Vermont Legislature SmartTranscripts:

[Chair Peter Conlon]: Okay, House Education, 04/24/2026. Committee's gonna infuse the next hour to basically do a little bit of refresher on the education fund, how to read the education fund outlook, and to really kind of talk about the yield and what it means so that as that debate continues to bubble up, we all have a better understanding of how things are. Is that what you're preparing for? I didn't see yield on your Oh, I'm not looking at yields. Floor is yours, Ezra, and thank you for making the time to do this with us.

[Ezra Holden (Joint Fiscal Office)]: Thank you for inviting me in, chair. For the record, Ezra Holden, joint fiscal office. We will be talking about the Ed Fund overall, which will be a little bit of a refresher for this committee, you know, might be might be good to refresh everyone talking about the outlook, the different sections in it, as well as the yields, specifically the property yield. I've included with my materials for this morning, a annotated guide to the education fund outlook. And so that is something that folks can either follow along with either today or in the future when you're looking at an Ed Fund outlook. So that should be posted. Cherry, is it okay if

[Chair Peter Conlon]: I share my screen? That'll be very helpful. Thank you.

[Ezra Holden (Joint Fiscal Office)]: And at the last minute, I did include a separate copy of the example Outlook we'll be going through because it's embedded in here and the font is very small. So I think a separate copy will be much easier for folks to read. So right, so get the boilerplate out of the way here. You all saw it for a second there. So we're still nonpartisan on biased fiscal analysis. Alright. So big picture, we're going to be doing, like I said, a recap of the Vermont's education fund and then high level overview of the Ed Fund outlook, the education expenditures within the outlook, on the education sources or the revenues within the outlook, and then the property taxes, which are the big chunk of those sources. And then we'll be talking about the property deals as well. So I believe I've shown this slide to this committee before, but just as a refresher, Vermont's education funding system is unique, and it is difficult to compare to other states. That's because we are a statewide system, statewide education fund, so you don't have a state share or a local share. And because of that, it is a statewide fund, and it is affected by local spending decisions as well as statewide decisions. So that's something to keep in mind. I have noted at the bottom that while Vermont does receive federal funds, this presentation is just gonna be focusing on the state sources, so the state funds. So I just wanna flag that to folks. Big picture, if you were to think of this as a really simple equation, it would be all of your education expenditures minus your non property taxes, and then that would be the revenue that you need to raise on your homestead and nonhomestead property taxes. And so because of that equation, the amount of revenue that needs to be raised on your property taxes is driven by your spending, but also those nonproperty taxes and how they perform. So if they overperform or underperform, that in addition to spending drives how your tax rates on your properties will perform.

[Chair Peter Conlon]: To give everybody a big example of that, when we were under this structure, when we moved from being a general fund it used to be a general fund transfer, which is put into the education fund, and we moved to the education fund having the revenue sources that we know so well today, sales tax, the non property tax revenues, all the sales tax goes into the education fund. So during that, as that transition happened, at the same time the Wayfair decision came through, which is when revenue from all online sales tax started coming in. And so it made a huge difference. All of sudden, there was a big new amount of sales taxes going into the education part. And that had a trickle down effect on property taxes. More sales tax, less property taxes.

