the current process include putting the fiscal year 2023 surplus of $535,000 into the Maintenance Reserve Fund. That sum is the lowest allocation to be proposed for the reserve fund since 2018-19, according to school district records. That year voters approved transferring $533,960 to the fund. In four of the years since, surplus allocations have been $1 million or more. The highest was in 2020-21 when a $1.88 million surplus was put into the maintenance fund; in 2022-23, the allocation was just over $1.5 million.
The fund currently has less than $3 million in it, according to Estler. The district’s three-year maintenance to-do list for all of the school buildings is about $9 million, but roughly half of that is work needed at Harwood Union Middle/High School. The district is looking to break out the Harwood renovations and updates into a separate project funded through a bond that voters would consider in November. School officials have been holding community meetings in recent weeks to review the Harwood building needs and proposed work to include in the project. Decisions will be made in the coming weeks regarding the scope of that project.
The budget being proposed for the 2024-25 budget does not include any additional costs for the Harwood renovation bond. Depending on the timing of that project, Estler explained that costs associated with the bond would not hit the school budget until 2026.
As for next year’s budget adding to the district’s reserves, Estler said the Maintenance Reserve account is clearly underfunded. Adding $500,000 in addition to the 2023 surplus would help rebuild that balance after the recent Waitsfield kitchen project used $1 million.
“We have millions and millions of dollars in deferred maintenance,” Estler said. “One roofing project of a million dollars can really wipe us out.”
Meanwhile, creating a separate reserve account would give the district a flexible fund that it could draw upon next year to either use for building maintenance and repairs if needed or it could be put towards future budgets.
Creating a new separate account makes that sum more versatile because money assigned to the Maintenance Reserve can only be used for facility expenses, she noted.
Estler called the current scenario an opportunity for the board to create a reserve that it can tap into as it looks to reduce overall spending over the next four years. “We would have $500,000 to help this transition to use in the future,” she said. “It’s my fiduciary responsibility to recommend to put us in a better position … to help us ease our transition over the next couple of years,” Estler said. “We have a lot of financial pressures on us. We have discussion of a bond and tax implications, we have a large grant that’s ending September 30 FY25.”
Board members asked about how to divide the additional $1 million of revenue. Estler said that splitting it between maintenance and general reserves was her recommendation. “I feel comfortable with a million dollars that I can justify with deferred maintenance and … with the pressures we have coming down the road.”
The board discussed the two budget scenarios and landed on the $50.8 million version, directing the administration to bring that back at the Jan. 31 meeting with the draft language for the Town Meeting Day warning and ballots.
While Harwood district officials say they believe including the additional million-dollar reserve revenue is important, such budgeting decision-making is drawing attention in Montpelier.
Last Friday, the chairs of the House and Senate tax committees issued a joint letter expressing that they are “increasingly and seriously concerned” with how school districts are building their budgets under the new provisions of Act 127, particularly the 5% tax threshold.
“The threshold was not designed to stack deferred spending and delayed maintenance costs into a few short years. It was not designed to fix all of our state education challenges or the overall pressures of operating in an inflationary environment,” said House Ways and Means Committee Chair Rep. Emilie Kornheiser, D-Brattleboro, and Senate Finance Committee Chair Ann Cummings, D-Washington. “It was not intended as free money – in fact nothing in the education fund is free.”
See reporting on the letter from VtDigger and Vermont Public. The legislative committee leaders say they plan a joint hearing this coming Thursday, Jan. 25, at 1 p.m. to gather more information on the school budgeting issue.
Key factors driving up costs
As the budget discussion wound down at the Jan. 17 Harwood school board meeting, there was no discussion of spending cuts – no revisiting drafts to mark places to trim to move the needle on the eye-popping tax increases projected on the screen above them.
That’s mainly because the majority of the budget categories reflect increasing costs of essential elements in the budget: wages (up over 9%), benefits (up 14.6% driven by health insurance), purchased services such as special education contractors and transportation ($759k), and a new child care payroll tax (just under $112k).
On the revenue side, Superintendent Leichliter points out, “It’s level service with one big exception.” The district for 2024-25 will not have the federal pandemic-relief funding that runs out at the end of September. Harwood over several years received $4.8 million in ESSER funds – short for Elementary and Secondary Schools Emergency Relief. The most critical was a portion used to fund new positions such as counselors assigned to each school given increased student mental health needs during and since the pandemic.
To manage the funding loss, the district is looking to trim fewer than 10 positions. So far, four positions have been cut in the past six months through attrition, Leichliter said. “To be clear though, we are looking for as many possible reductions through attrition as possible so we are not simply ‘cutting’ anything that has been added with federal ESSER funding,” he explained. The new counselors, for example, are considered critical so those positions will remain, he noted. And other staffing shifts will be made based on retirements, etc. “Some of the retirements must be replaced, but we are still looking for some other reductions. We also have some open positions for which we may be looking at shifts,” Leichliter said.
This chart from the Jan. 17 HUUSD School Board meeting presentation on the proposed 2024-25 budget shows the budget impact on local property taxes. School spending will add $72 per $100,000 of assessed property value to tax bills. The portion based on local property assessments varies by town. Source: HUUSD
The lion’s share of the property tax increases that range from 16.6% for Duxbury and 25.8% for Warren comes from factoring in the Common Level of Appraisal adjustments for home values. Estler shared a chart with yellow highlights emphasizing the school district spending impact on property taxes – an increase of 5%. “What’s highlighted is what the district has control over. That’s the message I really want to get across,” she said.
The rest of the tax increases broken down by town are attributed to the Common Level of Appraisal adjustments. “Remember, we're combating the last three years of COVID home sales prices,” Estler said, noting that the CLA is a three-year average covering 2021-2023. “Those are our highest-selling years for our home sale prices in our areas, so that’s why the CLAs have dropped. Your houses have been selling much higher than the appraised value.”
Leichliter said the school-funding conundrum is particularly difficult to navigate as he meets with community members to discuss the need for a construction bond to update Harwood Union Middle/High School. He said he visited the Waterbury Rotary Club last week and heard from members there that they support the need for the school renovations but they fear they can’t afford to help pay for it.
“I had one woman say, no matter what you tell me I'm going to be voting no,” Leichliter recounted. “I can't argue with that. I understand that… I’m not sure what our public is going to say. I hope they support [the school bond], but if they don't I understand why.”
Asked after the meeting whether the board might revisit the draft for additional cuts before finalizing it on Jan. 31, school board Chair Kristen Rodgers, said that’s not likely. “The majority of the budget is wages and benefits,” she said in an email to Waterbury Roundabout. “The board wants to keep the district as level service, and if we make any drastic cuts, I'm not sure if the board could continue to offer a level service budget.”
For Leichliter and Estler who both joined the district from out of state in 2022, their second budgeting year is proving to be particularly challenging.
Leichliter cautioned the board during the meeting about trimming too quickly. “We do need to right-size and reduce positions, but if we do too much too fast, the criticism we’re going to hear is we’re not providing the services that our parents expect for the school and our citizens expect,” he said. “So it's a very difficult time period to be on a board and to be making the decisions. We need to continue to advocate that we are making responsible choices.”
He said cuts must be weighed against new educational and mental health needs in schools since the pandemic. “It’s just a perfect storm of all these pieces coming together at one time,” he said.
Watch a recording of the Jan. 17 HUUSD School Board meeting here.
Letter from state legislators regarding school budgets under Act 127