Vermont Legislature SmartTranscripts:

[Peter Conlon (Chair)]: Welcome to House Education. We are starting this morning continuing our discussion for our Act 73 recap, especially the financial portion of it. We're joined by legislative council who is continuing a walk through for us on this, and appreciate you being here. And if you have a few questions on yesterday's presentation by Beth, We might throw those at you as well. Okay. Yeah.

[John (Office of Legislative Counsel)]: Sounds good. We'll see how that goes. Good morning, everyone. Donna Gray, Office of Legislative Council, stopped yesterday at a pretty natural place, so that's sort of nice. Because the next slide I was going to show you was actually a high level summary of all of the slides we've just gone through. So the first set of slides that we went through yesterday were your education finance sections, primarily located in Title 16. So this was the creation of your foundation formula with that base amount of $15,033 per pupil, updated weight, that's prepay special education distinguished by disability cost, economic disadvantage, and that refined EL weight that accounts for both proficiency level and formal education level. Along with the implementation of the foundation formula, you have a new payout that goes to school districts, that's your educational opportunity payment, your EOP, and it's determined, it's a mathematical equation, you take that base amount, multiply it by the school district's weighted long term membership, that tells you your EOP. You may recall that in the updates to the people waiting section, the waiting for small and sparse districts was removed. Those have been replaced with sport grants. We talked about those eligibility conditions yesterday. And then one of the key changes here as well is that the budget is gonna the vote is gonna look quite different. So the vote is not on the whole of a district's budget. It's just on the supplemental district spending, what they want to spend above the EOP, and that vote would show the required supplemental district spending tax rate, so you'd have some greater certainty as to what the impact of your decision making is.

[Peter Conlon (Chair)]: I'm gonna pause there for just a quick second,

[Erin Brady (Ranking Member)]: just

[Peter Conlon (Chair)]: for, have us all remember language, EOP, which we're calling educational opportunity payments. That makes sense. That's essentially what you get above the base amount based on the characteristic of each and every student, correct?

[John (Office of Legislative Counsel)]: The EOP is the full, so it does account for the weighted. You could think of a student with no weights would receive that 15,033 per pupil. So if your school district was entirely populated by students with no distinguishing characteristics for purposes of weighting, your EOP would just equal your student count times the base amount. But for all school districts, they're gonna have students that have different characteristics that are recognized by the weighting. So your EOP is the cost to educate all students accounting for their differences in characteristics. So the EOP is the big check. EOP is the big check. You can think of it as replacing essentially your ed spending. I

[Unknown Member (House Education Committee)]: understand it's the big check except there's some other add ons such as the support grant for different things. And was there conversation also about transportation being separate things?

[John (Office of Legislative Counsel)]: You're going get a report. You may have already received a report from AOE actually that's on minimum transportation to be covered

[Peter Conlon (Chair)]: and reimbursed. And that would

[Unknown Member (House Education Committee)]: be separate from the EOT.

[John (Office of Legislative Counsel)]: Exactly, so there are pieces that are dealt with through the streams of pupil waiting, and then some things come through grants, like the support grants. So your whole funding structure is more complicated than just based on weighted long term membership. Okay, thank you.

[Peter Conlon (Chair)]: And then supplemental support grants for small schools and sparse schools would still come in the form of a per pupil payment, right?

[John (Office of Legislative Counsel)]: Yes, well, the way to think about it is that the So the grant will go to the school district as a whole in which those schools warranting that support are located, but the way the grant is determined, the figure is a per pupil figure and the grant that's calculated for each school district is a function of the two year enrollment in the school that meets the qualifying condition. So yes, it is a per pupil count and the school district as a whole receives a figure that reflects all of the student count within the qualifying schools. But unlike the existing system where we make a sparsity determination, for instance, at the district level, you're now making a sparsity determination at the school level. So a school is only qualifying for that sparse support grant if it's located in a city, town or a village that meets the sparsity condition. So less than 55 persons per square mile within that area. But it's more tightly cabined to get at the actual sparsity where the school is rather than a district wide assessment.

[Peter Conlon (Chair)]: And the third bullet, budget goes exclusive to the supplemental district spending. They just as a reminder, they cannot just add on however much they feel like it is limited. Could you talk about the chronology of that limit? Because I think it goes to 10, is that right?

[John (Office of Legislative Counsel)]: So we'll come to that in just a second, but just to preview what will be in place as an Act 73 is a statutory cap of 5% of an unweighted foundation amount. So it's not 5% of your EOP, it's like 5% of your EOP if you only had pupils who had no distinguishing characteristics. So it's an unweighted count. That's the permanent cap on your supplemental district spending, 5% cap. For the first ten years of the implementation of the rollout, you have an increased cap that has moved downwards, you hit that 5% cap to allow folks to transition off of their existing ed spending and onto the EOP using the SDS to supplement. So the first five years you would have a 10% cap, and then you go down 9%, 8%, 7%, let's say you hit 5% in FY thirty eight, I think.

[Peter Conlon (Chair)]: And that is not to be confused with the independent school request for supplemental payment, which has a whole other sort of set of criteria in order to make that happen. And that's still limits.

