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School districts plan for very large deficits

PETER CONLON

It’s safe to say that this isn’t going to be a one-year fix. We are going to feel the effects of this for many years, given there were so many constraints and everything was strained as it was.
— Brittany Gilman, ACSD business manager

MIDDLEBURY — There are less than two months left in the 2019–2020 academic year, which will go down in history for having featured much of a semester of empty classrooms. And Addison Central School District learned on Monday that this academic year will also stand out for having delivered some of the worst financial news, ever.
Barring a miracle — or at least a federal decision that would allow federal stimulus money to replace education-related revenues lost to the coronavirus pandemic — fiscal year 2020 could culminate in large amounts of red ink being splashed onto school district ledgers throughout the state. The reason: State revenues are way down, due to quarantining, layoffs and business closures forced by COVID-19. And less revenue means less state aid for education to Vermont public schools.
Here’s a snapshot of the problem, as relayed by ACSD board member Peter Conlon, who’s a Vermont House representative and serves on the House Education Committee: Vermont’s Education Fund is headed for a $69 million deficit this fiscal year, and that’s assuming the state uses up all its available education reserves ($35 million) and surplus ($19 million).
The news will get even more bleak for fiscal year 2021 and FY2022 barring the ability to use federal stimulus funds more creatively, according to Conlon.
“Carry this forward in 12 months’ time, where on top of the reduced consumption taxes — because people aren’t going to have money to spend — we’re going to have people who can’t pay their property taxes,” Conlon said. “How does that get covered? We’re going to have businesses that can’t pay their property taxes; maybe they close. The thought is that’s going to be somewhere between $100 million-$200 million deficit range. How do you address that?”
States like Vermont would have a tough time making those kinds of cuts, and taxpayers aren’t positioned to pick up the slack, officials said.
“If the federal government loosens the strings on the federal money, it could make a significant difference; we’d be having a different conversation,” Conlon told his colleagues during an online gathering on Monday. “I remain somewhat optimistic about that, but we need to enter FY21 with some significant caution. Some of the revenue loss will be made up, but probably not all of it.”
Conlon said the state spends around $1.8 billion annually on public education, an expense covered through a combination of property taxes (both residential and nonresidential) and state taxes, including taxes on sales, hotels and meals. The state lottery system also contributes revenues.
But business closures during the pandemic have decimated state revenues, Conlon noted. State and federal authorities have granted businesses a reprieve in paying what they owe, given the financial hardships imposed by COVID-19.
“Those businesses that collected sales and rooms & meals taxes in January and February were given a delay to remit those … until June or July — and that’s assuming any of those businesses have that money,” Conlon said. “There’s a good chance they don’t.”
Vermont has already received $1.25 billion in stimulus money that’s getting spoken for very quickly, according to Conlon. A chunk of that money is being earmarked for hospitals, which have lost a lot of revenue by suspending elective surgeries in order to free up beds for an influx of COVID patients. It’s good news those patients haven’t shown up in the big numbers that officials had projected early during the pandemic. But the financial strain on Vermont hospitals has still been severe.
Brittany Gilman is the ACSD’s business manager. She said the district continues to pay staff, honoring all labor contracts. The ACSD has thus far incurred around $45,000 in unforeseen pandemic-related expenses such as face masks for those delivering school meals, coolers to store those meals, and additional laptop computers for students to use for distance learning.
“It’s not clear yet if those (expenses) will be reimbursed,” Gilman said.
But even if there’s no direct state or federal reimbursement for those items, Gilman said the $45,000 will be more than covered through savings associated with schools being closed. For example, the only school buses running these days are those delivering free school meals each morning to children in the seven ACSD-member towns.
Gilman said the situation gets “a little less rosy” going into FY21, which kicks off July 1.
Along with the prospect of big Education Fund shortfalls, there’s the matter of how the districts will account for students on Individual Education Plans who need special services to succeed at learning. The district isn’t able to provide those specialized services right now due to the pandemic, according to Gilman. Such services can’t be provided “virtually.”
“We’re waiting for additional guidance on whether we’ll have to make those services up, and in what form that might take,” she said. “And that could come at a significant cost — multiple hundreds of thousands of dollars, depending on what’s needed.”
Gilman anticipates several rough budget years ahead.
“It’s safe to say that this isn’t going to be a one-year fix,” she said. “We are going to feel the effects of this for many years, given there were so many constraints and everything was strained as it was.”
She pointed to some school districts that are considering using their reserve funds to lessen their respective pandemic-related budget shortfalls. The ACSD — like many other Vermont school districts — asks voter permission to assign specific uses for any surplus funds, rather than simply using them each year to stabilize the education property tax rate.
“There has been some conversation … about changing that to allow districts to have unassigned fund balances, so when we run into problems like this, it’s not an immediate deficit situation for people,” Gilman said.
Superintendent Peter Burrows is also looking at the shortfall as a multi-year problem.
“When you look at the fallout that happened last week, with Vermont higher education and the discussion around potentially closing some of our universities, Vermont has been in a very challenging demographic for quite some time,” he said. “This crisis has pushed at some of the places where we were kind of thin or on edge. We don’t know what the total impact is going to be, but the concern right now is not about getting through fiscal year 2020 as much as it is looking ahead to FY21 and FY22.”
John Flowers is at [email protected].

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