Vermont Legislature SmartTranscripts:

[Unidentified moderator/host]: We're live. Okay, thank you everyone for joining. I know we have a bunch of people watching online. This is going to run until 12:55. For any members in the room or watching online, we're going to follow-up with the presentation that will be emailed out to you following this. And with that, I will turn it over to Beth St. James with Legislative Council to kick us off. Don't know if I'll start with the intro.

[Beth St. James (Legislative Counsel)]: We'll introduce ourselves, then we'll tell you what we're gonna do, and then I'll get started. Beth St. James, office of legislative council.

[John Branagan (Legislative Counsel)]: John Branagan, Leg Council. Kirby Keaton, Leg Council.

[Julia Richter (Joint Fiscal Office)]: Julia Richter, JFO.

[Kirby Keaton (Legislative Counsel)]: Mr. Olden, JFO.

[Beth St. James (Legislative Counsel)]: So we have fifty two minutes to do a very high level overview of 144 page bill. So we are going to go at lightning speed. We are not going to talk about every section, every concept, every detail. If you have questions, please feel free to approach any of us at any time. Also, the committees of jurisdiction have numerous materials on their websites, overviews, these same presentations, etcetera. We're going to go in order of the way the bill was drafted. So I'm going to start with the policy sections. John will do finance. Kirby will do tax. And then JFO, the fiscal implications. Sound good? Great. I'm gonna share my screen. Can we, Daphne, can we have sharing turned off? Yep. Thank you. Perfect, thank you. So this is a presentation that I've given to the education committees, House Ways and Means and Senate Finance. I have not really modified it for today, so I may skip over some slides in the interest of time. Anything you see with an underline is a hot link to whatever it says it is. So for example, we're starting off with a link to Act 73 there. We're going to, in the interest of time, we're going to start with Section three. Section three created the school district redistricting Task Force. I've linked to their final report there. Section four of Act 73 created the School District Voting Award Working Group, which is alive and well and ready to do what you need it to do should you move in the direction of creating new school districts. Section six of the bill created class size minimums. They amended the education quality standards to add those class size minimums. I'm going to let the minimums and the exemptions speak for themselves. So the first half of the slide is the minimums themselves. And then the second half are some of the exemptions. If the school if a school is not meeting class size minimums over three consecutive years, the secretary may take action. And that action is what is already allowed under current law for a school that is not compliant with education quality standards. Section seven of the bill is a piece of session law that kind of modifies what the actions that can be taken if a school is not compliant with class size minimums. So under current law, if a school is not compliant with class size with education quality standards, the secretary would have to provide the school or school district with notice in writing of how they are non compliant, provide technical assistance for over two years and or for two over the course of two years, and then make recommendations to the State Board of Education on next steps. Those next steps are spelled out in law. There's five options. And so if a school district is not complying with class size minimums, which is now part of each EQS, those five options for noncompliance would be available to the state board to order. What section seven says is if a school is noncompliant with class size minimums over three consecutive years, and if the and then the secretary does two years of technical assistance and the school is still not compliant with class size minimums, If the state board were to take action to help that school come into compliance, any option under current law that would involve consolidation is off the table. If that consolidation would result in school construction costs that the school district could not pay for out of, you know, a capital funds account already. And then there's a caveat there that until it's until the General Assembly establishes new school district boundaries and takes further actions regarding these consequences. So if a school is failing to comply with class size minimums, the state board cannot order consolidation if it's going to result in school construction costs. Class size minimums go into effect on July 1. Section eight requires the State Board of Education to update some rules related to class size minimums and statewide graduation requirements. I'll let those rule updates speak for themselves. And then the last piece on this slide is a report required to the education committees regarding standards for schools to be deemed small by necessity or sparse by necessity. And I've linked to that report here. Section nine was a bunch of reports due back from the Agency of Education. I'll let the contents again, in interest of time, I'll let the contents of those reports speak to themselves. If you see something underlined, that's a link to the report. Section 10 of the bill asks the State Board of Education to do a review of all of the rule series that they are responsible for, figure out what we still need, what needs to