[John (Office of Legislative Counsel)]: Can we jump up? So now we're jumping from Title 16, and we're gonna start talking about the education property tax changes. We don't have to talk about the full of this section if you guys aren't interested, but I do wanna at least talk about how the supplemental district spending is calculated, which I think is most relevant. So we're jumping to section 46 within the act if you're following along, but again, I hope that you're not. And then here's where we are in the VSA. So we're now jumping to Title 32, Chapter 135. This is your education property tax check. So again, overview of the full set of sections here, we may just do 4646A and potentially 47, 48, but I think most relevant is 46 and 46A, and we just talked through 46A. But just know that these set of sections, they include your new supplemental district spending concept. They apply the statewide education tax rate that is replacing the existing locally varying homestead rates. Now there's a uniform statewide education tax rate that's used to raise the EOPs for all school districts across the state. We have changes to the December 1 letter to recognize these changes. We don't need recommendations for the yields anymore. We do need recommendations for the supplemental district spending yield, but I'll explain that in a second. There's some transition mechanisms for folks to move from their local homestead rates to the new homestead rate that they're gonna see under that statewide education tax rate, and then there's other changes for income sensitivity related to repealing the property tax credit and replacing with the homestead exemption. This is gonna look awfully familiar from the sections we saw before. All of this is contingent in the same way that the foundation formula rollout is. So that's that, continually effective 07/01/2028. The date you see on the left of 07/01/2027, we have to roll out the changes for the December 1 letter in advance of FY '29 so that you can get those recommendations from the commissioner to roll out these tax changes. And then the date you see on the right, the passage, that's just a report, so of course it's a passage. And just to remind you, this is the contingent effective language. So two pieces, school districts, the new school districts contemplated the act have assumed responsibility for education, and you have received that foundation form of the report under section 45A to provide the general assembly an opportunity to enact legislation in consideration of the report. Okay, so this is probably the most complicated thing in all of my sections. My hope is that you may recall some of this from last year, but also I'll say left column, it's kind of what I would describe as the intuitive way to think about supplemental district spending, and then right column is getting into the map that substantiates it. But I think it will make sense after I talk through it. So you're replacing your current funding formula language with new definitions for supplemental district spending. As we know that SDS is the spending that voters of the district may approve above their EOP up to that cap of 5% like we've talked about, 5% of an unweighted foundation amount. Okay, so how is the We have to think about equalization measures when we think about imposing these taxes. They're gonna be raised entirely locally, so how do we ensure, how does Act 73 ensure that folks aren't charged different rates to raise the same amounts of funds? So the way that it's done is to raise your supplemental district spending, a district must impose the rate that would be required to raise those funds in the lowest taxing capacity district. So if you were the district that had the least property wealth available per pupil, we determine what rate would be required for you to raise that, and then we apply that rate to any school district that has approved supplemental district spending. The result is because all districts other than that lowest taxing capacity district will have more property wealth available per pupil, they will raise extra funds. That's what we call recapture. The supplemental district spending is raised entirely locally. This is unlike the way our current system works, where everyone votes their budgets and then all funds are raised statewide, but we account for that variation spending through varying homestead rates. That supplemental district spending is raised entirely locally, but it's benchmarked in the same way any other district would be to that lowest taxing capacity district. So I've already kind of talked about this, but the school district, the lowest taxing capacity, that is the district anticipated to have the lowest grant list per long term membership in the upcoming fiscal year. The way to think about taxing capacity is how much can you raise at a given rate? So if you have the lowest taxing capacity, you can raise the least at a given rate. And so this identifies that the district that has the lowest grant list amount available per pupil is your lowest taxing capacity district.

[Peter Conlon (Chair)]: So this was not something we discussed in our committee, this was all done in the ways of means. So by design, supplemental district spending, the formula, will always lead to excess revenue?

[John (Office of Legislative Counsel)]: Yes, unless the only school district that elects to pursue supplemental district spending is the lowest tax. So you can assume it will always produce recapture basically. And

[Peter Conlon (Chair)]: that revenue goes into the education fund.

[John (Office of Legislative Counsel)]: Exactly, so like we talked, just a reminder from yesterday, all the revenues from the supplemental district spending tax will flow to the Ed fund. They're paid out to school districts that have voted their supplemental district spending in the same way that ERPs are paid out of the Ed fund, and you're gonna have an amount left over. You're have that recapture left over, that excess beyond the voted supplemental district spending. Tax 73 created a reserve, the supplemental district spending reserve into which the recapture goes, and then it's made available for two purposes. If there's been any miscalculations with the supplemental district spending, you could use that recapture to offset the miscalculations and then potentially more significantly reduce following your property tax rates.

[Unknown Member (House Education Committee)]: I'll just ask a follow-up to that. I know that any legislature can change anything at any time, but that is it in this special I different mean, there is no intention because when we passed when

[John (Office of Legislative Counsel)]: we passed the bill, it's not only construction. And

[Unknown Member (House Education Committee)]: I'm still disappointed that we aren't taking that on. But to make any changes as to where that supplemental additional revenue comes, we would have to pass a new law to So make we're pretty solid on where we are.

[John (Office of Legislative Counsel)]: Yep, you would need to amend the section establishing that reserve.

[Unknown Member (House Education Committee)]: I just wanted to get that.

[John (Office of Legislative Counsel)]: But you're correct, when it came out of the House, those revenues were dedicated to school construction, kind

[Peter Conlon (Chair)]: of a waterfall to school construction. Great, thank you.

[John (Office of Legislative Counsel)]: The other thing to think about with the recapture is that it really matters what the school district configuration is. That's gonna have a dramatic impact on the amount of recapture that you have, because you just think about the application of the equalization measures that you're using. So if you have widely ranging taxing capacity across districts, so you have school districts that have three times the taxing capacity of another district, they're gonna have to apply the same rate that lowest taxing capacity district does, and it's gonna raise a substantial amount of additional revenues, which you see as good or bad, right? Produce extra revenues that could be used to lower cost, but if you have, as proposed in the initial proposal at the start of last session, five districts, the equalization measure, the revenues it's gonna produce are gonna be quite different because some of the thought there was that you'd have relatively close available property per pupil, in which case the recapture might not produce that much at all. So just to say that depending on what happens with school district configurations, you're gonna wanna revisit the equalization measures of the supplemental district spending.

[Unknown Member (House Education Committee)]: Again, I'm sorry. Do you mind if I just I wanna make sure I that this is clear for everybody who's watching this. So in a district, multiple towns in a district, you can have a town that has a ski area in it and a town that is, like, has no franchise value at all. So there can be huge discrepancies within district, current districts or new districts that are coming. And I just want to make sure people understand what this actually does.

