Vermont Legislature SmartTranscripts:

[Julia Richter (Joint Fiscal Office)]: Morning. Morning. Morning.

[Rep. Emilie Kornheiser (Chair)]: Is gosh. I have no idea. Thursday, January 8, and it is 9AM. We are going to continue looking at Act 73 on the fiscal side. And then this afternoon, we're going to go back into corporate income taxes again a little bit deeper with Pat and Kirby. And then we will be done after the floor. Anyone have anything? Wanna share? About announcements? Joy, share? Nope? Okay, great. With that, you too, flavor, configuration, you, thank you. All right, folks. Great.

[Julia Richter (Joint Fiscal Office)]: Morning. I'm Julia Richter with JFO, and I'm joined by Ezra, who's also from JFO. I'm going to start things out and then turn it over to Ezra for the area that he focused on and Act 73 and then go back. So we'll do a little bit of seed swapping, but we've

[Rep. Bridget Burkhardt (Clerk)]: got it all in my hand.

[Julia Richter (Joint Fiscal Office)]: There are two documents on the committee page under my name. One is the slide deck that we put together for today, and the other is a fiscal note with which you may be quite familiar. It hasn't changed from when we were in here in June. With that, I'm going to go ahead and share my screen. So we're doing an Act 73. Again, we're nonpartisan. So the way that we've organized the talk today is a little bit We know that you had a walk through with Legis Council yesterday, so we have not attempted to do an exhaustive review of all of Act 73, but rather a deeper focus on the areas that we all spoke about a lot over the course of last year. So we'll start with a brief review of Act 73, some of the major pieces, and then a deeper review of the pieces that really are within your jurisdiction. So the foundation formula, supplemental district spending, property classifications and tax calculations, homestead exemption, and fiscal transition mechanisms. We've tried to keep it in that medium, not too high level, but not too weedy. Happy to go into the weeds if and when that would be helpful. So with that, the brief review of Act 73. We think about it in three different subject areas. In terms of Act 73, you've got the quality and governance changes, the funding and finance changes, and then the tax changes. So spoke about all of these with Beth yesterday, but as a reminder, there's varying effective dates and contingencies for a lot of the quality and governance pieces in Act 73. The Act implemented class size minimums, created the structure for the state aid for school construction program. We know that there's no funding attached to that program. It narrowed the criteria for independent schools that may receive tuition. It changed the appointing authority for two state board of education members, and it appropriated funds to AOE for education transformation and to establish some positions. Not everything it did in terms of quality and governance, but some of the big ones. Moving on to education funding. Changes in Act 73, so contingently effective in FY29, so 07/01/2028, did a number of things in terms of education. So it creates a foundation formula, and all of these are what we'll talk about in more detail. It creates that foundation formula, providing a base amount per student, adjusted annually for inflation. We know that students and schools with additional needs that fall into certain categories will receive additional funding, and that this foundation formula would replace Vermont's existing funding system. It allows for supplemental district spending, so districts can spend above the foundation amount if local voters approve it. And the tax rate associated with that supplemental district spending will be able to be determined ahead of the vote. Change special education funding from Census Block Grant to a weighted funding model, also within that foundation formula, and creates a transition mechanism to transition in the EOP, or education opportunity payment. High level, and again, we'll talk about all of these in more detail. Tax changes, so also contingent on 07/01/2028, so FY '29, same contingencies and effective dates as what we just spoke about. It replaces the property tax credit, so current law income sensitivity, with a capped homestead exemption. So we know the parameters will be adjusted by inflation and that that exemption was created in order to lower tax bills of households with lower household income than what exists under current law and statute. It establishes a new property tax classification and also implements a transition mechanism to phase in education tax changes. It also creates regional assessment districts for reappraisals across the state, but that's not continually effective.

[Rep. Edward "Teddy" Waszazak (Member)]: Quick question just before we dive into more details. On the piece about the restriction to tuition for independent schools, do we know how much money, because that restriction already went into place, do we know how much money post the implementation of that is going to independent schools? Is that something we can find out?

