Phantom Students/Real Costs

by Hugh Kemper

This post begins with an excerpt from Governor Douglas’ State of the State Address and then addresses equalized pupil counts and the impact of various spending scenarios on the homestead tax rate.

Something most Vermonters may be surprised to learn is that taxpayers are funding 1,000 students who don’t exist. These so-called “phantom” students are a creation of our system. When a school reports its per-pupil count each year, that number can only decrease by 3.5 percent from the previous year – regardless of how steep the actual decline. For schools shrinking year after year, this policy compounds the distance between reality and what Vermonters pay for. I propose increasing the cap to 10% this year, then gradually phasing it out over three years. (Governor Douglas’ State of the State Address, January 7, 2010, page 11)

The precise number of “phantom” students alluded to above is 1,038.47, the difference between the actual FY11 equalized pupil count (91,627.56) and the statewide equalized pupil count applicable for FY11 (92,666.03).

It is noteworthy that equalized pupil counts declined in 204 municipalities (out of 251) accounting for 83.3% of enrollment and that the 3.5% circuit breaker applied to 119 of these towns representing 24.1% of the statewide actual total equalized pupil count. (Note 1)

Furthermore, and perhaps as noteworthy, is that it is highly unlikely the residents of these 119 towns will be apprised of the “phantom” student phenomenon as the equalized pupil count determined by the 3.5% circuit breaker will be the number used for homestead tax rate purposes.

Vermont public K-12’s capacity (primarily staffing and the costs of an anachronistic administrative structure) far exceeds the resources required to provide our kids with a quality education. Residents of most towns and, in particular, those residing in towns experiencing enrollment declines need to push back on proposed budgets to reduce these resources (and, therefore, spending) to levels more consistent with current enrollment and more sustainable over the long run. 

Towards that end, it might be helpful for Vermont Tiger readers to have (1) a list (available here) of the 119 circuit breaker towns and (b) an understanding of the impact of various spending scenarios on a circuit breaker town’s homestead property tax rate.  (Note 2)

To keep it simple, this illustration assumes education spending levels that are not subject to penalty taxes and a grand list at fair market value. It includes the FY11 projected 2.3% increase in the base homestead tax rate from $0.86 to $0.88 which, you will note, is misleading.

A circuit breaker district which in FY10 had-

(1) 100 equalized pupils
(2)  $1,200,000 in education spending or spending per equalized pupil of $12,000 ($1,200,000/100) and, thus,
(3) an equalized homestead tax rate of $1.208 and an income cap percent of 2.53%

is informed that for FY11 its actual equalized pupil count is 95 or 5% below FY10 but for homestead tax rate purposes is 96.5 or 3.5% below FY10.

As illustrated here

(1) a 2% increase in education spending, i.e., an increase consistent with the VTDOE’s projected statewide increase, results in a 8.4% increase in the homestead tax rate and a 5.7% increase in the income cap percent.
(2) a 0% or flat budget results in a 6.3% increase in the homestead tax rate and a 3.6% increase in income cap percent.
(3) while a 5.9% reduction in spending, i.e., a reduction roughly comparable to the actual 5% reduction in equalized pupils, results in NO increase in the homestead tax rate and a 2.5% reduction in income cap percent. (Note 3)

If you reside in one of the 119 circuit breaker towns you can expect a significant increase (i.e. 6.3%) in your homestead tax rate even if education spending remains flat. You should be thinking in terms of reducing education spending at least by the same amount as the percentage reduction in your equalized pupil count. This general rule applies to non-circuit breaker towns as well. (Note 4)

Reducing spending in line with declining enrollment is fiscally responsible, long overdue and an imperative to help put Vermont back on its feet. The evidence suggests that aggregate Vermont K-12 spending can be reduced by no less than 10% and perhaps by as much as 15%-20% and still provide our kids with the resources they need for a quality education.  Achieving savings of this magnitude will require push back on spending at both the State and local level. For all the obvious reasons it can be difficult for residents to insist on spending reductions at the local level. That said, local residents can begin by insisting that the total compensation of all staff compensation be reduced by 2% as is the case with state employees.  Pushing back harder for an additional 3% in savings is warranted given prevailing overcapacity and the normal fat that exists in all organizations, private and public.

Importantly, it is critical to begin pushing back NOW for FY11 as, as illustrated in the attached spreadsheet, should education spending grow at 2% p.a. for FY11-FY13 this representative circuit breaker town can expect a cumulative 38.5% increase in its homestead tax rate. 

Finally, Note 6 below addresses Burlington’s recently announced FY11 school budget and Note 5 details the calculation of equalized pupils.

Note 1- Equalized Pupil Count FY11
Equalized pupil counts are consolidated at the municipal level, i.e., the equalized pupil counts of 28 union high school districts, 8 elementary union school districts and 5 unified union school districts/interstate districts are included in the equalized pupil count of their students’ respective towns.