[Ezra Holden (Joint Fiscal Office)]: Yep. Yeah. Exactly. And then just additionally wanna reiterate, just be really I won't say strongly emphasize it, but just really lightly emphasize that the amount of revenue raised is driven by your local education expenses. Because even though you do have those revenues, the education fund with all the expenditures is rather large. And as we'll see in a little later on, those sales taxes are relatively small portion and compared to the homestead taxes and one time general fund transfers. So I just wanna flag that, but that's something we'll come to later on in the presentation. I think that's a great point that the chair made. So high level overview of the Outlook here. Like I said, the font, it's a little small there. And I did send that over to Matt a little late, so apologies to Matt for that. So what we're looking at here is the education fund outlook, and this is the copy you can see is reflective of the yield bill as passed by the house. The outlook goes through a few different iterations during the legislative session. So And just for a baseline, the education fund outlook is a document that JFO creates for the benefit of a general assembly. Is that correct? Or is it an AOE document? So, yeah, the JFO creates the Ed Fund Outlook. During the December 1 letter process, we work with the Department of Taxes and the Agency of Education to create the December 1 letter. And the first Outlook kind of of the session is that December 1 outlook that goes along with taxes December 1 letter. So this one right here is updated to be reflective of the yield bill as passed by the house. And so you can see might have to squint a little, but you can see highlighted in blue on line eight, the one time general fund transfer is included there of the one zero four point nine. So and then further on down, line 35, you can see x rate offset reserve. So those blue lines highlight decisions that are made by the assembly as the session goes on. At the beginning, when we published this in the for December 1, you won't have this highlighting because policy decisions haven't been made yet. This is just setting the groundwork for the session. But big picture, this is this Outlook provides a general assembly with a snapshot of the education fund, and you can see all the different things listed out there that are included in this. So including average tax rates and yields, the different sources and appropriations, so that would be the fund's revenues and the fund's expenditures, and how those revenues are allocated after paying for the expenditures

[Chair Peter Conlon]: for the paying for them.

[Ezra Holden (Joint Fiscal Office)]: So now we're gonna zoom in a little bit onto the expenditure section or the appropriation section of the Outlook. So like I said, it's a statewide the education fund is a statewide fund, but it's driven by local decisions, local budgets. So each school district will build an annual budget that requires their local voters' approval. And so you have the localities building their budget, but it is funded with a statewide fund and also some federal funds as well, but majority is statewide funds. And so from a high level perspective, the budgets have two primary parts. So you have your education expenditures, and so that would include personnel costs, tuition payments if they have to pay tuition for their students, construction costs, whether that be a new building, a renovation, maintenance, all of that would go into their their budget as education expenditures. The school also has offsetting revenues that the school district will account for. So that would be any categorical aid from the state or federal level, such as Vermont special aid, Special Education Census Block Grant, any transportation aid if the district offers transportation, tuition revenues, if a district is receiving students and they're receiving tuition payments for those students, they actually get to count that as an offsetting revenue. And then any prior year surpluses or deficits that the district had. And so when you look at those two together, that's kind of what this formula at the bottom is telling you. So education expenditures minus offsetting revenues, that then gives you the education spending of the school district. So that would be all the funds that the school district spends net of its offsetting revenues. And so because it's a statewide system, a district can pass the expenditures that they need regardless of their property values. It's then aggregated up to the state level. So at the state level, broadly speaking, have two different buckets of education fund expenditures. So that would be the statewide education payment, which is an aggregate of all of those local decisions. So all of those local education spending dollars are aggregated up into your education payments. And on your Ed Fund Outlook, you will see a line. I have it here, line 11, and we'll zoom in on that in a second, at the next slide. But that, once it's education payment, that's talking about the district's education spending being aggregated up to the state level. And then there are also other expenditures that the education fund has. So that would be your categorical aid. So remember, those offsetting revenues that districts are receiving, that's funded at the state level. So that would be your special education aid. That's a line. That's categorical aid. Your transportation aid is a line on the outlook. Any one time appropriations would be included here and also any other operating and administrative costs at the state level. So the Education Fund Outlook, it's a snapshot. It's a guide for the legislature when they want to interpret everything that's going on with the Education Fund. And so it's going to capture those statewide education appropriations and contemplated policy decisions as well. And so when you have those, you have to pay for it. And so the property tax rates are set to ensure that all education fund appropriations and contemplated policy decisions are fully funded after accounting for those non property taxes. So here is, yeah, plenty legible, hopefully. Expenditures of the Ed Fund Outlook. So you can see right there on line 11, you have the education payment. And you'll notice that there are three columns here. It's it's hard to do this and the full Outlook on the same slide because both just get kinda fuzzy, and then you really can't see anything. But if you flip back to the full Outlook, you will see that you have three different fiscal years. So each of those columns is a different fiscal year. So should be, I believe on the one attached fiscal year '25, fiscal year twenty six preliminary and then the fiscal year twenty twenty seven assuming that the yield bill as recommend or excuse me as passed by the house went into effect so that those are your three columns there. So as you can see here, the education payment that line 11 is the largest of the appropriations and so that's about 80% or more of the education funds total appropriations. So for fiscal year twenty twenty seven, the projected end payment is about $2,075,000,000. And then at the bottom, have total uses. So that would be lines 12 through 24, all of these other appropriations, special education aid, transportation aid, flexible pathways, all those other education expenditures summed up is where you get