[Julia Richter (Joint Fiscal Office)]: It's certainly something I can look into. You'll recall that the way that Act 73 was created, it allowed a provision for students that are currently enrolled in an independent school that would no longer fall within the parameters to continue their education through graduation. So we're not going to necessarily see the full extent of the impact until after all of those students have phased out, but I'm happy to connect with AOE and look into it.

[Rep. Mark Higley (Member)]: How many independent schools does Vermont have? How

[Julia Richter (Joint Fiscal Office)]: many independent schools does Vermont have

[Rep. Mark Higley (Member)]: now versus what we'll have?

[Julia Richter (Joint Fiscal Office)]: I do not know off the top of my head, and I can follow-up with you.

[Rep. Emilie Kornheiser (Chair)]: Other That's easy access to that list. She's

[Julia Richter (Joint Fiscal Office)]: I'll a great person to ask. Connect with Beth about that. The other piece that is important to note is pre Act 73, students could tuition to independent schools outside of Vermont.

[Rep. Mark Higley (Member)]: So

[Julia Richter (Joint Fiscal Office)]: it was more expansive beyond just the state forest.

[Ezra Holden (Joint Fiscal Office)]: I'll follow-up about both of those. Thank you.

[Julia Richter (Joint Fiscal Office)]: So those were the text changes. So that's really high levels, the pieces that we're gonna talk about today, the second two slides. And with that, I'm gonna pass it over to Ezra, who is our expert on the foundation formula and focused on And then I'll come back up when he's done.

[Rep. Emilie Kornheiser (Chair)]: Do I take your water with you, or do you think you got that? Yeah.

[Ezra Holden (Joint Fiscal Office)]: So for the record, Ezra Holden, Joint Fiscal Office, and we are going to talk about the Act 73 Foundation Formula a little bit. We're going to keep it pretty high level as we have with this whole walkthrough today. So, just as a reminder of a foundation formula. So broadly, a foundation formula works is you have a base amount per student. So that is the amount that every student, regardless of their circumstances or where they live, would get. And then you have weights that these students would get as well if they fall into certain predetermined categories. So to calculate your total education opportunity payment or EOP for a school district, you essentially will take the weights that a student may or may not receive, add that in with your base number of students and multiply that by the base amount. And I have here just a basic graphic showing base times LTW ADM, which stands for long term weighted average daily membership, is your education opportunity payment for the district or school. So with Act 73, the foundation formula has a base amount of 15,033, and that is the amount that every student would receive if they don't any sort of demographic condition or if they don't live in a certain region that's been defined as needing any additional assistance, but they may also receive some additional supports via the weights. And so we have up here the weighting table from Act 73. You'll see that unlike the prior system, there are no grade weights except for pre K students. So previously you had weights for middle school students, high school students. Of course, were tax capacity weights, so not the same as some foundation formula weights like we're talking about here, but nevertheless, they were there for those students. You'll see that the pre K student weight is the same as prior tax 73, however now it is a foundation formula weight rather than a tax capacity weight. So how that would work with a pre K student is they would receive a negative 0.54. Every student starts out as a one, you add in the negative 0.54, and so the student would receive 0.46 of the base, which as of right now is at 15,033 figure. And the same applies for all of the weights here. So you can see that we now have an English learner weight, and it's a tier rather than just a flat weight. So if a student has a proficiency of level one, they would receive more weight and more existence than a student whose proficiency was higher. And so what you would do here is in Act 73, all the weights are additive, and you would go ahead and

[Rep. Emilie Kornheiser (Chair)]: add It wasn't about you.

[Ezra Holden (Joint Fiscal Office)]: You would just take your one and then add in the weights here. So one plus whatever the weight is here. And you can also see that the special education census block grant has been replaced with weights. And again, those are tiered weights, but they're tiered based on the disability category that a student best meets. And you can see that there's still the economically disadvantaged background weight. And also that small school and sparsity are no longer weights, but they are now support grants. Any questions before I move on to the next slide about this?

[Rep. Edward "Teddy" Waszazak (Member)]: Could you remind me on the economically disadvantaged family at or below 185

[Ezra Holden (Joint Fiscal Office)]: of FPL, did we do that in Act 73, or is that based off of some federal? So I believe that is the same as before Act 73, the same cutoff point. It's just now it's a tax excuse me, it's no longer a tax capacity weight. It would now be a dollar figure, so that 15,033 base amount times that 1.02, is the support the school district would receive for each of those students.