[John (Office of Legislative Counsel)]: Yep. And I mean, that's a good point, but the taxing

[Unknown Member (House Education Committee)]: I'm sorry. I don't mean to interrupt. Let me just add something to Rural areas are especially vulnerable to this is my assumption. I'm not sure I'm right, but I feel like that

[John (Office of Legislative Counsel)]: because I see it. I guess a bit that I can add is it's right to identify that taxing capacity identified across the whole of a district. So, right? Yes.

[Peter Conlon (Chair)]: Thank you.

[Unknown Member (House Education Committee)]: I was just going say that was a consideration

[Unknown Member (House Education Committee)]: for those members of

[Unknown Member (House Education Committee)]: the task force, looking at why are we looking at the grand list of these different regions? It all has to do with supplemental spending. Your grand list for that region are very different across the state, then great. It's gonna affect the yes. So trying to sort of The goal was to make it a little more

[Peter Conlon (Chair)]: So everybody has about the same capacity. Exactly.

[Unknown Member (House Education Committee)]: If you can, as possible.

[Erin Brady (Ranking Member)]: Just trying to check my understanding here. That's the goal. But then also that means one of the consequences is this notion that supplemental spending is very much local, that local decisions and local people will feel it and know it. You know, that this one of the challenges we have right now is maybe people aren't fully feeling or knowing the decisions they're making and how they impact them closely because of it. We are continuing that phenomenon in a way that we're spreading the whole notion of supplemental spending. We're still spreading it in a statewide paradigm. The taxation and so it isn't entirely a local decision that is made and felt and paid for locally.

[John (Office of Legislative Counsel)]: If you mean that they don't just get to charge the rate that would be required in their district to raise it, that's right, but it is raised entirely locally, and they would know the cost of their decision making at the time of their vote.

[Peter Conlon (Chair)]: I guess I'm hearing conflicting things. So what you're saying is perhaps contrary to what Representative Brady said, it is raised entirely locally and it is felt entirely locally across the new bigger district. District

[John (Office of Legislative Counsel)]: not state.

[Unknown Member (House Education Committee)]: But to wrap my head around it, they don't get to keep all the money being raised. Goes and that's something with part you're saying. But they they have to be in that letters communicate. Here's the rate you are having to charge because we have to tax at the rate of the lowest District. Grand list district, whatever. So will you vote on this in this community to raise this money? There's going to be extra money than that we don't need that's gonna go back to the Ed Fund. And communities may say, yeah, I'm good with that. Or they may say, if I'm not keeping that money, I'm not voting for. But that would be made clear to them before the vote.

[Unknown Member (House Education Committee)]: Local vote is so But

[Peter Conlon (Chair)]: if we had districts of More equalized Equal grand lists, even though the Hold on a second please. Even though they would not generate a lot of excess revenue, But within that larger district it's based on the history of local That a grand

[John (Office of Legislative Counsel)]: is scheduled for long term membership across the full of the district.

[Peter Conlon (Chair)]: So really it wouldn't necessarily, and I think our goal has been all along to have every district theoretically have the same taxing capacity so we don't have those inequities. And so the consequence of that would be that we wouldn't have a lot of extra money.

[Unknown Member (House Education Committee)]: But that was why I mentioned rural areas, because the variables in rural areas are more significant than in more areas, it feels to me, my assumption. You'll have larger attachment areas for districts if we follow Act 70 three's goals. And so you'll have larger variations of grand lists within that district. See what I'm saying?

[John (Office of Legislative Counsel)]: Although one way you might think, I guess this is implicit in what you're saying, is that if you're a lower property wealth town within a larger situated district, you can avail yourself of the benefit of the fact that you have other towns situated within the district that have higher property wealth to pay.

[Unknown Member (House Education Committee)]: I totally understand that, but I also understand that the town in that district that has the higher property values are going to feel really weighted. The burden will be on them. I keep going back to the

[Peter Conlon (Chair)]: old Is that accurate? They will

[John (Office of Legislative Counsel)]: be paying the same rate. I think some of the confusion here is related to whether, I hesitate to use the word burden, that's the word that we're using here. There's kind of a sense of like, is it unfair that I have to apply a rate that is in excess of what I would have to charge just to raise the funds that I need? But everyone would be paying the same rate, it's just that wealthier towns would inevitably raise more money, they're doing so. But you can think about that's something true of the current system too within your school districts. Any application of a rate across varying property values means that those with higher property values raise more funds. And typically, at least when I'm talking about equity in this context, I'm thinking more about the rate that's applied rather than the amount of funds that they happen to raise, which is I think why I misunderstood the question about people might object because they're raising extra funds. As a lawyer, I just hear this, well, they're paying the rate that's charged to raise instead. They're doing now.

[Erin Brady (Ranking Member)]: And so you're doing a lot of really dumb questions.

[Peter Conlon (Chair)]: So

[Erin Brady (Ranking Member)]: I'm gonna use my own district. So right now it's a district that has multiple towns in it, but one school district. Let's assume that district boundary, just for argument's sake, stays the same, but we move to this funding mechanism. So currently, the budget's the same in the whole district, but the tax rate I pay in Williston is different than in Hinesburg, is different than in Charlotte because of multiple things related to Grand List and CLA and all that. Will that persist?

[John (Office of Legislative Counsel)]: That persists.

[Erin Brady (Ranking Member)]: That persists.

[John (Office of Legislative Counsel)]: So it's

[Erin Brady (Ranking Member)]: not going to be a uniform rate within a district of every

[Peter Conlon (Chair)]: single

[Erin Brady (Ranking Member)]: It

[Peter Conlon (Chair)]: is all pre CLA.

[John (Office of Legislative Counsel)]: Exactly. So that's kind of like my ending caveat is it's the same thing for the statewide education property tax rate. There will be a uniform statewide education property tax rate to raise the EOPs, but towns will see different tax bills because they haven't been appraised up to date. So you have to have the CLA they would adjustment until, which is probably impossible, until you have a constant appraisal process that ensures everything's ever got you.

[Erin Brady (Ranking Member)]: Building on that,

[Unknown Member (House Education Committee)]: but for the supplemental district spending portion, everybody would have the same rate in that situation.

