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January 09, 2009

If You Can Get Level Funded, Take It

In the bad old days of inflation, level funding a government program was a way of reducing the real dollars it had to spend without "cutting" – something politicians don't like to do. In deflationary times, level funding is actually an increase in spending power. However, the various constituencies which live and die by government funding haven't completely come around to that point of view.

Yesterday in his reinaugural speech, Vermont Governor Jim Douglas proposed level per-pupil funding for all school districts for the upcoming fiscal year. The outraged howls of protest can reputedly be heard as far away as Montreal and Boston.

Vermont and Douglas don't have much money to work with. Each successive revenue forecast is lower than the one before it. Unemployment is rising here as it is everywhere else. Medicaid and general education account for 63 cents out of every state tax dollar, according to Douglas. If education spending is allowed to increase on its usual trajectory, then the cuts in Medicaid and the remaining state service will be incredibly draconian. Even with the growth in educational funding paused, the remaining services will mostly do much worse than level funding. The state, unlike the feds, can't just print money and it's required to have a balanced budget.

Vermont has not been shabby in its educational funding. Our per pupil spending is the fourth highest in the nation according to The Ethan Allan Institute and we do get comparatively good results in nationwide tests. However, if educational spending were to hit the level projected for fiscal 2010, it will have increased 23% from fiscal 2006 while the student population has DECREASED 4.4%. That's simply not sustainable even in good times; it's impossible when state revenues and the revenues of the state's taxpayers are both on their way down and while the recession drives up the number of claimants on welfare services.

Local Vermont school boards are largely volunteer and they deserve great credit for the time they put in. Most have already planned their budget with some increase so mandated state level funding will force them back to the drawing boards. These are, unfortunately, the kind of times when everybody has to go back to the drawing board. BTW, under Douglas' proposals, towns can actually increase their school budgets as long as the voters of that town are willing to raise their property taxes enough to pay for the increase; but that's not likely to happen. Back in the ancient past, Vermont towns taxed themselves to pay for education so there was no reason for the State to tell them what to spend; now much of the funding for local education comes from the state - a lot of it through an incredibly complex formula under which property-rich towns subsidize property-poor towns through what is essentially a surcharge on the education portion of their property taxes.

The school boards won't have an easy time bringing their budgets under control. Obviously they'll get some relief from the fact that both heating and school bus fuel may cost less next year than they did last; there should even be money left over in the fuel accounts from this fiscal year. Contracts which have already been negotiated often have automatic pay escalators in them even if there is no underlying inflation. The school boards and the teacher's union will have to discuss whether layoffs or givebacks are the better solution to avoid raising the overall budget. Our staff costs are very high because we have a proliferation of local school districts. No one can consolidate in time to save money in next year's budget; but, if it's clear that the automatic increases in state funding have stopped, consolidation may get a better look in the future.

Even given the grim revenue projections, some legislators are holding out hope that there'll be a federal bailout which'll relieve the pressure to level fund education. Granted that schools may be more worth bailing out than banks and car makers, this isn't how federal money should be used and the flow would be impossible to stop once it got going. Fine for the Fed to help with capital budget items which can legitimately be considered investment and can be done at low cost in a recession.

Under cover of inflation the real cost of many government services went up disproportionately to the number of people served or the amount of service provided. Deflation, as painful as it is, gives us an opportunity to get real costs under control. Many of us wish we could be guaranteed that we'll be "level funded" in the year to come. This year level funding is a good deal.

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