[Rep. Edward "Teddy" Waszazak (Member)]: Just something to flag, keep an eye on.

[Rep. Emilie Kornheiser (Chair)]: 150?

[Rep. Edward "Teddy" Waszazak (Member)]: Yeah. In terms of what the federal poverty level learns versus what it actually I don't believe the federal poverty level is really an accurate measure

[Ezra Holden (Joint Fiscal Office)]: of what folks are trying to do.

[Julia Richter (Joint Fiscal Office)]: Actually, was thinking about

[Rep. Emilie Kornheiser (Chair)]: how the Anyway, yes, agree. It means different things to different states as well. Can you remind us how the state identifies those students?

[Ezra Holden (Joint Fiscal Office)]: So that's something that I would have to follow-up on.

[Rep. Edward "Teddy" Waszazak (Member)]: Off the top

[Ezra Holden (Joint Fiscal Office)]: of my head, at this point in the morning, I can't speak with much clarity on that.

[Julia Richter (Joint Fiscal Office)]: Okay, great. Thanks. Representative Wise, I can

[Rep. Emilie Kornheiser (Chair)]: give you a chance to settle in. Representative Burkhardt,

[Ezra Holden (Joint Fiscal Office)]: I'm going

[Rep. Bridget Burkhardt (Clerk)]: take this question is for you, Madam Chair,

[Rep. Rebecca Holcombe (Member)]: or if it is for Ezra. My is, my understanding is there was more work that was going to be done on Foundation Formula. So this is what is in the law right now, but that there was additional work. And my understanding is there was contracting going on for someone who was going to do that work. What is it with status Yep, and

[Rep. Emilie Kornheiser (Chair)]: the contract is, I think, in process right now. The RFP went out. JFO sent the RFP out. And maybe it would be better for you to answer that other than me, unless you want me to.

[Ezra Holden (Joint Fiscal Office)]: No, exactly. We are in the process of contracting. The contractor's report is due all back to you on December 2026. So yeah, there will be a contractor who will be working through the requirements laid out in Act 73 for what they should look at, including transitioning special education from based on weights to services provided, and also looking at any weights that need to be changed in relation to that, as laid out in Act 73. And their report to you all will be due in December 2026.

[Rep. Bridget Burkhardt (Clerk)]: That's one more question.

[Rep. Emilie Kornheiser (Chair)]: Yeah, of course.

[Rep. Rebecca Holcombe (Member)]: I also understood from a previous conversation, a different meeting that I was on before the session started, that all of you were, the GFO was modeling what the foundation formula would result in if it were applied to our current districts before any governance change. Have you done that work? And is that work available for folks to look at?

[Ezra Holden (Joint Fiscal Office)]: So as of right now, we're not prepared to speak on that. That's something that we can follow-up with you all later once we've had a chance to review everything.

[Rep. Bridget Burkhardt (Clerk)]: So childhood disability category A, B, and C, how were those categories established? That something that's already been done and what's happening here?

[Ezra Holden (Joint Fiscal Office)]: Sure, so the disability categories, all of these weights are actually based on the Doctor. Tolby and Baker memo from 04/03/2025, and we have a link on this slide if you care to read that memo. They have done the work to identify the categories and also the disabilities that would fall inside of each of those categories.

[Rep. Bridget Burkhardt (Clerk)]: So these are estimates based on a national level, then, about what these kids will cost? Yes. Not Vermont schools. National data.

[Ezra Holden (Joint Fiscal Office)]: Right. So these categories here are based on the national for disability. But Vermont data was used to come up with a 15033, for example, when they ran their cost function.

[Rep. Bridget Burkhardt (Clerk)]: Yes. Okay.

[Ezra Holden (Joint Fiscal Office)]: But yes, the disability categories are based on some nationwide studies. Thanks. I just want, Chair, I believe Julia Richter can actually fill in the question earlier about the process of collecting. Is that okay? Yes, sure.