[John (Office of Legislative Counsel)]: The CLA is still applied.

[Unknown Member (House Education Committee)]: So they may be adjustments there within that district, even for the SCA. Exactly. Okay, thank you. That helps.

[Erin Brady (Ranking Member)]: How to that might be for us to, I guess in other states with a foundation formula, are these same steps kind of true and the variability of rates across state to get to a common funding level? To give you the answer, I might be publicly asking myself to figure this out in the next couple of Yeah,

[John (Office of Legislative Counsel)]: I don't know enough about other states to give a comparative feature. I would say the specific reason this was talked about so much and the yields were talked about is because we were responding to Brigham concerns. And you think about the problem that this is trying to solve is, I have another slide deck we did last year that I thought was helpful, but back in the early 90s, late 80s, the state would set a foundation tax rate and a foundation cost. The cost was what the state deemed to be the appropriate amount of funding per pupil, and then the foundation tax rate was a rate that was what the state deemed to be a reasonable effort basically by the town. So some districts would apply that foundation tax rate and they wouldn't achieve the foundation cost. So the state aid would make up the gap between what they could raise and what the foundation cost was. And then another town that has substantially more property wealth at the given tax rate would raise twice the foundation cost. So you had folks raising different amounts of funds at the same rate or having to charge extra rate to achieve the same funds. And so that's why we ended up with the current system that we have that introduced those equalization measures. So the supplemental district spending yield is a different approach to equalization, but we're trying to solve here Vermont constitutional concerns is I guess my answer.

[Erin Brady (Ranking Member)]: So is it then fair to think that in this sort of constant comparison of while most states use a foundation formula, we're gonna go to the mechanism, the way most states do it might vary highly because they might not, most probably do not have a Brigham type state constitutional decision that is over. So that a sort of sense of an apples to apples comparison of the simplicity or equity of a foundation formula in other states is actually far, far, far more complicated than we might be putting it out there, given that we're doing this within a program context.

[John (Office of Legislative Counsel)]: I think that's fair to say. We might end up looking elsewhere and see that in fact states do similar things, and we might discover that they don't. And I think what you're saying is if we discover that they didn't, that doesn't tell Vermont that Vermont's doing it wrong, basically. Right, right.

[Erin Brady (Ranking Member)]: But I think for me, it's an important reminder that many of the complexities we're facing right now, even in a foundation formula we face because of a state constitutional decision and philosophy towards taxation and education that may be fundamentally different than many other states that use It's a foundation not so simple as to say, well, so many states do this. This is just sort of more obvious and easy. It's far more complicated than that.

[Peter Conlon (Chair)]: Right, but I think that's probably at the foundation as to why this is such a limited supplemental distribution. You can't just spend whatever you want, just 5%.

[John (Office of Legislative Counsel)]: And the Act 73 concept frankly includes two different approaches to equalization. You have this specific approach, the supplemental district spending, but the alternative approach we take for raising statewide funding for the EOP is like what we do. You get a uniform rate that everyone pays to raise the COPs. So you could say some towns are raising more applying that rate than others are, and that's how you get the full set of property tax revenues, education property tax revenues, that's funded all of the EOP. So the act has two different kinds of equalization. We don't see it with the EOP because it's so straightforward, one rate, although adjusted for CLA. But you see it with the supplemental spending.

[Peter Conlon (Chair)]: It's a

[Erin Brady (Ranking Member)]: bit of an to me, I guess, of comparing, saying other states do a foundation formula. It's somewhat straightforward. It's what most states do. And I'm not disputing that maybe it is, but it may be the right direction for us to go. But it is quite different in our constitutional context. And I think we might be oversimplifying what it accomplishes in terms of our, oh, everything will be simpler, everybody will be paying some similar rate, and you'll feel much more your decisions. Think this is a reminder. We just didn't get to do this work in this committee. And partially am saying this because I felt fair. I had guarded support for what we even generated in our committee last year, knowing that there was a lot that had to be done on the foundation formula and that that happened even more quickly. And I, as a representative for my constituents, don't fully have an understanding, I think, of exactly what all of the foundation formula pieces that were layered on top of the policy pieces we did were. And so this is really important and illuminating to me of how much more complex it is. That piece of like, oh, well, the money committees are just going to do it. That's like, don't It is more complex, and it actually does relate to policy and many of the issues, at least in my community, people are feeling and struggling with. This isn't necessarily just an easy solution. It's actually quite complex and might, yeah. I'm just editorializing and I'm done.

[John (Office of Legislative Counsel)]: Two responses if you're interested. Yes. So the first is it may be helpful to think about what we mean by foundation formula if you're comparing across states. Because sometimes, and I think it's fair to say much of what people mean is just base and weights for pupil. It's almost agnostic as to method that you use to raise the funds. So I would just note that it's not so much the foundation formula that's creating these complications, it's the methods of raising the funds that we used to do. The second thing I would say is, from my perspective, There are attractive features of this from a simplicity perspective. They may not be obvious just because we're talking about this right now, but the thing I would note about calculation of the yield, which I'll talk about in just a second, for the supplemental district spending, is it really is more of a mathematical exercise, and doesn't include the waiting for school budgets to be passed to determine what yields are sufficient to raise all of the revenues. I think there's good reason to expect that there will be greater certainty around the figures that people receive, but it is to be seen. So with that, I would turn to, I mean, think we've already talked through the concept, but just if you're interested in the way that the math works, the supplemental district yield is what turns the equalization measure into the revenue raising machine. So it's exactly what we've talked about. You just ask, if you were the lowest taxing capacity district, how much could you raise at a 1% rate? How much could you raise at $1 per $100 to equalize education property value? If we know that, then we can take your school district supplemental district spending per pupil, and we can just divide that figure by this yield, and it tells you the rate that would be required, were you the lowest taxing capacity district to raise those funds. So it really is just a mathematical exercise. It's not that hard. It sounds sort of complicated because there's lots of defined terms and just a lot to hold in your head at once, but it really is just converting your per pupil supplemental district spending into a rate that would have to be applied to the lowest tax and capacity district. And all you do to do that is divide your per pupil supplemental district spending by this yield, which would be identified in the December one letter in a more reliable fashion than the yields that are currently identified. Again, just to repeat, if we had 20 districts across the state and they

[Peter Conlon (Chair)]: had exactly the same grand list, there would be

[Unknown Member (House Education Committee)]: no recapture. Recapture.