be updated, and then report back to the education committees with their plan. And that's not due until December. Sections 12 through 20 establish the state aid to school construction program that does not go into effect until 07/01/2026, with the exceptions of Sections fourteen and fifteen, which create the State Aid for School Construction Advisory Board. That advisory board was effective and live 07/01/2025. But the program itself, all of those other statutes do not go into effect until 07/01/2026. Section 21 is an amendment to 16 DSA eight twenty eight, which is the statute that dictates what types of educational programs or schools a school district can pay tuition to under our school town tuition program. So schools within Vermont, public schools in Vermont, approved therapeutic schools outside of Vermont, everything else listed in that first bullet point. And then the major change was to approved independent schools. Act 73, section 21 added the following criteria. An approved independent school is only eligible to receive public tuition if it's located in Vermont, is already an approved independent school, is located either within a supervisory district that does not operate a school for summer all grades, a supervisory union with one or more member districts that does not operate a school for summer all grades, had at least 25% of its student enrollment composed of tuition students during the 'twenty three-'twenty four school year and complies with class size minimums. This became law 07/01/2025. So this is current law. There is a tuition transition piece in Section 22 that allows students who were, who are currently attending on tuition to continue through graduation if their school doesn't meet these new standards. Sections 24 through 26 updates the appointment process for the State Board of Education. It keeps the State Board at 10 members. It retains the governor's appointment powers over eight members, including two student members, and it gives the speaker one appointment and the Senate Committee on Committees one appointment. And then that appointing authority would forever fill any vacancies created in that seat for which it made the initial appointment going forward. The governor retains removal authority over all board members, but the original appointing authority would fill the vacancy created by a governor. Section 27 really belongs with John's section, so it's a little unfair to talk about it now, but this is how the bill is organized. Section 27 is an amendment to the town tuition program. This is the only section in the slides that I am talking about that is contingently effective at the same time and under the same contingencies as the foundation formula. And it's the asterisk down there is the contingency. So, contingently effective on 07/01/2028, if new school districts are operational and the cost factor formula reports received by the General Assembly with an opportunity to enact legislation and consideration of that report, then tuition would be calculated as follows: The base amount, which John will go over in far more detail, and any weights applicable to the student, would follow that student to the tuition, to the receiving school. The receiving school would be either a public school or an approved independent school. So right now, average denounced tuition for high school is the most common concept we think of when we think of tuitioning. That's no longer going to be the concept under the foundation formula. It would just be the base and weights following the student. So the student would be bringing whatever money would be assigned to them based on their characteristics, whether it's special education weights, English language learner weights, free and reduced price lunch weights, etcetera. So every student has the potential to bring a different amount of money with them, depending on their characteristics. But at the very least, the base. There is a provision in here. Again, in the interest of time, I'm not going to go into too much detail. There is a provision in here. Again, this is all contingently effective with the same contingencies as the foundation formula for high schools, receiving high schools, so both public and independent schools, to charge an additional fee for those high school students if they meet certain criteria, including they get state board approval to charge that fee, and the school district votes to raise supplemental district spending, which John will go over to cover that fee. And then districts are required to pay the full tuition charge students attending an approved area an approved independent school functioning as a CTE center. Section 29 required the State Board of Education to submit to you all a report on the state of special education. I've linked to that report. Section 30 required the agency of education to develop a three year strategic plan for the delivery of special education services. I've linked to their report. Section 31 established one new permanent classified position within AOE to help with that strategic plan for special education delivery. Section 32, unfortunately, got merged into that line and I couldn't undo it. But Section 32 was an appropriation of $2,800,000 to AOE for the following concepts. And Section 33 was a authorization of five limited service classified positions to the Agency of Education for education transformation, and though the types of those positions are enumerated there. And I'm gonna turn it over to John. Okay,