For FY11 there are a total of 251 municipalities with equalized pupil counts. The 119 municipalities (47.4% of total) to which the 3.5% circuit breaker was applied account for 22,089.50 or 24.1% of total actual equalized pupil count (91,627.56).  Another 85 municipalities - 33.9% of total with 54,220.78 equalized pupils or 59.2% of total - experienced enrollment declines between 0% and 3.5%. Only 47 municipalities - 18.7% of total with 15,317.28 equalized pupils or 16.7% of total – experienced an increase in enrollment. In sum, 204 municipalities (81.3% of total) with 76,310.28 equalized pupils (83.3% of total) experienced declining enrollment.

Note 2- List of 3.5% Circuit Breaker Municipalities and Related Union Schools
The 3.5% circuit breaker was applied to the 119 municipalities included herein, i.e., municipalities whose actual decline in equalized pupils in FY11 exceeded 3.5% vis-à-vis FY10. The actual percentage decline is noted in pink on the far right of the spreadsheet. As many of these towns belong to union schools, union schools located in supervisory unions in which one or more of these 119 towns are located are included. This will enable residents to understand what is occurring within their union schools with respect to the equalized pupil count.

Note 3 – Education Spending
Education spending divided by equalized pupils (education spending/equalized pupils) is the critical first calculation made in determining the homestead tax rate. Education spending is the net result of deducting from total budgeted expenditures (a.k.a. Act 68 locally adopted or warned budget) local revenues which includes categorical grants from the State, donations, tuitions, etc. The statewide aggregate of approved budgeted expenditures determines the overall tax rate/revenues the State needs to set and raise to fund K-12 spending. The homestead tax rate which is largely driven by education spending/equalized pupils determines a town’s relative contribution to the overall amount the State needs to raise. 

Note 4 – Education Spending and Homestead Tax Rate Scenarios
Also included are scenarios for FY12 and FY13 incorporating the Tax Commissioner’s projected base homestead tax rates, i.e., $0.962 for FY12 (9.1% higher than FY11) and $1.082 for FY13 (12.5% higher than FY12) for a cumulative increase of 25.8% vs. FY10. These scenarios assume education spending grows at 2.0% p.a. and that property tax rates have to be raised substantially to fund (a) the $60 million shortfall in the General Fund’s contribution to the Education Fund and (b) the meteoric rise in prebates/rebates to subsidize Vermonters qualifying for income sensitivity. Assuming a 2% p.a. growth in education spending the homestead tax rate for this circuit breaker town increases 8.4% in FY11, a further 11.4% in FY12 and a further 14.7% in FY13 for a cumulative increase of 38.5% vs. FY10. 

Note 5- Average Daily Membership & Equalized Pupil Calculation
Average Daily Membership (ADM) is a count of resident and state-placed students who receive an elementary or secondary education at public expense; data are listed by town according to a student’s residence. Resident students are counted during the period from the 11th to the 30th day of the current school year, while state-placed students are counted for the school year prior to the current census period. Average daily membership of elementary students includes those in Early Education programs, Pre-Kindergarten, Kindergarten, 1st through 6th grades, and Elementary Ungraded classes.  Average daily membership of secondary students includes those in grades 7-12 and Secondary Ungraded classes, as well as Adult without Diploma. Data are used in calculating equalized pupils which are used to determine the homestead tax rates.
The calculation of equalized pupils is as follows:

(1)  The first step is the calculation of the Long Term (two year) Un-weighted ADM which for FY11 totals 91,626.72 and which is comprised of 91,350.46 resident students and 276.26 State placed students.
(2)  The second step is the calculation of the Long Term (two year) Weighted ADM. EEE/pre-K students are weighted at 0.46, secondary students at 1.13, poverty students at 0.25 and LEP students (English as a second language) at 0.20. The FY11 total is 99,367.25
(3)  The third step is the calculation of an equalizing ratio by dividing the un-weighted Long Term (two year) ADM (91,626.72) by the weighted Long Term (two year) ADM (99,367.25) resulting in an equalizing ratio of 0.92210.
(4)  The fourth step is to multiply the weighted Long Term (two year) ADM of each school district by the equalizing ratio and add them up; the sum of these calculations generates an initial or actual equalized pupil count of 91,627.56 for FY11.
(5)  The equalizing ratio is applied to each school district’s weighted Long Term (two year) ADM to determine its equalized pupil count for homestead tax rate purposes, i.e., education spending/equalized pupils = per pupil spending. However, if the current year’s calculation of a district’s initial or actual equalized pupil count is more than 3.5% lower than the district’s prior year equalized pupil count, then the operative pupil count for the current year is only 3.5% lower than the prior year’s pupil count.  For FY11 the initial or actual pupil counts of 119 districts out of 251 (or 47%) were more than 3.5% below their respective FY10 pupil counts. The application of the 3.5% circuit-breaker to their FY10 pupil counts resulted in a revised FY11 pupil count of 92,666.03 or 1,038.47 students more than FY11’s initial or actual pupil count of 91,626.72.
(6)  Understanding the equalized pupil count calculation at the consolidated/municipal level for towns that educate their children in different ways can be quite challenging, e.g., a town that tuitions its secondary students and belongs to a union elementary school district. To keep it relatively simple let’s look at the calculation for Alburgh (Grand Isle). Alburgh’s FY11 un-weighted Long Term (two year) ADM is 315.55; its weighted Long Term (two year) ADM is 343.57. Applying the equalizing ratio of 0.92210 to its weighted Long Term (two year) ADM generates an initial or actual equalized pupil count for Alburgh of 316.81. However, Alburgh’s FY10 pupil count totaled 335.27 and the application of the 3.5% circuit breaker results in an operative pupil count of 323.54 that is higher than its FY11 initial or actual pupil count of 316.81. Thus, the denominator for homestead tax rate purposes of Alburgh’s calculation of equalized per pupil spending (education spending/equalized pupil count) is 323.54 or 6.73 pupils higher than its initial or actual equalized pupil count of 316.27.