[John (Office of Legislative Counsel)]: So yeah, leads to recapture excess revenue, we've

[Peter Conlon (Chair)]: talked about that. That's great.

[John (Office of Legislative Counsel)]: I'll just hit this because we've already talked about this, but we do have a transition for that cap. So spending, it's longer than the transitionary measures you've seen for the EOP and what we do for the homestead rate and for all other kinds of pieces. It's more like a ten year rollout. So for your first years of the rollout, FY is 29 through '33, you have a 10% cap, decline's down 5%, so that in FY 'thirty eight, you're finally onto that 5% cap. Again,

[Peter Conlon (Chair)]: the thought behind that is it gives districts who overall money they get to spend on education might be going down as a result of the foundation formula that period of time to spend more if the voters choose as they adjust to the new world. Exactly.

[John (Office of Legislative Counsel)]: That's correct, that's correct. That's the permanent And the way to think about it is, the Act 73 enacts statute, that's your permanent pieces, and then we create their session law provisions that not withstand the definitions for a transitionary period. And then once that period is over, you still have the existing law, which is the 5% cap. If you're interested, I'll just quickly hit these. We've already talked about this, but updates to Title 32, Section fifty four zero two, this is your education property tax liability section, and just you're replacing the fully funding of locally voted school budgets, which account for that local variation through varying homestead rates with a statewide education tax rate. Like we've talked about, it's gonna look different on property tax bills because of the CLA. That statewide education tax would still be adjusted by statutory factors. So you may recall that there's a little table in this section, I don't know if you guys looked at this particular section, but with the rollout of new property tax classifications, that statewide education tax rate, the uniform rate would be adjusted for different property tax specifications, which would be homestead, not homestead, non residential, and not homestead residential. So right now what you'll see if you look at the act is the statutory factors are one, meaning all property tax classes pay the same uniform statewide education tax rate. The way to think about it is these are levers you can use to assign different liabilities to different classes of property. So if you had a statutory factor of two for the non homestead, non residential, it would be paying twice the statewide education tax rate. It's a way of shifting the liabilities across the classes.

[Unknown Member (House Education Committee)]: If I'm remembering correctly, correct me if I'm wrong. So they're all set at one now because there was supposed to be a study and report from the tax department regarding these various classifications. So based on that information, then they might shift from all being identical. But currently they are all identical for that reason.

[John (Office of Legislative Counsel)]: And in fact, while these are outside of my sections, is a double contingency

[Unknown Member (House Education Committee)]: So there's some for limits there, right? You can't just say non homestead residential is gonna be three. Aren't there some guardrails on that

[John (Office of Legislative Counsel)]: I that you can do don't want speak too much to that piece

[Erin Brady (Ranking Member)]: of We're not going have that road today.

[John (Office of Legislative Counsel)]: But I do want to say that you will receive a report if you haven't already on the statutory factors and there's a double contingency for the whole property tax classification system, which is that unless the general assembly enacts statutory factors in response to the report, the new property tax specification would be repealed if if those statutory factors haven't been updated by a date of certain, which I'm Yeah.

[Unknown Member (House Education Committee)]: Thank you for the reminder. And

[John (Office of Legislative Counsel)]: then, of course, this section imposes that local supplemental district spending tax. Like we've talked about, it's imposed in the same way the statewide is, so the CLA, statewide adjustment, all of that is happening. December 1 letter is updated to remove the current recommendations for yields, and instead you're gonna get greater certainty with the figures that you receive. That's the hope. A statewide education property tax rate, the fund spending from the Ed Fund, and again, that should be more of a mathematical exercise. Well, there's still gonna be outstanding figures, what kind of non property tax revenues are coming into the Ed Fund. Because the EOPs are just a function of base times weighted long term membership, assuming that you're close on those figures, you should be able to recommend a segment educated property tax rate. And then the commissioner would also identify that supplemental district spending yield, which again is really just a mathematical exercise. They look and say, which district has the least grand list value available per long term membership? And then they ask how much can they raise at a $1 rate. I can keep going if you guys want to hear about other things, but I realize this is a ton of information.

[Peter Conlon (Chair)]: This has been really great by the way. And so I do want to give everybody the opportunity to ask any question of anything because the better understanding we have of this, the better.

[Unknown Member (House Education Committee)]: Yes? No, somebody else has question.

[Peter Conlon (Chair)]: There's nobody else in mind.

[Erin Brady (Ranking Member)]: Well, this is maybe, I guess, a question for you or the gods or someone. Don't

[Peter Conlon (Chair)]: I am.

[Erin Brady (Ranking Member)]: Yeah. I mean, I'm reminded or newly terrified that I'm genuinely sitting here in this session very uncertain about what we should even do. So I reluctantly supported what we developed here. I had concerns as it moved around the building. I did not support what happened in conference committee. I see a lot of value in parts of the task force report. I'm genuinely, in my mind, all options are on the table, I'm unsure. I am reminded here that if we are and I do believe we have structural challenges, and the state are long overdue. If we are embarking in some way on some reorganization of our educational system so that it is more structurally sound, and that includes districts, we have this challenge of what would logical districts be for educational purposes? So say something that I think works, if you've read the task force report or we're going to hear and then took some sort of case studies, Okay, the capital region maybe has some obvious over saturation of high schools. If you could build a regional middle or high school of that area, or maybe that even became a district to do that, that might make a lot of sense educationally. But I don't know the property wealth of all of those towns included. That might completely go out the window when you take it. But on the other hand, if you take a, we want districts because they are taxing entities, which has a huge importance and impact on all Vermonters. So the equity or the equalization of taxing capacity and property wealth across the state is the most important distinction for deciding our districts. Those are two really different. Again, I'm stating the obvious in many ways, and I think this is from what I watched some of what the task force was running into. But you could draw two very, very, very, very different maps that serve each of those purposes really well. But I don't know where and how you marry those. You could have really equal property wealth, nice districts, but it might have like 10 schools in one and zero in another and make no sense from a sort of actual physical educational buildings what the purpose of those districts is, which is to educate kids.