[John Gray (Legislative Counsel)]: John Gray. So we're gonna be switching gears just a little bit, jumping from policy to education finance. Just note that when you receive the resources here, I have a number of slides I'm not going to touch in this presentation. Those slides are included for organizational purposes. So, they hopefully make it easier to track where we are in the act. But just given time constraints here, I'm going to try to hit the highlights. So, the first piece that I want to jump to is just to flag this table. As Beth noted, only one of her sections had this contingent effective date of 07/01/2028, but note that the foundation formula rollout itself and almost all of the pieces I'm going to be speaking to have this same continually effective 07/01/2028 rollout. That's your fiscal year '29. And just to hit the point again, this is the contingency. July '82 conditions that have to be met. New school districts have assumed responsibility for the education of all students, and you've received that foundation formula report to give you an opportunity to enact legislation and consideration report. The report itself I will hit on when we come to that section, but just note two pieces for that contingent rollout. New school districts assuming responsibility and receipt of that foundation formula report. So, the first sections I want to talk about sections thirty four and thirty five. This is your core foundation formula. So, as you know, under our existing setup, school districts vote locally on budgets to fund their school districts, and then you have locally varying homestead tax rates to account for all of the revenues that need to be raised across the state to fully fund all of the voted budgets. That's the current system. What act 73 contains is a change to that model to move to a foundation formula where school districts do not vote on the basic amount of spending that they are doing for their school districts, but instead receive what we call an educational opportunity payment. And that is the dollar figure that reflects the cost of educating all of a school district students reflective of the different student characteristics possessed by those students. So the way to think about that is mathematically what a school district receives instead of getting devoted local spend, what they get is the base amount, which the figure that you see in Act 73 is 15,033 per pupil. You get that base amount and you multiply it by your weighted long term membership, so your weighted student count. What that gives a school district is what we call the EOP, the educational opportunity payment, and that reflects the cost of educating the students given different student characteristics within the district. Section 35 touches the pupil weighting section. We currently have a pupil weighting element to our current system, but this would build it into the foundation formula. I'm just going to note really high level what you're left with after the amendments in section 35. You pertain the existing pre k weight, but there's no other grade level weight. There's a slight tweak to the economic disadvantage weight. In existing law, we had an English language learner weight, but that's been built out. It's been refined a bit to capture differences in proficiency level and formal education level. In place of census block grants in the existing model for dealing with special education, you now have special education weights. And similar to the EL weights that are distinguished by proficiency level and education level, you have some refinement within the special education weights to distinguish by the cost of the disability that a child has. And then lastly, we're gonna talk about this next, but repealing small school and sparsity weights, those have been updated with a new concept, support grants. So section 37 creates your support grants to replace those now repealed, continually effective 07/01/2028. To repeal those replaced weights, you now have support grants. You can see the dollar figures on each side for a small school support grant and a sparse school support grant. I'm not gonna talk about the dollars. You can see them there, but just wanted to note the eligibility conditions. To be eligible for a small school grant, There is a numerical criteria, less than 100 pupils in two year average enrollment, and then there needs to be an annual determination by the state board that it's small by necessity, under the standards that Beth talked about. Similar conceptual structure for the Spar School Support grant, you have a numerical criterion. The sparse school must be in a city, town, or incorporated village with less than 55 persons per square mile residing within the land area of that city, town, or incorporated village, and then you also need that annual determination of sparse by necessity. Note that there may be an update coming on the city, town, or incorporated village piece of this, because there's a question as to what the appropriate geographic measure for determining sparsity should be, and that would be in reports that the legislature is receiving. Section 42 contains, as you might imagine, repeals for a lot of existing education funding concepts with the rollout of the new foundation formula. You're gonna have to get rid of certain existing mechanisms. Some of these are technical. I'm not going to talk about, but I did just want to hit the census grant. This is the bottom of the left column. Repeal of that census block grant for special education. Again, you're replacing that with special education weights distinguished by disability cost. Similarly, on the right side, you see the repeal of the categorical aid piece for the English learner services. You now have that built out English language learners weight, and then some decisions remain to be made in these spaces. I'm gonna hop real quickly through these. Just note that there are some cleanup changes, conforming changes that needed to be made throughout the statutes and delaying the first meeting of the Education Fund Advisory Committee. Okay, the next set of pieces I'm gonna hit will tie in naturally when I start discussing the supplemental district spending, which falls more into Title 32. But just note that with this move to a a foundation formula, if school districts need to access additional funds beyond what they receive in their educational opportunity payments, there's a concept built into act 73 for some extra local spending, and we call that supplemental district spending. As you would expect, this affects title 16 in various ways. We need to build in the mechanisms for the revenues to flow. So just like your statewide property taxes that currently flow to the Ed Fund, your supplemental district spending revenues are gonna flow to the Ed Fund. And then they would be any recapture, which I'll talk about in a second, would