[Julia Richter (Joint Fiscal Office)]: The question was about FPL and how that's calculated. And prior to Act 127 from a couple of years ago, you'll recall that the economic was based off of free and reduced price lunch data. ACWA '27 expanded that to also require a universal income declaration form in addition to the free and reduced price lunch. I don't know the status of how much that form is being used in the field. The primary reason that we saw a significant increase in economic disadvantage weights was because of the Medicaid Direct Certification program or pilot program, which essentially expands the way that kids can be enrolled in the meals program absent their families filling out paperwork.

[Rep. Emilie Kornheiser (Chair)]: Which is a system that I personally find very reassuring because it does not require a family doing paperwork, his parents did. Or actually just even tried to figure out the paperwork. But especially the papers shoved into the backpack or locked in a mail. Anyway, as similar to your question, Representative Waszazak, as Medicaid rules change at the federal level and food stamp rules change at the federal level, then some of our direct certification might not be as accurate, and it's something that we're gonna need to probably grapple with to some degree this year. Back to you, Ezra. Oh, no, it's representative. So when you were talking about

[Rep. Carolyn Branagan (Member)]: the definition of poverty representative, and that there are different ones, what were you saying, just so I kept coming at it, something What about the

[Rep. Edward "Teddy" Waszazak (Member)]: I was saying was that the economically disadvantaged weight is based on 185% of the federal poverty level, and I don't think that the federal poverty level is really an accurate representation of folks who are struggling to make it bias. I just want us, we're continuing the work on the Weight from a Foundation formula to keep an eye on whether that should be the metric for an economic weakness or actuate or not.

[Rep. Bridget Burkhardt (Clerk)]: If we're concerned about that,

[Rep. Carolyn Branagan (Member)]: I just wonder, is that easy to update, or if we're on a timeline, what do we need to be thinking about so that we don't run out of time to adjust that? Think, okay, just wanna ask a lot. A lot would need to

[Rep. Emilie Kornheiser (Chair)]: be out about, especially about data collection. And let's put that on the list of things to follow-up on with more testimony, and focus our questions towards the witness. If it is a question for the witness, if it's not a question for the witness, let's save the question

[Rep. Bridget Burkhardt (Clerk)]: for later. Might be a question for you.

[Rep. Carolyn Branagan (Member)]: You were talking about scope of work that the person is now, your consultant is now working, and this representative asked, about if there were no different configuration of school districts, how would the foundation formula

[Rep. Edward "Teddy" Waszazak (Member)]: play out? What did you say exactly?

[Rep. Emilie Kornheiser (Chair)]: What would the impact be of applying the foundation front or

[Rep. Rebecca Holcombe (Member)]: the current stance to our current school district configuration, the foundation rules and governance? And then you gave an answer that made me think,

[Rep. Carolyn Branagan (Member)]: well, do we need to add this to

[Rep. Emilie Kornheiser (Chair)]: I think Edward just said he wasn't prepared to present it right now in this moment. Yeah, not heard, but just not heard to

[Rep. Carolyn Branagan (Member)]: be a bad answer, but is that what you should What were you saying about that?

[Ezra Holden (Joint Fiscal Office)]: I was just that I did not come with any materials prepared to talk about any hypothetical current district, consolidated district, and what Act 73 would look like if it was applied to current districts. We don't have any material prepared.

[Rep. Carolyn Branagan (Member)]: So do you need

[Rep. Edward "Teddy" Waszazak (Member)]: a directive to

[Rep. Carolyn Branagan (Member)]: have that material ready, or do you, I just don't wanna wait, then all a sudden you say, well, I didn't know you weren't going to need that, and that's all three month situation. I just want to know. I'm not telling you you should

[Julia Richter (Joint Fiscal Office)]: do it, I don't have the power

[Rep. Carolyn Branagan (Member)]: to do that, I'm just asking,

[Rep. Rebecca Holcombe (Member)]: who does have the power to actually end,

[Rep. Edward "Teddy" Waszazak (Member)]: who does tell you whether to do that or not? If a member

[Rep. Bridget Burkhardt (Clerk)]: I'm just, if one member asks that it can happen.