[Chair Peter Conlon]: a little over $2,500,000,000 in total education expenditures. So just for those who don't know what VISTA's OPEB normal cost and VISTA's pension normal cost means, I'm gonna say it and I want you to correct me. I've never quite sure if I get it wrong, but this is to cover the future retirement costs of public school employees in the teacher retirement system, both the pension and the benefits.

[Ezra Holden (Joint Fiscal Office)]: Yeah. So I think that's a good way to sum it up. I would point folks to on the annotated guide to the outlook, you actually have a a small short description of each of the lines. So for the feast year's pension costs, we describe that as the normal cost of teachers' pension system, and that's the EdFund's share of that right here. And then the OPEB is the normal cost of the teachers' other post employment benefits. So, basically, health care, and that is the Ed Funds portion of that. I believe that there are other funds that go into this. Yeah, thanks for pointing that out. Yeah, but yeah, this Ed Fund Outlook Guide that I shared, you know, the print is a little small, so it's probably better on the computer screen than printed out, but it has nice little descriptions there if you're ever in the middle of the night looking and trying to figure out what what does this line mean, you can look at that. So on the outlook, we would just describe these expenditures as total uses, and that would be that line 25 there. Okay, so we now know how much money needs to be raised to in the education fund, so that would be the sum of the total uses. So when it comes time to pay for it, we then turn to the sources section of the education fund outlook. And so here I've put together a slide of the recurring Ed fund sources for fiscal year twenty twenty six. Now I'm gonna pause on that word recurring and just note that we're talking about, like the chair mentioned, when the sales tax was put into the education fund, that became a recurring source of revenue. And we're talking about the sources that are going to the education fund every year, and we're not talking about surplus dollars being used or one time general fund transfers. But those do happen. But just flagging the use of the word recurring is we're talking about kind of maybe you'd say regular expect sources of funds here. So the Ed Funds two primary buckets of those recurring sources are property tax sources and then your nonproperty tax sources. So you can see here for fiscal year fiscal year 2026, your non homestead education property tax was the was the largest bucket at about 39%. Your net homestead education property tax is the second largest. I just wanna zoom in on that word net. So that is factoring out the property tax credits. So this is your homestead education property taxes minus the property tax credits that are then being issued.

[Chair Peter Conlon]: It's always, for me, a challenging concept to hold in my head that the property tax rebate is funded by property taxpayers. So even the people who are getting the property tax rebate are funding that property tax rebate. And I would imagine at a certain point, it would just become a circle that wouldn't stop, but we're not

[Ezra Holden (Joint Fiscal Office)]: there yet. I think when doing some of this modeling, my coworker Julie describes it as a hamster wheel. Yeah, a good way to put a chair. So the sales and use tax that the chair teed up for the committee, that's about the third largest bucket here. And then you can see you have the other taxes down there as well. So meals and rooms tax, purchase and use tax, your lottery transfer, the Medicaid transfer, then other sources. And I hit on this already, but in fiscal year twenty twenty six, there was a general fund transfer that was about $77,000,000 So that was transferred from the general fund to the education fund to reduce the amount that would need to be raised by property taxes. Absent the 77,000,000 and absent and everything else held equal, your property taxes would have had to increase because the education fund is self leveling. So it would have had to increase to cover those uses that we just walked through. When we've done those, we offer virtualized a buy down. Does that go specifically targeted only at homestead education property tax, or is it does it bring down the rate of increase of both non homestead and homestead? So how one time dollars are used as a policy choice? I believe in prior sessions, it's used to uniformly lower, and I believe that's what is happening in your h nine forty nine yield bill, but that is a policy choice with how you set those tax rates each year. Your homestead property tax rate is set through the property yield. Your non homestead tax rate is a uniform rate. So those two can be set separately by the legislature. So that's a policy choice. And also just gonna call out that there was sir, there were surplus dollars in fiscal year twenty six of the EdFunds, about 43,000,000. And that also helped reduce the amount that was need to be raised by property taxes. But both of those were excluded because it's not guaranteed that you will have a general fund transfer. You don't always have surplus dollars and the amount varies. So I thought it'd be helpful to just keep those in a separate box and look at the things that by and large you will always receive absent policy decisions. Contrary. So the Education Fund Outlook is going to capture those sources from that graph and also any contemplated policy decisions around funding, like general fund transfers. And so it would also include that property tax credit, which is a tax expenditure. So you're raising up the property taxes and then siphoning or putting some of that aside to pay for the property tax credit. And so these have to work in concert together. So you have to balance your non homestead, homestead and non property taxes and that credit to ensure that all education appropriations and your policy decisions are being fully funded. And so just to zoom in on where you would find all of that on your Outlook. So for the sources section, line one a, you can see your homestead education property tax, the top line. And then in blue shading right below it is your property tax credit. So you're raising up 813, but then you are spending, giving back, however you wanna phrase it, a tax expenditure of about 134,000,000 to issue those property tax credits.