be reserved for any special reserve within the Ed Fund. But one of the biggest pieces I wanted to hit here is the change to the budget vote. As I talked about before, you're not gonna have the process as is currently set up for local budget votes on ad spending as a whole. Instead, you would be voting exclusively on the supplemental district spending. The basic amount you received is the product of a mathematical function. It's that base 15,033 multiplied by your weighted long term membership. So the budget that school districts would see now is exclusive to that supplemental district spending. And one of the enhancements you could say offered by Act 73 is that, as I'll talk about when we get to the mechanisms of supplemental district spending, the budget vote would be able to show the imposed economic cost for that. What is the corresponding rate to that supplemental district spending? So a bit tighter connection between local decision making and the local economic impact. Several reports coming in under these sections, AOE on transportation reimbursement, JFO on inflationary measures, Pre K, And then section 45A is your big piece that we've been talking about foundation formula report that's built into that contingency for the foundation formula rollout and other pieces, and it updates to the foundation formula. There are also transitionary measures for the first years of the foundation formula rollout. And this is just identifying the gap between a district's ed spending and the educational opportunity payment they would receive, and then moving school districts incrementally across the first five years of that period, so that they're fully transitioned onto their educational opportunity payments by FY33. So just high level, the pieces we've been through establishing a foundation formula with a base and weights. Educational opportunity payments are your new aggregate payment to school districts reflective of weighted long term membership. You now have supplementary support grants for small schools and sparse schools. And then the budget vote is exclusive to supplemental district spending, and it displays the required tax rate to raise those funds. Okay, so let's jump to the supplemental district spending. This is that local spend. This replaces, as we talked about your current funding formula language, with new definitions for supplemental district spending. This is the amount that the voters of a district may approve above their educational opportunity payment. Note that it is subject to a cap. It's up to 5% of the unweighted foundation amount. And the way that it's raised is it's raised the same way in each district that pursues supplemental district spending. To raise supplemental district spending, a district must impose the rate that would be required to raise those funds in the lowest taxing capacity district. And the way to think about that is lowest taxing capacity district is the district that would raise the least funds at a given rate. I'm not gonna walk through the complicated math given pieces here, but that's the intuitive concept. Each district to raise supplemental district spending has to apply the same It's the rate that would be required in the lowest taxing capacity district. And this leads, of course, when you apply that rate in districts that have greater property wealth, it leads to extra funds, and we call that recapture. That recapture would go to the reserve that we talked about previously and could be applied to two purposes. One, to address any miscalculations that happened with the supplemental district spend, and then two, would be used to offset or reduce following year statewide education property tax rates. With the rollout of the foundation formula, you move away from locally varying homestead rates, and you now have a uniform statewide education tax rate. But note that in the first years of the foundation formula, that cap that is applied to the supplemental district spending would be elevated for the first several years. So, by FY38, everyone's down to that 5% cap. So, I'm sorry to get to this. Act 73 replaces the existing property tax mechanism that fully funds locally voted budgets, accounting for that local variation in spending through varying homestead rates with a uniform statewide education tax rate, you would still have application of the CLA and statewide adjustments. So just note that you wouldn't exactly see the same rate in everyone's bills because you still have those those measures. That education tax factor the statewide education tax would be adjusted by factors, which Kirby may get to a little bit based on property tax classifications. But know that currently in Act 73, the statutory factors are a factor of one, meaning that currently across all classifications, the education tax rate would be the same. And then updates to impose that local supplemental interest expense, updates to the December 1 letter to capture the changes that you need to reflect the new yield for the supplemental interest expense, and then some conforming changes. In addition to the EOP transition that I talked about, there is a homestead rate transition, and it works exactly the same kind of way. You identify the gap between the uniform statewide homestead rate once the foundation form is rolled out, and your district's prior year homestead rate. And then you smooth that transition across the next five years. Additionally, Act 73 contains some updates to income sensitivity measures. So, is your property tax credit. And basically, is repealing the property tax credit. It's replacing with a new homestead property tax exemption. Unlike a property tax credit, where you have the full liability on the house site value that you're paying on, and then a credit against that, it actually directly reduces the amount of house site value that is subject to those education taxes. So it's just outright reducing the liability. And then note that the actual brackets, the income sensitivity measures, have been built out across new income brackets. Smoother has less benefit cliffs built in. Lastly, there was still some work going on with the homestead exemption at the point that Act 73 passed. So section 53 tasked the Department of Tax with reporting on an alternative homestead exemption structure, accounting for potentially higher income sensitivity benefits. And with that, let me jump to just high level. Replacing those locally varying homestead rates for the statewide education tax to be adjusted for those tax classifications that Kirby will talk about in just a second. Imposing a local rate for that supplemental district spending. It is raised entirely locally. That is not a statewide raised amount of funds, repealing the property tax credit and replacing with a homestead exemption with new income sensitivity measures. With that, I will turn it over to Kirby.