[Rep. Emilie Kornheiser (Chair)]: So when we develop the agenda, which we can do together, and I have every day thus far asked for suggestions for the agenda, then I talk to all the staff about putting those things into the agenda. And what I've heard is that folks would like to see that analysis. All right. Great. Thank you. I think

[Rep. Mark Higley (Member)]: that is important because there's a bill coming forward that does exactly that.

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

[Rep. Emilie Kornheiser (Chair)]: I can't wait to see who signs on to that bill. That's gonna be so much fun. Julia. Can I just put

[Julia Richter (Joint Fiscal Office)]: an exclamation mark next to all of Edward's comments, which is not pushing back on the request of the committee, but rather we were asked to come in today to do a review of Act 73, and we're happy to come back and work on that analysis, but that's not something we're prepared to

[Rep. Bridget Burkhardt (Clerk)]: talk to?

[Rep. Carolyn Branagan (Member)]: I totally get that. I just had the question, okay, so if we need to know this in the future, what do we

[Julia Richter (Joint Fiscal Office)]: need to do? You've already done it. Already said you need to know what it is. We're on it. Alright.

[Ezra Holden (Joint Fiscal Office)]: I appreciate the heads up.

[Rep. Carolyn Branagan (Member)]: Thank you.

[Ezra Holden (Joint Fiscal Office)]: Any further questions on this slide? Okay. I believe, as I mentioned on the previous slide, small school and sparsity support is no longer a wait. It is now a support grant under Act 73. And so the small school support grant has a couple of criteria. First, a school must have average enrollment over two years, and that is enrollment, not long term weighted ABM. That's just going to be fiscal students in the school over those two years. That has to be fewer than 100, and it has to be considered small by necessity. Now, that's a term that was left undefined when Act 73 came into effect. The State Board of Education was charged with defining that, and they have actually determined that it should be defined by the Agency of Education. So it's a term that still is undefined. AOE We

[Rep. Emilie Kornheiser (Chair)]: are taking testimony on it next week with the Board of Education folks and probably the AOE.

[Ezra Holden (Joint Fiscal Office)]: Yeah, and we have a link where you can look at the State Board of Education's report, what they did talk about, a few different measures that could be possible proxies for small by necessity, but they did not make a final determination. And so if a school does meet that, they would receive $3,157 per pupil over the two year average enrollment. And then we have the Spar School Support Grant. So a school needs to be located in a city, town or village with a population of fewer than 55 people per square mile. Now that's new for x 73. Previously, it was a school within a sparse district. So if your whole district was sparse, the schools would get it. If the district as a whole was not sparse, even if that school was in itself in a sparse area, it would not get it. Act 73, you don't have that any longer. So even if a school is located in a not sparse district, if the school itself would meet that standard, then its two year average enrollment would now qualify for that support, is $19.54 dollars per pupil over the two year average enrollment, which is the same measure as that small school support. So again, that's enrollment, not long term weighted ADM, which is actual students at the school. And again, we have a by necessity check here, which is your sparse by necessity, which as with small schools, that's currently undefined, Safe Order of Education also had that charge, it's been moved on to the agency of education. And both of those will have to be, both of those conditions, sparse by necessity and small by necessity, will have an annual, I believe, check back to see if they still meet those conditions once they have been defined. Any further questions on that? Alright, so that is it for foundation formula. I'll turn it back over to Julia, unless there are any questions for me on foundation formula. No other questions. All right, thank you.

[Rep. Bridget Burkhardt (Clerk)]: Bridget, you have a question on the face.

[Ezra Holden (Joint Fiscal Office)]: Hi.