[Chair Peter Conlon]: So

[Ezra Holden (Joint Fiscal Office)]: on line two, you can see the non homestead education tax, education property tax, and then so on and so forth going down. I will point out that you have a few more highlighted lines here. So lines four and five, those are highlighted to reflect the decisions that the assembly is contemplating with h nine thirty three, which would change the purchase and use tax and meals and rooms tax allocation to the general excuse me, to the education fund and to the t fund. So big picture, your purchasing use tax would be reduced, and then your meals and rooms tax would be increased. So they're roughly offsetting each other for fiscal year 2027. And then your one time general fund transfer has been highlighted on line eight. So you can see there have been a few over the last three fiscal years. But your education fund revenues, majority of that is from your property taxes. Alright, so just to zoom in a little further on the property taxes themselves. So your non homestead property tax. So that is a tax applied to all taxable real property that is not a homestead and is not exempt. And so property types are very varied. So it could be commercial buildings, it could be parking lots, it could be apartment complexes, it could be really anything. As long as it's not exempt, it's not a homestead. So your equalized non homestead property tax rate is uniform statewide. And then the well, we'll get to the property tax, the homestead property taxes. Is the non homestead property tax rate, which you

[Chair Peter Conlon]: say is uniform, but it is is it adjusted by the CLA? Yeah. Yes. Yeah. But it it's it's

[Ezra Holden (Joint Fiscal Office)]: set at the statewide level versus the homestead property tax, which we'll get to, which is set based on your local education spending decisions. So but, yeah, both of those would be adjusted by your CLA. So for fiscal year 2026, it's about a $1.703 per 100 property value for the non homestead, actually. So then for the homestead property tax rate, that's your tax on your homesteads. And that is, as the chair just teed up for you, that is set in each town dependent on locally approved education spending per weighted pupil versus the non homestead, which is set at a uniform level statewide before any local CLA adjustment. The definition of homestead, it sort of fades into a dot dot dot at the bottom, but it's your how always there's homestead, there's homesite.

[Chair Peter Conlon]: So homestead is your house in two acres.

[Ezra Holden (Joint Fiscal Office)]: Believe that That's your homesite. That's a house site.

[Rep. Jana Brown (Clerk)]: Yeah. Very say hard it well. So the house site or the homestead is the umbrella term. So that is your principal dwelling where you live literally all of the land surrounding it. Or house site is your principal dwelling and the surrounding two acres. The definition of house site is used solely for the purpose of calculating the property tax credit, that income sensitivity.

[Chair Peter Conlon]: Yes. Which is to say if you own a home at six acres, that's your homestead, but your house site for the purposes of the property tax credit is the house at two of the six acres. And on the and then on the other four acres, you are paying the non or you're paying the homestead

[Rep. Jana Brown (Clerk)]: So it the the parcel itself, the principal dwelling, and all of the surrounding land, be it half an acre or 50 acres, that is all going to be taxed at Homestead. The only differentiation is when you're talking about those folks who qualify for income sensitivity or pay on income or receive a property tax credit. That calculation is only happening on the house site, which is the dwelling and two acres. So you calculate that, you look at if it's cheaper to pay on property or if it's cheaper to pay on income, could be either. And then you look at the rest of the surrounding acreage and that has the homestead rate. The only instance where there may be a non homestead rate is say say

[Chair Peter Conlon]: you're

[Rep. Jana Brown (Clerk)]: a mechanic and you have a garage on your property that you run more business out of, or you bought an ADU when you rent for it as a short term rental, those instances, that building would be taxed at the non homestead rate.