[Kirby Keaton (Legislative Counsel)]: Thanks, John. So Kirby Keaton, legislative council. For the sake of time, I'm going to skip slides and just provide information on the tax classification system. This is section 60 through 61 d of act 73. So the act sets up a new property tax classification. This would be a third one for Vermont. It will be non homestead residential. This is intended to be a classification specific to second homes and short term rentals. It's set to take effect 07/01/2028, like most of the provisions John was just talking about, provided, with the same contingencies that, John sections also have that new school districts have assumed responsibility for the education of all resident students, and the general assembly has received the report regarding a cost factor foundation formula. Act 73 sets up a framework for the new classification, but further work is going to be needed in the next session or two, either through statute or through regulation, to work out the details regarding how this is going to be administered. So that's something for you to be aware of. Act 73 required that the tax department submit a report on implementing the new classification on 12/15/2025, and the department has done that. So putting the recommendations from that report into statute is something that, the general assembly will be continuing with in the near future. And lastly, classifications have a second contingency apart from the ones John had, discussed with you, which is that the General Assembly needs to decide how it will tax the new tax classifications differently. As John mentioned, Act 73 has a factor of one point zero for all properties in the state, but the idea is that that will be changed and you'll need to make a decision about how you'll tax them differently. Will you want to tax this new classification, at one and a half times what you do other properties or double what you do other properties? Things like that will be what you'll need to decide. And if you don't do that by July, then the classifications will not happen. And with that, can turn it over to JFO.

