January 8, 2009 Douglas: Pride does not excuse us from changes Play video

(NECN: Montpelier, VT) - Governor Jim Douglas was sworn in for a fourth term Thursday. In his inaugural address, he said the the costs for Vermont's public education system have gone through the roof over the past years. Douglas called for a reform of school funding to deal with the current economic crisis.

He also says the state needs to cut spending on Medicaid. He wants to accomplish this by cutting back on covered services, rather than removing people from the rolls.

The following is prepared text of Governor Douglas' inaugural address:

Ingrained in some areas of government is an institutional momentum that demands more resources regardless of taxpayers' ability to support their growth. The recent downgrades in our revenue forecasts and the bleak outlook for the coming fiscal year have shone a bright light on the imbalance we now find among different functions of government.

The best examples can be found in two areas - general education and Medicaid. Combined, in state dollars alone, they account for sixty-three cents of every tax dollar spent in Vermont. These areas of government continue to grow year after year without the same checks and constraints as other important services.

We must advance beyond these obsolete models and move to a modern approach - breaking down longstanding walls to achieve equilibrium among many important priorities and support lasting economic security.

As the parents of two boys who attended

public school in Vermont, Dorothy and I know the value of a quality education. As the grandson, son and son-in-law, brother and brother-in-law, nephew and uncle of educators, I recognize the great inspiration teachers bring to the classroom every day.

Vermonters are rightly proud of the quality of our public education system and the tremendous caliber of our teachers. Pride, however, does not excuse us from the necessary and important changes to make education spending sustainable for the long term.

As we examine the current fiscal challenges, it is clear that our public education system is on a collision course with economic reality - threatening not only the dwindling capacity of taxpayers, but also our responsibility to fund essential services for vulnerable Vermonters.

In the last five years, Vermont has experienced an education spending expansion funded by property tax increases and general funds. Assuming the fiscal 2010 current law projections, spending from the education fund will have increased by nearly $283 million since fiscal 2006, or a 23% increase. Over the same period, statewide school enrollment has dropped over 4,300 students, or a 4.4% decrease. This means that since 2006, for every student who left the rolls, schools added - not reduced - $65,000 in costs.

While unfunded federal mandates and inflationary increases drive a portion of these costs, the biggest portion is attributed to increases in staff count. Since 1997, student enrollment has fallen by almost 10,000 children, or 10%, but school staffs have increased by 3,500 positions, or 22%. Put another way, for every three students who left the rolls, schools have added one staff position.

In contrast, we are looking at the jobless rate rising every month, with thousands of Vermonters added to the unemployment rolls since last summer. State government is trimming its workforce, some businesses are reducing hours, and others are closing their doors completely. Everyone is facing cutbacks during this difficult time. But still, education spending for 2010 is expected to grow 6.1% per pupil. Recent newspaper articles report proposed school budget increases of 5%, 8%, and even 11%. Property tax bills are expected to grow an average of 6%, even after income sensitivity payments. Expansion like this is unsustainable in any season, and especially when our economy is facing such severe retrenchment.

Our current education funding system is failing taxpayers and local voters. For over a decade, Vermonters, in every corner of the state, have borne the heavy burden of rising property taxes under Act 60. It is wrong for one third of all tax dollars to be spent on a system only a handful can explain. When enrollments decline but property tax bills increase - and when communities are forced to vote budgets without knowing the real consequence of those decisions, it is clear that our system does not work.

Act 60 and Act 68 are fundamentally broken and beyond repair. Piecemeal changes cannot mend a system that is so far out of balance. Only a wholesale transformation will return control to communities and put education funding on a sustainable course for the future.

There is no one size fits all approach to education. Each school district must determine what works best for its students. But maintaining the status quo is not in our kids' best interests. Building an education system for the future requires a willingness to recognize the realities of declining enrollments across the state.

Now is the time to build a new system - one that is fair and equitable, and respects the voice of voters, the pocketbooks of taxpayers and the potential of our students. Too often, politics has stood in the way of change. That is why, with a sincere commitment to progress, I ask the Legislature to work with me to establish a collaborative process for fresh ideas - bringing together thoughtful individuals with broad range of perspectives to design an education funding system that is simple, transparent and sustainable. We must also be prepared to examine school consolidation, governance, special education costs, and other opportunities to achieve efficiencies.

I will seek your suggestions on the best minds for this high priority. I understand the magnitude of this proposal, but with so much at stake and inaction threatening the economic security of countless Vermonters, we must work together to take this important step.

While launching this process is essential to rebuilding our education finance system, property taxpayers cannot wait another year for relief. In order to create a funding bridge until a new system is established, I propose a common-sense measure to freeze per-pupil spending for schools and categorical grants at current levels. When we consider what government, businesses and families are facing, level funding is a fair approach.

Further, we will strengthen local control by holding school districts directly responsible for tax increases. During this bridge year, if a school wants to raise additional money above level-funding, it can ask voters to fund the increase entirely through its residential tax rate, up to a level that respects the Brigham decision. I also propose we end property tax subsidies for Vermonters making over $75,000 in order to lower tax rates even further for all payers.