Note 6 - Burlington School Budget
It would be very helpful to be able to look at the proposed budget including current information regarding staffing by function and enrollment. Pending being able to do so, the following based on public data currently available might prove helpful to concerned Burlington residents.

Burlington (T027) has its own Supervisory Union (SU015) comprised of 9 schools, an Early Education Center and a Technical Center. Aggregate Fall Enrollment remained fairly steady from FY07 (3,858) through FY09 (3,853). More current equalized pupil data show a similar trend- FY09’s equalized pupil count totaled 3,935.39 while FY11’s number is modestly lower at 3,928.23, i.e., 0.2% fewer pupils for FY11 than in FY09 vs. a 3.1% decline in pupils statewide.

Based on FY08 data, Burlington’s staffing ratios are fairly representative of the excess staffing that prevails statewide- a Pupil/Teacher ratio of 11.0 vs. 10.8 (inc. vocational teachers) statewide, a Pupil/Teacher Aide ratio of 22.4 vs. 21.5 statewide, a Pupil/Student Support Staff ratio of 61.0 vs. 69.0 statewide, a Pupil/Staff ratio (excluding Operations, Transport and Food Service) of 5.8 vs. 5.5 statewide. This is a structural overstaffing issue that needs to be addressed on a statewide basis via the establishment of resource guidelines by function, e.g., the Governor’s recently announced target to raise the statewide Pupil/teacher ratio to 13 to 1.

Pending receipt by Vermont Tiger of Burlington’s proposed budget, what concerned residents can certainly do is insist that the School Board negotiate a FY11 contract with teachers, administrators and support staff that achieves a net 2% reduction in total compensation. This is what the State achieved with unionized state employees and that’s what public school boards need to achieve in their schools. A proposed budget that doesn’t include this reduction in staff compensation should be rejected by Burlington residents.

Comments

[txgordo]

but won't be - Burlington voters complain about the taxes, but vote for them anyway, for fear that the education might get worse (if possible), or that all the two-working-parent households won't have anyplace for the kids to go when the teachers go on strike.

[Paul]

It sounds so easy to just tell the towns and cities that, "Sorry, this year we can't send you any money to educate ghosts." That seems like an immediate savings of about $12.5M. A pretty decent step in the right direction to balancing things.

[Skeptical]

Not sure about the magic used to count students but I can assure you that the FY11 actual students figure is way off the mark for my town. Its reporting 162 and declining whereas last years headcount, by my unscientific method of asking the kids in each class, was closer to 100.

[racVT]

This info causes me to be both frustrated and angry.
It reminds me of experiences in VietNam, where the emphasis was on "body counts" and rounds expended (artillery) per campaign. That was the brainchild of Mr."best and brightest" Robert McNamara.
The plethora of numbers then (as now) obfscate the issue.
This is important work, but begs for someone to find a way to present it simply and visually.

[Chris Campion]

Hugh, thanks for this. That the types of convoluted funding mechanics are in place is a stark reminder that policy and politicians gave us this mess, through decades of tinkering, and the results are unsustainable. What's tough to think about is if we were not in recession, and the state tax revenues were more flush (let's dream for a second about a vibrant VT economy), then we probably wouldn't be having this costs discussion. Costs would continue to rise relative to the actual number of pupils being enrolled, the state demographics would be unchanged (although a "vibrant" economy might change that in 10-20 years), and we'd still have the same mess - we would just have enough funds where we wouldn't have to face tough choices.

This is what got us to where we are now. A lack of having to make choices, because funding was available (regardless of the convoluted mechanisms used to fund education), ensured that no changes would be made to the status quo. It certainly ensured union demands would go up every year regarding pay and benefits.

How much more dire would this situation be right now without the federal bailout last year? A hundred million dollars in VT's economy is an enormous asset, that was received and spent in one year, with nothing changed at all in the economics of the state. All the tough choices got kicked down the road for a year, and now our "leadership" has to actually do something. Look for them to rely on the same steps, policies, and machinations that have put VT on a permanently downward-sloping economic path.

[Raoul Grayson]

"...that number can only decrease by 3.5 percent from the previous year – regardless of how steep the actual decline." Very ingenious. I wonder if the NEA helped the state with that one.