[Julia Richter (Joint Fiscal Office)]: All right. Thank you. So I'm Julia Richter, and I'm joined with Ezra. We're the education finance team at JFO. We are going to talk through the same thing that legislative council just talked through, but really highlighting some of the big fiscal aspects. So out of an interest of time, I'm going to be walking through all of the slides, and we'll take it from there. So again, the Legislative Council mentioned this. This is not an exhaust ive review of Act 73, especially our presentation. We're really just trying to focus on some of the specific areas of Act 73 to walk through them again. So as Beth spoke to, there are a number of education quality and governance changes in Act 73. We've pulled some of those high level, high ones into this slide. So with varying effective dates and contingencies, as Beth spoke to, the act implements minimum class sizes, creates the structure of the state aid for school construction program, but does not include a funding source for that state aid for school construction, narrows the criteria for independent schools that may receive tuition, changes the appointing authority for two of the state board of ed members, and also appropriated funds to AOE to support education transformation. This is where I'll talk in a bit more detail here in a second, but as John spoke to that contingently effective in FY '29, so 07/01/2028, Act 73 creates the foundation formula providing a base per student as adjusted annually for inflation. And then students and schools with additional needs or certain circumstances will receive additional funding on top of that base amount. And this foundation formula replaces our current education funding system. It allows for limited supplemental district spending, as John spoke to, so that's that amount above the foundation formula that a district is allowed to put to voters. In that supplemental district spending, as John noted, voters will know the impact of the tax rates when they vote because we're changing the mechanism of the supplemental district spending. And there is that recapture piece that John spoke to. So for districts that are raising more than they voted in supplemental district spending because of the equalized tax rate, that amount will be recaptured at the state level and then used to uniformly lower property taxes in the following year. There's also changes to the way that special education is funded or general special education is funded, which is moving from a census block grant model to a weighted funding model based off of disability category. And it implements transition mechanisms to phase in school funding. We don't have time to talk through all of these in more detail, but in the slides, there is an appendix where we've outlined more detail on each of these concepts. And then there's the tax changes that both John and Kirby spoke to, also contingently effective 07/01/2028. So you can really think of almost all of the fiscal pieces are all contingently effective at the same time. So we're placing the property tax credit, current law income sensitivity with the capped homestead exemption, establishment of a new property tax classification, a transition mechanism to phase in education tax changes, then for me to speak to this, but another piece of the bill is the creation of regional assessment districts for reappraisal across the state, which is intended to make those swings in still a little less significant. So really quickly, the foundation formula applies a base and weights based on student characteristics to a student population to determine the funding level. So this is a simple graphic that Ezra here put together that really shows you've got your base amount times your weighted pupil count, and that's what's going to be the foundation formula amount, the education opportunity payment. I know this table is really small, but it will be available online afterwards. What it's laying out here are the different weighting categories that are associated with the long term weighted average daily membership that will be multiplied against the base for the determination of the education opportunity payment. So as John mentioned, there's a weight for pre K students. There's a weight or varied weights for English learners dependent on proficiency level. There's a weight for special education, as we spoke to children with a disability. And lastly, there's a weight for students from economically disadvantaged backgrounds. Unlike current law, where we have tax capacity weights, these are now funding weights. So these weights will be associated with the amount of funding going to a school district based off the makeup of their student population. In addition to these weights, there is the small school and sparsity support grants, which are a replacement of the concept of our tax capacity, small school and sparsity tax capacity weights. So what these grants are is essentially if a small school falls into both of these criteria, it has an average enrollment, fewer than 100 pupils, and it's considered small by necessity, which needs to still be further outlined, then it would qualify for a small school support grant. A similar intuition with sparse school. It needs to be defined as sparse based off of the population sparsity of the school as well as sparse by necessity. I know we're moving fast, but we want to take time for questions. So next, the property tax classifications and calculations. So this is sort of lumping together those tax changes that both John and Kirby spoke about. So as we know, prior to Act 73 under current law, there's two classifications, homestead and non homestead. Homestead being where someone lives and surrounding land, Non homestead being literally everything else subject to property tax. Act 73 splits that non homestead. So it's non homestead residential, so a residential property that's not a homestead. And then literally all other taxable property. So the Department of Taxes had to make a report about this property classifications. It's linked here. I would encourage you to read it if you are interested in understanding some of the steps that Kirby was referring to. There's also the creation of a uniform statewide property tax rate, which will be adjusted by these different factors and classifications. So different to current law where we have our homestead rates that are dependent on that local per pupil spending divided by the statewide yields and the uniform non homestead rate, Act 73 does away with that, creates a uniform education tax rate, which will then be multiplied by the different factors assigned to each one of these property classifications. As both John and Kirby alluded to, those factors have not been set yet. Act 73 has a factor of one for all classes. So for there to be a different tax rate across those classifications, those factors would need to be determined and passed into law. Act 73 changed the property tax income sensitivity, so doing away with the property tax credit that we have under current law and establishment of a homestead exemption. It's not included in the slides, but we've been asked it a number of times. This is not touching those municipal property tax credit provisions. We're only talking about the education income sensitivity. So what is a homestead exemption? Essentially, it exempts a certain portion of a claimant's house site value from the homestead property tax, basically meaning that a certain part of that value will not be taxed dependent on the household's income. That exemption is only against the first $425,000 of the house site value, so of equalized value. And it's tiered based on income. So households with lower incomes can exempt more. Again, this is a small table, but really what it's showing is that tiered structure. So you can see as the household income increases, the amount that can be exempted decreases. Our modeling last year estimated that this homestead exemption will cost approximately or last year would cost approximately $35,000,000 more than current law property tax credit in FY 'twenty five. So absent other policy changes, this will be absorbed within the property tax. And unlike our current law or what we're having right now in terms of income sensitivity, Act 73 added inflation adjustments to the homestead exemption metrics. So under current law, we have those fixed 90,400 thousand 225 that aren't adjusted by inflation. Act 73 includes an inflation adjustment to all of these monetary amounts. And with that, I think we're going to turn it over to questions. I think we have a little bit time left for questions.