[Peter Conlon (Chair)]: I would just point out that the sort of property wealth debate that we're having, and I think your point is well taken, but it's only applying if you wanna spend an additional 5% above your EOP.

[Erin Brady (Ranking Member)]: No. Isn't it also, though? It's not about it's about the mechanism for that, but isn't it about the whole system in that we are trying or that there's a desire to have districts that have relatively similar property wealth, period, regardless of supplemental spending, but for this new structure

[John (Office of Legislative Counsel)]: anyway. Obviously So from my perspective, the reason that concern was on the table was to deal with the equalization measures of the supplemental district spending. It's also to be said that if you, for instance, find, because you may not, but if you do find, like you're identifying, that there's a tension between the configuration for a district based on the education quality that you want to achieve, and the school district that you wanna achieve based on creating comparable property tax values, can choose, I mean, of course you could choose either, but if you choose the education quality approach, which again, they may not be intentional at all, it's to be seen, you could choose that and change the equalization measure that you use to reduce this. So you don't have to benchmark. I mean, Act 73 does this, it benchmarks to the lowest taxing capacity district. There are alternative equalization measures out there. And so just to mark back to something that you talked about earlier, whatever you do with the school district reconfiguration, you're gonna wanna revisit what the equalization measures are. But there's nothing that mandates that all the school districts be of comparable, it just makes it simpler and easier to do. For supplemental.

[Erin Brady (Ranking Member)]: But it's only for supplemental, it's not

[John (Office of Legislative Counsel)]: It doesn't affect the determination of the statewide education tax rate, which is again, it's raised across the state as a whole. So that's agnostic as to what the district configuration is.

[Unknown Member (House Education Committee)]: If we all pay it still into a common pot, it's the supplemental piece where it matters.

[John (Office of Legislative Counsel)]: Which the other thing to think of in this space is that your configuration will also affect what the appetite is within that district to pursue supplemental district spending. Oh, okay. Who the components of that are gonna have a lot to do with whether or not they're successful or unsuccessful votes on supplemental treatment. Yep, fun stuff.

[Peter Conlon (Chair)]: Other questions? This is really good conversation for all of us.

[Unknown Member (House Education Committee)]: Just a question for future, maybe some joint meetings or having someone from ways and means, discussion with ways and means people about this for our information.

[Unknown Member (House Education Committee)]: Can give point in terms

[Peter Conlon (Chair)]: of what's the thought process behind these decisions?

[Unknown Member (House Education Committee)]: No, I'm saying we could schedule to have someone from Ways and Means come in to talk to us about this too if we needed more information.

[Peter Conlon (Chair)]: Sure, I would just ask us all to say, what more do we want to know? And who are the best people to help us learn what we want to know?

[Erin Brady (Ranking Member)]: I think some of where we are now is less about needing experts to give us testimony. I think having them, particularly the lawyers in the room to explain things. But I think partially more any decisions based on making sure we understand the same thing and then making those decisions.

[Peter Conlon (Chair)]: I would totally agree.

[Erin Brady (Ranking Member)]: And so having the two committees that are grappling with the same thing in the room at the same time even would be useful.

[Peter Conlon (Chair)]: We'll suggest a thought. And if folks have a proposal for anything, let me know. I really want us to decide how we're going to move forward and not sort of say, try to figure out how to solve that.

[Erin Brady (Ranking Member)]: So you heard about that.

[Peter Conlon (Chair)]: Again, it is contrary to it.

[Unknown Member (House Education Committee)]: It looks like I was walking.

[Peter Conlon (Chair)]: So again, please give me a plan for what you wanna hear, who you wanna be, you wanna have in the room. As we move forward kind of into next week, you know, we're gonna have just time. Yeah. And so if we want John in the room, great. Let's make sure we have that scheduled. Beth as well, of course. All right.

[John (Office of Legislative Counsel)]: Do you like to hear more? Depends on what

[Unknown Member (House Education Committee)]: you want

[Peter Conlon (Chair)]: to tell us more about.

[John (Office of Legislative Counsel)]: I'll show you the slides.

[Peter Conlon (Chair)]: I'll just sit with this for a minute.

[Unknown (Member or Staff)]: Actually, have quick question. I feel like in a lot of ways we're sort of catching up on discussions that Raising Means had last So in your various presentations to them, is there just sort of a couple really high level examples of how the map works on supplemental district spending, like in a theoretical state? Really, I have to confess, I need a pretty basic walkthrough on that.

[John (Office of Legislative Counsel)]: For sure. I think that JFO may have some recommendations It's on something I'm gonna try to do better at this session. I typically don't have visual accompaniment to mind. I just like to say the thing. And I'll think that it's intuitive. And

[Peter Conlon (Chair)]: again, just to reiterate, because I think reiterating is really important here, once everything is fully implemented, we're talking about a 5% supplemental district spending, not let's go to town district spending.

[Unknown Member (House Education Committee)]: I'm not asking if this is something that Only have the district voters prove it.

[John (Office of Legislative Counsel)]: I appreciate it. It's something I want to do more of, time permitting, is introduce some visual aids because I know that people learn differently.

[Peter Conlon (Chair)]: So what is on the next slide?