[Ezra Holden (Joint Fiscal Office)]: Yeah, so with the homestead property tax rate, the minimum in statute is at least $1 equalized tax rate per $1 per 100 of homestead property value. And then that increases depending on how your local education spending compares with the statewide yield, which we'll get to. So ultimately, your homes of property tax depends on three big factors, and each one reflects Vermont's unique system that it's a local decision tree all going up to one fund. So you have a district's education spending, which is a local budget, but there are statewide offsetting revenues which feed into that and categorical aids which feed into that. From your district's weighted pupils, so again, that's local enrollment, the students in your district, but the weights are set statewide for taxing capacity. And then you have your statewide property yield, So that's an aggregate of the local decisions, but also statewide policy decisions, not the performance of your non property revenues, and then other factors. So all of that feeds into how the homestead tax rate is calculated for that year. And it's set in the yield bill every year, hence the name of

[Chair Peter Conlon]: the yield bill. So

[Ezra Holden (Joint Fiscal Office)]: what is the yield? There are actually two yields. I think the one that people think of the most is the property dollar equivalent yield, aka the property yield, and then you also have the income dollar equivalent yield or AKA your income yield. And that's mostly used for just the property tax credit calculation. So we're talking about property taxes today, and we're gonna just focus on the property yield because that is what goes into calculating the town's property tax rates. Both are going to be set annually in the yield bill by the general assembly, and they are set at a level to ensure that that Ed fund is fully covered. So local decisions, folks are determining how to spend the money and then the how much money they're gonna spend, and then the general assembly comes in and figures out, okay, what do we need to set our rates at considering these other revenues and these other categorical rates to fund all of that? So just think I've touched on this already. You're fully funding the education fund with your property taxes. I guess I will just touch upon that the non homestead rates are uniformly set statewide, and your homestead rates change across the state, and changes are not uniform because you have the local education spending. So property yield is the per weighted pupil spending amount that a district can spend to receive an equalized tax rate of $1 per $100 of homestead property value. So for FY 2026, that property yield was about $8,600 So if a district spent that amount per weighted pupil, its equalized tax rate would be $1 If a district spends above that, the increase to their tax rate increases proportionally as their spending increases. So we'll go through a couple of slides breaking that down. So big picture, homestead tax rate is based on your district's education spending, their weighted pupils, and the statewide property yield that figure that is set by the general assembly to ensure that the education fund is fully funded. So your district's equalized homestead property tax rate would be $1 times their education spending per weighted pupil. So you see the district's education spending divided by your district's weighted pupil, so that's your per pupil education spending. That figure is divided by the statewide property each times the $1. Clear as mud, right? So put together a really basic example that's a little bit more concrete here. So this is a very hypothetical example, picked nice round numbers. So if a district spent $15,000 per weighted pupil and the property yield for that year was $10,000 meaning if they spent $10,000 they would get a $1 property tax rate. So they're spending more than 10,000. So their homestead tax rate would be that 15,000 divided by the 10,000 times $1 So 1.5 Does that make sense? Yeah. Of course, unfortunately, yields are not nice and round because they have to be set mathematically to cover it. So, yep, you won't probably see these nice round numbers, but this is a good example to just think about your proportion.

