State Strategies to Manage Budget Shortfalls

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Case Study: K-12 Foundation Aid Reductions in Vermont

Vermont introduced its school foundation formula in FY 1988 with $112 million. Using large state surpluses, it increased funding dramatically to $148 million by FY 1991. But like many other states in the early 1990s, Vermont began experiencing fiscal problems. Consequently, funding for the foundation formula was cut to $140 million in FY 1993 and stayed at this level through FY 1996. The state achieved level funding for the foundation program by increasing the required local property tax rate used in the formula from $1.15 per $100 of assessed property value in FY 1993 to $1.31 per $100 of assessed property value in FY 1996. As a result, the local property tax share of education funding increased from 62 percent in FY 1988 to almost 70 percent in FY 1996.

Resident property tax burdens in Vermont are now among the highest in the nation. Because level state funding of the foundation program has increased the education property tax burden statewide, voters have defeated dozens of proposed increases in local school budgets. Heavy reliance on local property taxes to fund education also has exacerbated disparities in per-pupil spending between property-rich and property-poor districts, spawning a constitutional challenge to the legality of Vermont's school finance system.

Increasing the local property tax rate used in the foundation formula also increased the number of school districts that receive no state aid. In Vermont, the number of "out of formula" districts increased from 44 to 50 (out of 251 districts) between FY 1993 and FY 1996. Because 20 percent of the state's school districts have no investment in the state aid program, building political support for state aid to education is more difficult.

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Written December 1996, posted January 2003, reviewed December 2003
Email statebudget-info@ncsl.org for more information.
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