[Unidentified moderator/host]: That's fairly simple. We just want to add something. That wasn't on the slide, but there's something from the tax department to look at increasing that income level to 175 from the 115 on the property tax exemption.

[John Gray (Legislative Counsel)]: Yes, yes. For the proposed homestead exemption alternative structure report coming from Department of Tax at the end of this year, has a few directives in there including updating the declarations and the forms related. But one of the pieces is examining as part of the structure whether you could create those smooth steps within the income brackets to increase income sensitivity benefits up to households of that income of 175,000.

[Unidentified legislator (audience)]: So the foundation formula sets a dollar amount per pupil. Is that to cover what we think of today as education spending or total school spend?

[Julia Richter (Joint Fiscal Office)]: I'll take a first pass at it and then see if others have something to say. Ultimately, that will depend on further outstanding policy decisions made by all of you. Some of the modeling that JFO presented last year was comparing the education opportunity payment to education spending because that was one of the best proxies to look at changes in spending. That being said, Act 73 does not repeal categorical aid. So universal meals, for instance, would still be on top of the education opportunity payment, as would those other categorical aid programs. In terms of the other funding pieces that are either inside or outside of the base amount, that will ultimately depend on what other policy decisions are made prior to the implementation of Act 73. Anything else that anyone wants to add?

[John Gray (Legislative Counsel)]: I think that makes sense. I mean, I think it's fair from a high level to think about the foundation formula, the figure you're getting is corresponding to the way that we think about local budget votes in a way. But then you would have to account for the different ways that you can capture change within this. So, currently, when people vote their budgets locally, they can capture cost increases. I guess to shorten my long answer, the thing I would say is, I think what you're raising is that it's especially important to examine what the inputs to the foundation formula are to understand what you're covering, and then to ask the question, which things are still outside this, and do we need to supplement with categorical aid or whatever it might be? So it's gonna be important to follow the inputs to the foundation formula and know what's captured there.

[Unidentified legislator (audience)]: And how much money is this gonna save us?

[John Gray (Legislative Counsel)]: I don't think any of

[Julia Richter (Joint Fiscal Office)]: us can answer that. Yeah. I would say that if you visit our fiscal note from last year on Act 73, you'll see that JFOs do not estimate the overall fiscal impact of Act 73. Really, the primary reason is because of outstanding policy decisions. There are a number of pieces that still need to be determined. There are contingencies that would need to be met. And dependent on what leads to meeting those contingencies will determine the fiscal impact.

[Unidentified legislator (audience, referred to as "Edie")]: Two questions. One, maybe I apologize if I missed it. Over the years, what will change the baseline funding number? What changes that? And my second question is how do you address variations in school districts and say specifically transportation? So some school districts, can own things like a local bus system, which payments for that, other districts own their buses, other districts fire them out. So how is that variation taken into account, or is it?

[John Gray (Legislative Counsel)]: You want me to try? Sure.

[Unidentified legislator (audience, referred to as "Edie")]: Okay.