[Julia Richter (Joint Fiscal Office)]: Hi again, so main Julia Rick, your day, hello. So now moving on to supplemental district spending. So this is also an addition to the foundation formula and other pieces we'll talk about, continually effective 07/01/2028. I put together a couple of slides in here to do high level. And we also do have a slide deck linked at the end, which was a more expansive example that we were using last session about supplemental district spending. So essentially, Act 73 creates this option for locally approved supplemental district spending, where school districts have the option to ask voters to approve supplemental district spending. Some people refer to it as SDS. And really what this is, are voter approved funds that are in addition to the foundation formula and other categorical aid the school district is receiving. So upon that voter approval, a school district will be permitted supplemental district spending up to 5% of its long term membership multiplied by the base amount. So essentially, $15,033 that Esri just spoke about adjusted by inflation multiplied by the long term membership, and then 5% of that is the maximum that a school district will be permitted to put to voters for approval. So, of course, the supplemental district spending needs to be raised. And so, Act 73 also created a local property tax and recapture for the locally voted supplemental district spending. The way that this will be done is by raising the supplemental district spending locally on a property tax that is equalized across the state. What this means is that, like today, school districts can raise the same amount for the same tax rate regardless of the district property wealth. The way that this works is the supplemental district tax rate corresponds with the school district that has the lowest property wealth per pupil, what that school district would be able to raise at that tax rate. So essentially, what we will do is look at all of the school districts across the state, calculate the grand list per pupil of each of those school districts, and then say, Okay, a dollar rate at the lowest property value per pupil raises X. Every other school district will keep x amount for that same tax rate. Of course, the school districts that have more property wealth per pupil will be raising more than that amount at that tax rate. So that additional amount will be recaptured and go back to the state, to the supplemental district's spending reserve. Act 73 has the supplemental district's spending reserve being used in the following year to lower the property tax rate.

[Rep. Emilie Kornheiser (Chair)]: Speaking of things that would be interesting to learn more about is if we implemented this with our existing district configuration, we would have a much bigger spread of grand list capacity. And so it would be curious to see how the numbers would shake out in that.

[Julia Richter (Joint Fiscal Office)]: Absolutely. That is something that we looked at in, if you'll recall back last year, I think it was maybe March or April, there were a number of those joint hearings with Senate Finance. We were looking at grand list analysis across the different district configurations. And what we saw was exactly to the chair's point, under current law, course, there's a really wide range of grand lists per pupil under current law districts. School district So this is maybe more context than is helpful, but I'm going to run with it.

[Rep. Emilie Kornheiser (Chair)]: I can imagine that we would have

[Julia Richter (Joint Fiscal Office)]: context than is helpful. You'll recall that the school district redistricting force, one of the parameters they were charged with looking at in terms of their review of maps was the grand list per pupil for precisely this reason. If a future configuration of all school districts were to have the same grant list per pupil, then there would be no recapture. Because every district would be able to raise the exact same amount on their grand list. The wider the range of the grand list for people, the more that's going to be recaptured in the wealthier districts.

[Rep. Emilie Kornheiser (Chair)]: So

[Rep. Mark Higley (Member)]: how would his supplemental spending be a portion to homestead, non homestead, and non homestead residential categories? Across the board, which was $05 Would it be $05 to each one of those categories?

[Julia Richter (Joint Fiscal Office)]: That is a great question. I want to double check before I answer, to make sure I'm certain. I want to double check. I'm pretty sure that it would be across all property classes, and I'm not 100% sure. So before answering, I want to double check.

[Rep. Edward "Teddy" Waszazak (Member)]: Great, thank you.

[Rep. Mark Higley (Member)]: I'm just curious, why would a district raise their spending above what has already been approved?

[Julia Richter (Joint Fiscal Office)]: So what we see right now is, and we spoke about this a little bit yesterday when we talked about the December 1 letter, there's a huge range of spending per pupil across the state right now. Moving to a foundation formula is bringing everybody to the same level of funding for people. So in this instance, a school district may determine that the foundation formula and categorical aid is not They need more money for their school district, and there could be a variety of reasons that they need more money. And so that would be a local decision. So this maintains

[Rep. Mark Higley (Member)]: But it can only be raised, what, 5%, I think you said?

[Julia Richter (Joint Fiscal Office)]: Yeah, there is, and we'll talk about this in a little bit. There is a transition mechanism for the supplemental district funding. So essentially what it does, I think it's the first five years or three years we'll get there. It's at 10% for the supplemental district spending per district, and then it phases down to the 5%. So it allows wider variance in the first years of the foundation formula for above the foundation formula, and then slowly goes down to five person.

[Rep. Mark Higley (Member)]: And can that limit fundraising to supplemental? Can that be appealed? Is there an appeal process?