[John (Office of Legislative Counsel)]: So you know, there's a homestead rate transition. I don't have to bore you with this if you don't hear it. I think it's very important. It has a very similar structure to the EOP transition we talked about yesterday. Conceptually, you do is you just identify the gap between your school districts FY '28 homestead rate, which is again, that's pre foundation formula rollout, that's your locally varying homestead rate. So you determine that the gap between that and what your FY '29 EOP would be, and then using that fixed gap, you prorate it across five years, and you give an adjustment to the school district's EOP, which again is just a function of that base time to the long term membership. So you're moving folks from their pre foundation for homestead rate onto the statewide education tax rate essentially. It's slightly more complicated than that because you're creating a fixed gap that isn't annually changed based on what your new EOP is, but for purposes of certainty, actually knowing what the rate that's going to be calculated is, it's a fixed gap and you just get a yearly adjustment to your EOP to smoothly move folks.

[Peter Conlon (Chair)]: Please turn the phone along. The thinking behind this is we are gonna have districts that currently spend, or they're at the bottom of per pupil spending, that their overall tax rate, not individual, this is all pre CLA, will go up because they're going to be receiving more money. Districts like mine, where we spend a lot for people and the EOP is probably gonna be less, our taxes are going to go down. This is that you don't get it all at once. You don't get it all at once. It moved gradually. To the individual taxpayer, it's gonna be completely different. The non residential, the second home category that is being created is to generate revenue so that overall folks come out better at the end of all of this than worse, but that's going to depend on your individual circumstance.

[John (Office of Legislative Counsel)]: Yeah, you said exactly the added thing I wanted to say, which is that there is in that report on statutory factors, one of the directives to the Department of Health is that they consider ways essentially to mitigate increases to anyone's home fed rate and to offset those liabilities elsewhere within that architect's classification system.

[Peter Conlon (Chair)]: Pause for a second. Questions? Two

[Erin Brady (Ranking Member)]: dumb questions.

[Peter Conlon (Chair)]: No. No one is allowed to introduce their question.

[Erin Brady (Ranking Member)]: The concept of the more variable rate on or the potential to generate more tax revenue from second homes, then that benefits the district in which those second homes are or the whole state? It

[John (Office of Legislative Counsel)]: benefits the whole state. Actually that's a really important point, something I should have said earlier. Under the existing system, you have that non homestead rate that doesn't vary, and then you have your varying local homestead rates. Here what you receive in the new system is that statewide education tax rate, which is what's determined to be necessary to raise the funds statewide for all EOPs, and then that uniform rate is adjusted by the statutory factors. So that means that every class is picking up the necessary variation to fund those EOPs. So you're not shifting Exactly, it's raised statewide across all of the classifications. It's not the burden falling on homestead. Switching gears, this may be something of less interest, new income sensitivity measures appealing, well, say none of less policy interest, but less relevant to the conversations we've been having. You can think of this as not a necessary component of the foundation formula rollout. It is built on the same contingencies, but you could delink these. There's nothing inherently linked between new income sensitivity measures and your foundation formula rollout. So section 52, which is the largest section I think in the bill, it's amending a whole chapter, that's your existing property tax credit chapter, repeals the property tax credit, it does leave in place there's a municipal property tax credit that persists, but you no longer have the familiar property tax credit that folks know, and instead you have a new homestead property tax exemption. That reduces the amount of house site value that's subject to any education taxes, so unlike just a conceptual point, it's important to note the difference between credit and exemption. You're no longer paying under this system the full property taxes on the full value of the house site right and receiving a credit in the following year against that. In fact, you're just reducing the amount of house site value that's subject in the first place to education taxes. So you aren't paying that liability and applying a credit, you're just actually paying less in taxes on the health side. These would be when people talk about income sensitivity measures in the property tax system, they're talking about the property tax credit today, in the future, if you said that what you would be talking about is the homestead exemption. Slightly different figures that are introduced here, it extends benefits to households with not more than $115,000 in household income. Something to note is that you may be familiar or not, but in the property tax credit chapter, you can look and see some of the income thresholds at which different benefits are applied. But as I think we all know, it's actually a function of the math. It's a function of the relationship between the property yield and the income yield, where in a given year the max income is at which a household could receive the property tax credit. So you can't just look at existing statute and say where the benefits fizzle out. You need to know the math for the property tax credit system. That's not the case under this. Here, you only receive the homestead exemption if you fall within one of the identified income brackets. I remember how many there are, it's something like 10, but it's a relatively smooth set of income brackets that you move across. If you're in the bottom bracket, that's 0 to $25,000 in household income, you would get a 95% exemption against the first $425,000 in house like that. So it's not against, if you had a million dollar home, you wouldn't get any exemption against anything above the 425,000. But yes, if you're at the bottom of the bracket, you get a quite large homestead exemption, and if you made between 110 and 115, you would get a 10% homestead exemption.

[Peter Conlon (Chair)]: I'll pause for a moment on a timing question. Are you, John, booked for anything? I'd like to keep this conversation going if people are up for it.

[John (Office of Legislative Counsel)]: I can keep going.

[Peter Conlon (Chair)]: Okay, good. And we will take a break. Sue, are you okay if we delay a little bit? I'm

[John (Office of Legislative Counsel)]: also very close to wrapping up.

[Peter Conlon (Chair)]: This is a complex change, and so let's take a little time to discuss it. Concept being that there's still going to be an income sensitivity measure. It's just a difference. Does

[Erin Brady (Ranking Member)]: the concept change or address in our current system a criticism?

[Peter Conlon (Chair)]: Or see

[Erin Brady (Ranking Member)]: is you might have folks living in a very high value property on a fixed income. This can vary. This can be truly low income fixed income. This could be folks who have a lot of investments, money elsewhere, but their actual income is only a small social security, etcetera. And so you potentially have, in some places, a retiree or maybe a couple of retirees paying very, very much less on a property that a working family next door is paying far more for, even though the property values are quite similar. Is this, I'm trying to understand conceptually, is this starting to chip at that

[John (Office of Legislative Counsel)]: I think that the answer to that question is it does not change the definition of household income. Absolutely So you would be assigned to that person, that a couple would be assigned to the same income bracket. Admittedly, have different income brackets now, but conceptually they'd be assigned to the same income bracket under the property tax credit system, and under this system, we do have, I I think the extent to which you can see it is the amount of property value which can be exempted here, and the extension is available just against that first four twenty five k. But I don't think this solves the exact problem that you're identifying. Someone whose income doesn't flow into the household income bucket is eligible to receive the homestead exemption in the same way that someone whose full income streams are accounted for in the household income would be eligible.