[John Gray (Legislative Counsel)]: Way that I would think about the first question, how does change happen within the base amount? So to compare against the current system, in the current system, if costs are raising, the way that you account for that is in raising your local budgets. So there's a human element that's automatically adjusting those factors, obviously, subject to the constraint that you gotta pass the budget. The way the mechanisms that are built into act 73 to adjust any kind of growth would be one. There is an inflation measure built in with that 15033, so that automatically grows over time. But another piece is that the foundation formula requires regular recalibration to look at the cost inputs themselves. That's under your pupil weighting section, but that would be another method that you naturally would grow the figure there. It raises the same point that we said in response to Edie's question, which is that following those cost inputs will matter. So I would just say the replacement for the human element of the local spending to account for cost growth is inflationary measures plus recalibration of the statutes? And then on your second question, I think the only responsive thing that I have at this point is there's a report from AOE on transportation reimbursement grants. So I would say that's kind of a lingering question from last session where they was tasking AOE with gathering further information to address that exact concern.

[Julia Richter (Joint Fiscal Office)]: I was

[Beth St. James (Legislative Counsel)]: just gonna add transportation is not required under state laws. That's a local decision.

[Julia Richter (Joint Fiscal Office)]: I would add, on top of everything that John outlined in terms of adjustment in the growth of the education opportunity payment, so he mentioned the inflation adjustment, the recalibration. The other piece that's included in Act 73 is the requirement of a professional judgment panel by the agency of education. And for those of you who are really deep in the weeds of education finance formulas, professional judgment panel is a technical term of really looking at a funding formula and taking it to the field. So that's another piece on top of what John.

[John Gray (Legislative Counsel)]: And, of course, outside of the regular recalibration process that happens through staff, you guys are gonna be talking about this every year. So, you know, there's gonna be a natural method even beyond the statutory staff trained ways of recalibrating the foundation formula.

[Unidentified moderator/host]: Yeah, just to follow-up on Edie's question, it's pretty significant in terms of

[Unidentified legislator (audience)]: what are all the costs in the foundation formula. School meals are outside of that cost, if transportation is outside of that cost set. Those are just really significant in terms of whether this is enough money to run a school or not. And knowing that the goal of Act 73, I think the driver was to save money to try, property taxes are too high, so how do we get control of those? Are you all able to do any type of modeling to inform, you know, I heard you're saying a lot of the policy is still being decided. So you don't really know how to see, you're not able to see if there are cost savings or not, but are you able to do any modeling to kind of suggest in this scenario there would be cost savings or not, just to provide guidance?

[Julia Richter (Joint Fiscal Office)]: I'll take that one. I will say there's a couple of things I would say in no particular order. One is, as you likely perhaps have seen or have heard, we have done extensive modeling last year to inform different aspects of the bill. That being said, we are nonpartisan staff. We work for all of you and your committees. And so as those committees are exploring different options, we are doing the modeling. And so absolutely, if there's something specific you're interested in, happy to talk offline. I will also say that John spoke about this a bit, and I do want to mention that JFO is currently under the process of contracting for this report that is one of the contingencies. And so in that process, we will be involved in terms of really understanding what is and what isn't included, what is the methodology. So we weren't included in the underlying modeling of the numbers included in the foundation formula. We did contract for that work, but it was on a short time frame, as we all remember. And so anyway, so moving forward, that report is supposed to come, I think, in early December. And so with that, we will be able to better support in terms of understanding exactly what's included.

[Unidentified legislator (audience)]: I don't think we can answer whether something addresses something,

[Beth St. James (Legislative Counsel)]: but I don't

[Unidentified legislator (audience)]: think the term health care appears in Act 73.

[John Gray (Legislative Counsel)]: Yeah, I think that's the best answer. There's no direct yeah, to ask people.

[Julia Richter (Joint Fiscal Office)]: And I think I would also say that we're only talking about Act 73. I do not work in health care. So health care specific questions, I would need to bring in my colleague, who is the health care expert.

[Unidentified legislator (audience, referred to as "Edie")]: Do you want to take that?

[Julia Richter (Joint Fiscal Office)]: Any other questions?

[John Gray (Legislative Counsel)]: If you want to hear us speak more slowly about it, just look back to the last two weeks of our testimony, and we'll slow down in those future.

[Julia Richter (Joint Fiscal Office)]: And if you have specific questions that you don't want to ask in front of a bunch of people, you know what we look like.

[John Gray (Legislative Counsel)]: Yeah, reach out. Happy long weekend.