Vermont is putting in place a new school finance system in the 2004-05 school year that provides full state funding. The system is based on two tiers. The first is categorical aid, which reimburses districts for the actual costs of transportation and special education and provides support for small schools. On average, the state reimburses districts for 60 percent of their special education spending and 48 percent of their transportation expenditures. The second tier provides money to cover about 80 percent of each district’s budget, supplying all revenue outside of categorical aid, federal funds, private grants, and tuition revenue. Each district sets its own level of education spending. No local effort is required: The education property tax in Vermont is a statewide tax. In addition to the education property tax, the state earmarks portions of other taxes for education: one-third of the revenue from purchase and use taxes, and one-third of the money from sales and use taxes. Vermont receives some $17 million each year for education from the state lottery.