‘Phantom students’ a factor in education debate

Rutland Herald

By Josh O’Gorman
VERMONT PRESS BUREAU | January 25,2015

 

Some rural property owners could see significant increases in their taxes if lawmakers take up education funding reforms proposed by Gov. Peter Shumlin.

During his recent budget address, Shumlin called on lawmakers to eliminate small-schools grants and the maximum loss provision — which creates what many people call “phantom students” — from the education funding formula.

“We must phase out or eliminate contradictory incentives built into the funding formula like the small-schools grant and the phantom student provision,” Shumlin said at the time.

The statement came among a host of education initiatives that might have garnered more attention — from prohibiting teachers from going on strike to giving the state the authority to close small schools — but the elimination of small-schools grants and phantom students would have a significant economic impact for some communities.

During the current fiscal year, 95 of the state’s approximately 300 schools receive a small-schools grant from the state Education Fund, totaling $7.4 million.

Grant awards range from $16,000 to $132,000, and in nearly every case are awarded to schools in rural areas.

School districts use the grant awards as sources of revenue, offsetting the amount of money that needs to be raised in the form of property taxes.



Enrollment drop

“Phantom students” refers to a facet of the education funding formula that protects taxpayers from sudden drops in their enrollment. “ADM,” or average daily membership, is a figure arrived at by taking a two-year average of the number of students in a school, with student numbers weighted based upon a student’s needs, such as disability or living in poverty.

The phantom-student provision ensures that a school’s ADM count does not drop by more than 3.5 percent. For example, a school that had 100 students one year and 90 students the next would an average enrollment of 95, except that the maximum-loss provision caps that drop at 3.5 percent, giving the school an ADM of 96.5. The difference between the number of students — 95 — and the ADM amount of 96.5 leaves the school with 1.5 phantom students.

The overall result is that taxpayers in a community with phantom students face a lower per-pupil cost than they would without the maximum loss provision, and pay a lower property tax rate than they would without it. According to Brad James, education finance manager for the Agency of Education, 84 of the state’s 255 municipalities benefit from having phantom students.

“They (small-schools grants and phantom students) came about shortly after the inception of Act 60,” James said. “The small-schools grants were created at a time when the grand list was growing. Phantom students were put in when populations were plummeting, although nobody was anticipating enrollments could continue to plummet.”

William Mathis, a member of the State Board of Education and a former superintendent in Rutland County, noted that while small-schools grants compose one-half of 1 percent of the state education budget, they have a much larger impact on local communities.

“$7.4 million in small-schools grants from $1.5 billion, when you’re talking about it you’re really talking about chump change,” Mathis said. “When you’re talking about the impact on an individual school, it can be much worse.”

He added, “Small schools tend to be in less economically wealthy areas, so the hit will come to smaller and poorer schools. In that sense, it can be potentially regressive.”



‘Signficant burden’

Joan Paustian is the superintendent of the Rutland South Supervisory Union, which includes Middletown Springs and Wells, two towns that would be looking at higher residential property tax rates this year if not for small-schools grants.

During the current year, Wells received a small-schools grant of 80,438. Without that grant, the tax rate would be higher by 5.6 cents — or 4.6 percent — with an increase from $1.31 to $1.366. In Middletown Springs, which received a small-schools grant of $88,894, the increase would be 7.5 cents — or 4.2 percent — as the tax rate would rise from $1.78 to 1.885.

“For communities to have to make up that money will be a significant burden, and as these small districts struggle to provide the same services as large schools, this will be a challenge,” Paustian said.

In nearby Shrewsbury, the district received a small-schools grant of $90,474 this year, which accounts for 8 percent of its $1.3 million budget. Without the grant, property tax owners in this town would be looking at a tax rate that is 6.6 cents — or 5 percent — more than the current rate.

“Obviously, if we lost that (small-schools grant), there would be a larger request for education money,” said Stan Pawlaczyk, business manager for Rutland South Supervisory Union, which includes the town of Shrewsbury.

The increases are even more dramatic when looking at some of the small towns within the Rutland Northeast Supervisory Union. When looking at budget projections for the upcoming year, a loss of small-schools grants would add 14 cents — or 9.4 percent — to property tax rates in Leicester. In Whiting, the increase would be 20 cents, or 14 percent. And for Sudbury, the increase would be 28 cents, or 16 percent.



Not enough offsets

In the Orange North Supervisory Union, two towns — Orange and Washington — would be looking at higher property tax rates this year if they did not have small-school grants. Each receives a grant of approximately $110,000; without the grant, the tax rate in Washington would be 7.2 cents higher. For Orange, that increase would be 7.7 cents.

“It’s huge. There aren’t enough offsets in the budget to offset this,” said Chris Locarno, business managers for the Orange North Supervisory Union. “There aren’t enough pencils or paper for me to cut to make up for this.”

If Shumlin’s proposal were to go through, districts would not only have to wrestle with the loss of grants, but the financial cushion they receive through the maximum loss “phantom student” provision. For the upcoming year in Chittenden, the elimination of this provision would add 11 cents — or 7.8 percent — to the property tax rate. In Mendon, a loss of the phantom student provision would add 20 cents — or 15 percent — to the residential tax rate.

Some communities, such as Cabot, would be hit particularly hard. This year, the school both receives $159,600 in small-school grants and has 15 phantom students. An elimination of these provisions would cause the tax rate to rise by 23 cents, or 15 percent.



Broken formula

“One of the things that we’re hearing from the public is that the funding formula is broken, and the reason they say that is that their tax rate is too high,” said Education Secretary Rebecca Holcombe, who noted that in rural areas that are seeing declines in their school populations, those declines are likely to continue, barring some sort of economic development in the community.

“Unfortunately, the system works the way it’s supposed to work,” she said. “It sends the money where the students are and for schools with declining enrollment, they receive the signal by their rising per-pupil costs and tax rate,”

Holcombe added, “Part of maintaining an institution like a school is thinking about maintaining it over time. If your plan for your school system depends on your phantom students, you’re in a lot of trouble.”

josh.ogorman

@rutlandherald.com