[Erin Brady (Ranking Member)]: Is that 425 that's different than the current?

[John (Office of Legislative Counsel)]: Yes, because this is an exemption against house site value rather than a credit.

[Peter Conlon (Chair)]: It's not that different though, is it? Because right now you only qualify for income sensitivity up to a $400,000 value of your house.

[John (Office of Legislative Counsel)]: It's correct that we use comparable figures. You're going to see similar figures between the property tax credit and the homestead exemption, but the actual mechanism for achieving that is different because here we have to say, we have to identify the amount of value that is subject to tax liability, but you're right that the figures are quite similar, 400 versus $4.25 ks.

[Erin Brady (Ranking Member)]: I raise this partially because it comes up, I think, in housing discussions.

[Unknown Member (House Education Committee)]: And that

[Erin Brady (Ranking Member)]: was one of the multilayered disincentives in our current system of moving older Vermonters potentially out of large homes that would be better suited for families, but the financial incentives are what they are.

[Peter Conlon (Chair)]: Now that I'm becoming an older Vermonter, you're not gonna argue. Could be in a larger home to add kids to it.

[Unknown (Member or Staff)]: That's a really basic question. So I had the same question that Representative Brady had. And so I'm just trying to understand, so what was the policy that was driving this change It does seem a little bit simpler to understand just from a comprehension level, but what was the policy push behind this particular So

[John (Office of Legislative Counsel)]: this is something you would probably be advantaged by talking to the members of that committee, but some of the things that I recall are, I want to say that this offers a timing advantage, Because under the existing system, could have a gap between like last year's property values and then you have a distinct between when your income is valued and when the property is valued. Here, you have a closer sync. There's some measures that are included here to transfer some of the benefits to purchasers of a home within the year in which they would be paying the property taxes. Sometimes folks can't avail themselves of the benefit of the property tax credit under the existing system, and they could conceivably under laxer measures here avail themselves of the homestead exemption in the year in which they purchase it. I will say you could probably pursue that change separate from the homestead exemption creation. But I think, in general, the ideas were more closely linked to timing for income and the property taxes. And then also, I think the representatives and maybe JFO would be able to speak to whether this offered greater benefits. And I think that's what you see in the section 51 complication century purpose is that it's intended to extend greater benefits to lower to moderate income from Montrose. And I think it cost, if I remember correctly, slightly more than the existing property tax credit system because it is extending more benefits to folks in those income ranges. So it's slightly kinder, you could say, although it's different, because the curve is different from what the exemption is. I overlooked one of the biggest stated reasons for why people pursued this. The existing system has huge benefit cliffs, Same to You jump from here to here, this is much smoother curve, so you don't face the same, those disincentive effects where someone says, I don't wanna make this choice because of the huge change in high liability, you might have less of those disincentive effects. They could still have disincentive effects, but they might be jumping from smaller bracket to smaller bracket rather than big. Another really important thing to note here, section 53, because I think this is one of the things that passed out of senate finance, want to say, and folks felt comfortable but still wondered if more could be done on this to smooth the curve or extend benefits in different places. So section 53 tasked the Department of Tax was coming back at the end of this year with an alternative offset exception structure, and it would include an analysis of implications of moving to income sensitivity measures that recognize households of up to $175,000 in household income. So that would pretty dramatically change the scope of households that would be eligible to receive the homestead exemption. The thing to note, of course, in that conversation is that the more you extend the benefit right, you still got to raise those revenues.

[Peter Conlon (Chair)]: Part of the discussion that took place was really looking at those areas where low spending districts, and so therefore, as the foundation formula turns them into higher spending districts, tax rates would go up. And how do you protect the lower income, low to moderate income folks in those areas from those bumps so that they are frankly willing to support that added spending even though the overall state tax rate might go up or compared to what they were paying. And so with an enhanced income sensitivity program, the idea is that on average folks have come out better off or equal, that works out again, twice differently individually.

[John (Office of Legislative Counsel)]: I think you can, I'm pretty sure I recall GFO having visual slides on this that showed a table, it's different where you're situated within brackets, your household income is, and it's basically shaded in different ways to indicate where the benefits accrue and who would pay more or less under the new structure relative to the old structure. I think the choices that were made in finance that kept trying to find a curve that produced lots of a happy color for everyone in the room that were generally creating benefits for everyone as against the current system. But it would be helpful, I think, to see that slide deck.

[Peter Conlon (Chair)]: Thank you.

[John (Office of Legislative Counsel)]: And then just really boring stuff, conforming changes, update references to the property tax credit to the homestead exemption, and then I say boring, this is not intended as an insult to the Ed Fund Advisory Committee, it's boring to me because I have nothing to describe, updates the directives of the Ed Fund Advisory Committee to address that foundation for a rollout and the homestead exemption. So just high level to go over all the sections I just went through today. This is reforming Vermont's education property tax system to replace those locally varying homestead rates with a statewide, a uniform statewide education tax that would be adjusted for tax classifications, as we noted before, still have the CLA applied. So tax bills will look different. Imposes that supplemental district spending tax for districts to raise funds locally for their voted SDS using those equalization measures that we've talked about, benchmarking to the lowest capacity taxing district. And then like we just spoke about, repealing the Farmers Tax Credit and creating the new homestead exemption structure, which is your new income sensitivity measures. All of that to roll out at the same time as the foundation formula, particularly effective 07/01/2028. And just a plug, we do have an app summary that says all the things I just said in two pages, so that's nice.

[Peter Conlon (Chair)]: All right, John, thanks very much, really helpful, and thanks for being patient with us. Let's take five minutes, everybody.