By taking these steps, we'll be able to effectively reduce property tax rates by 4 cents for a total of $44 million. The statewide rates can each be cut by at least 2 cents, that is $24 million. Further, the spending freeze results in additional residential property tax reductions of another $20 million as projected increases in per pupil spending are avoided. In fact, the state will collect no more from residential taxpayers next year than it has this year - a welcome change for struggling Vermonters.

All across our state dedicated volunteer school boards are working diligently to craft budgets in time for Town Meeting. I know they are facing difficult decisions - state government is struggling with the same real time adjustments. And I acknowledge that my plan represents a departure from usual practice - but we are in unusual times. That is why I am committed to working closely with school districts to give them the flexibility they need to consider budgets that are level-funded.

Property taxes are not the only source of revenue for education spending. The general fund of state government provides a substantial share of school funding.

Without changes to the current system, the state is expected to transfer $298 million from the general fund - nearly a quarter of available resources - to the education fund in fiscal 2010. This transfer, which will have increased over $38 million since 2006, has been held completely harmless during the recent rounds of rescissions.

Further, the State Teachers' Retirement System is directly supported with general fund money and has not been subject to reductions during recent cutbacks. In fiscal 2010, the general fund is expected to contribute at least $40 million as the employer's share of contribution to support the system. This approach is a vestige of the past and effectively allows schools to set salaries detached from the true cost of the benefits.

In other words, the education fund has not shared any of the sacrifice seen by other areas of state government. If we continue to excuse education spending from equal treatment, we force health care and human services - the lion's share of the remaining general fund - to shoulder the burden of balancing a responsible budget. That is not a realistic, or compassionate, option.

To put these disparities between the general and education funds in context, we should step back and look at the big picture. According to current estimates for the next fiscal year, we need to reduce benefits and cut programs - primarily in human services - by at least $150 million out of a general fund budget of less than $1.2 billion. Meanwhile, funding for K-12 education is expected to increase $63 million in the $1.4 billion education fund.

In fact, with current projections, while the education fund will have grown 23% since 2006, the general fund will have actually decreased 2% - meaning that we will be spending less in state government in our fiscal 2010 budget than we did in fiscal 2006.

If we do not take action to restore the equilibrium between the general and education funds, we risk devastating spending cuts. I propose placing the obligation for funding the teachers' retirement system where it belongs - in the education fund. This $40 million would leverage $97 million in state and federal Global Commitment money and reduce the need to cut critical programs for vulnerable Vermonters. I also propose linking the general fund transfer to the education fund to changes in the level of general government spending. This is a reasonable approach that respects the capacity of taxpayers.

Further, a close examination of spending for public education reveals a startling imbalance among our funding levels for early education, K-12, and higher education. We spend relatively little on early education - are among the highest in the nation for primary and secondary education - and near the bottom for higher education. We must begin to reshape this skewed distribution of resources.

Access to affordable, quality early care and education provides a dual benefit: it lays the building blocks for a successful future, ensuring children arrive at kindergarten ready to learn; and, it removes the single biggest barrier for parents in poverty to move into the workforce. At the other end of the spectrum, Vermont's colleges and state university are among the most expensive in the nation and for too many Vermonters, simply out of reach.

To move our system of education into the 21st Century we must strengthen our commitment to creating a continuum of learning that begins in early childhood and never ends, providing the necessary opportunities to Vermonters throughout their lives.

A real investment in lifelong learning is an investment in an individual's economic independence. Indeed, few things are more important to establishing a strong and growing economy than the education and training of our workforce. That's why, despite budget challenges, I propose a 20% increase in early and higher education as a first step to address spending disparities and prepare Vermonters, young and old, for future success.

I realize that there are some who have an interest in maintaining the current system. They will challenge any data and idea that calls into question the need to move our system of education out of the past and into the future. But we were not elected to safeguard the needs of one interest over another - we were elected to do our best for all Vermonters. I ask this assembly to join me in revitalizing our education system to better serve our children and make needed investments in the future of Vermont.

But the transformation we need requires a shift not only in thinking and spending, but in structure as well. The final step is to seek the benefits from an integration of the University of Vermont and the Vermont State Colleges into a single organization. We have real gems in our state university and colleges, and with a commitment to progress, we can establish a higher education system better positioned to meet the needs of the student bodies. This marriage of resources - from infrastructure to administration, programs to athletics - will allow each college the freedom and flexibility to better focus on targeted academics offering the very best to each student.

I will charge a working task force with the responsibility to find academic and administrative efficiencies that will be achieved through consolidation of our university and state college systems. I will ask the task force to report with recommendations by November 15th.

Underpinning everything we will do in the coming session is our obligation to the most at risk in our society. We must make certain that those with the greatest need - children and vulnerable elders, working poor Vermonters, those with developmental disabilities and mental health challenges, and the indigent - are protected. But in order for government to ensure that the programs and benefits are secure, we must chart a course that is financially sustainable and outcome-based.

The prospect of belt-tightening in state government understandably draws concerns from community providers, advocates and consumers of state benefits. I share the concerns about the impact of budget decisions on individuals and the programs and services they need.

Make no mistake: these are tough conversations, made tougher with real heartache and real adversity. After all, in a state like Vermont, these stories are not statistics - but rather the family, friends and neighbors entwined in our daily lives. But while these conversations are difficult, they are the right conversations to have at a time like this.