[Chair Peter Conlon]: So what when I people ask me what the yield is, I think I had nobody's asked me in while, but I think I used to explain it this way, and it's really simplistic and leaves out a lot of things. But, essentially, we spend $2,500,000,000 on education. We raise we we have sort of fixed income that comes in to offset that, which is non homestead property tax, sales tax, rooms and meals tax, all the other things. And so you take all of that, and if it doesn't add up to 2 and a half billion, then we've got to raise more, which is what we raise on the homestead property tax. And so the yield is essentially saying it's used to fill fill up the rest of the pot that we need to fund education. And since it's done on kind of a per pupil cost, the yield is roughly what it takes per pupil to fill I'm losing my own thought here. But essentially, it's sort of like if we all had the same per pupil cost, how much you would need to raise. But since we're all different, it's gonna affect you differently in your tax rate. Essentially, it's the number that we use to fill up the rest of the Ed fund after all the revenue sources are calculated. Is that okay?

[Ezra Holden (Joint Fiscal Office)]: Yeah. I would just note that the non homestead is that property tax rate is set separate from the yield. So really those are your conjunction with it, sort of. Well, those are your two big levers, is setting the yield, but then separately, you have to set that non homestead. Because if you set the yield at any value, that doesn't affect your non homestead properties. You have to go in and tinker with that separately. So I think it's a great overview. I would just just flag again that you have to set those two separately, and they're often set uniformly, but that's a policy choice. You could set the yield at one level that is below the amount needed and say, well, we'll just raise the rest on our non homestead or vice versa. So the non homestead and say, well, we'll just increase the yield. And so those are two separate levers.

[Chair Peter Conlon]: And that I that then speaks to what we heard from the appropriations committee, at least at our Democratic caucus, that if there is no yield bill and we gotta fill up the education fund, and the revenues that come in, sales tax, all the other taxes are sort of we don't control those. We've lost the homestead lever and all we have is the non homestead. Anyway, this this speaks to why the rates would go up so high.

[Rep. Jana Brown (Clerk)]: Yeah, we actually put out an issue brief about this. Can send it to Matt if folks haven't seen it. We were very close to Conlon. I would say that

[Chair Peter Conlon]: I'll take that as a win.

[Rep. Jana Brown (Clerk)]: Thank you. In fact, in statute, it's set of what happens if there's got a yield bill. You don't have any if there's no yield bill, you're not playing with any of the levers. So you have to do what it says in statute, which is a non homestead rate that's set in statute on last year's yields. And because we have increasing property value and because that rate that's set in statute is so much higher than it would need to be, if there is no yield bill, estimate, JFO estimates that three twenty five million more would be raised to the education fund than necessary. And that would result in a 42% increase on average for non homestead properties, 14% for homestead and 10% for income sensitized folks.

[Chair Peter Conlon]: Yeah. So probably a good idea for all of us to reread that issue brief that Jana Brown put out, which I assume is probably on your website if nobody has it in their email.

[Rep. Jana Brown (Clerk)]: Awesome. Nice to have it.

[Ezra Holden (Joint Fiscal Office)]: That's all I have for the committee. Thank you.

[Chair Peter Conlon]: I've only heard this presentation ten years now, and as you can see, I still don't quite get it exactly right. I don't know people have questions. Let these resources go while we have them available to us.

[Ezra Holden (Joint Fiscal Office)]: At least I could explain it out. So

[Chair Peter Conlon]: the yield bill, that's why we refer to the yield bill as a must pass bill, so we can set those tax rates and so that this default doesn't happen, which makes kind of a veto complicated because what happens if we don't come to an agreement or whatever? And really, the yield bill is there is a question of how much extra money we put in from the general fund. That's sort of the political issue. But otherwise, the yield bill is just math. It's just to say, here's what education spending is. We gotta fund it because that's the law, and here's the math to make that happen. Any other questions? All right. I know

[Ezra Holden (Joint Fiscal Office)]: that when you sit around November, December, the finance committee started talking about what we're doing for budgeting. There's always

[Chair Peter Conlon]: concern with

[Ezra Holden (Joint Fiscal Office)]: the yield bill, what it's going to be today, and what is it next week, and then That's right. Yeah, that's exactly right. It's helpful to better understand. Yeah. Even though I I would still struggle to explain exactly how those two pieces work.

[Chair Peter Conlon]: But for you, right, from the school board perspective Right. They'd like to know so they can sort of see what the tax rates are. Yep. Can't really know that until we know what their budgets are gonna be. So it's a little bit of a chase, right? That's why it's try to get it possible. Great, thank you very much. Appreciate it. All right, we