[Julia Richter (Joint Fiscal Office)]: There's an appeal process in Act 73. Legally, I don't know if there's avenues, that would be a question for Don. But I can touch base with him. Yeah, it's a great question. I don't know.

[Rep. Carolyn Branagan (Member)]: I represent.

[Rep. Bridget Burkhardt (Clerk)]: Thank you, Madam Chair. I recall, as we were discussing all this last year, well, in spring last year, some of those long days we had, that there were, I mean, there are a lot of communities who spend much less than what the foundation formula has been pegged at. But there are also some communities in the state who spend more. And I remember discussing those communities who spend more, they were going to have to cut some programs and materials that were being used by students and faculty. And there was a complaint about what we were doing to that level of academic achievement shown by those students. So I can't remember how we ended up with 5% because the number of schools below that figure are, I mean, they're much more than 5% below. The lowest I know of is 11,000, which I've been graphically before here, but that's more than 5%. And so going up only 5%, I know this isn't your family, it doesn't seem fair to me that those schools who are spending more won't be able to continue their progress. But I know it's not something you can answer.

[Rep. Emilie Kornheiser (Chair)]: I would say towards the end of I think the policy goal that we were working towards there was to really narrow the gap so that in a post Act 60, the gap widens again. And it was to try to keep in the As we move into the future, say twenty years from now, to make sure that we weren't further perpetuating inequity between the districts.

[Ezra Holden (Joint Fiscal Office)]: I understand.

[Rep. Emilie Kornheiser (Chair)]: Yeah. Especially And then the other thing that I remember our conversation about, I don't know if other people remember this conversation, That if lot of districts were using the supplemental district spending, and that was in a very extreme way, then there wouldn't be as much pressure across the state to keep the foundation formula sufficient in out years. And we wanted to make sure that there was enough political will from all over the state to create a fully funded foundation formula. So we wanted to make sure that the foundation formula was really the base that districts were spending on in order to make sure that future legislatures were tied to that. Thank you. What else did What were the other reasons? Don't I'm not really trying to recreate them.

[Rep. Rebecca Holcombe (Member)]: My recollection is that there was a debate between zero and unlimited. And we sort of I think a lot of folks were comfortable with 10%. Some people thought that was too much to chair Kornheiser's point that if you could raise 10%, then it would allow the legislature to be slow about updating the base amount by inflation or by other factors that we're finding that put pressure, upward pressure on the base, because you could say, well, the district can just go and raise all that money from its own taxpayers if it wants it. And so it was literally just debated in this room about what we felt comfortable with, because some people wanted absolutely none and some people wanted 10% or even more. And I think we got comfortable that there needed to be some little pressure out there, especially with things like some unexpected thing that wasn't anticipated necessarily in the foundation formula yet. Because there's going be this transition, right? Until we get the foundation formula right and until school construction is stood up properly. So for example, you can imagine a fairly big expense for maintenance or something that happens with one of the school buildings not being covered by what should be the amount that you could spend on your kids to give them a proper education. And so a district might need to go out in that year and say, we need more above the foundation formula to get through this crisis or whatever it is.

[Rep. Emilie Kornheiser (Chair)]: And we'll get into the transition mechanism too. And I think Julia said that because it does go up to 10% for the first few years. Yeah, Also, this is a practical matter. No state has tried

[Julia Richter (Joint Fiscal Office)]: to do what Vermont's doing, which

[Rep. Bridget Burkhardt (Clerk)]: is lower spending with the foundation plan. Usually there's a foundation plan to raise spending, and so given that, I think we just don't really know how this is going play out in the transition, so that gives them flexibility. My concern is still that it's not equitable, because schools way up here and schools way down here, and we're playing with the real amount of money that each of these groups will get. Well, I think what this policy is trying to do is converge everybody on the need. It's a one size fits all, which says we're going bring down the top and we're going to bring up the bottom and everyone's the same. It's a little more nuanced than

[Rep. Edward "Teddy" Waszazak (Member)]: that, but

[Rep. Emilie Kornheiser (Chair)]: I was going appreciate what you're saying.

[Rep. Bridget Burkhardt (Clerk)]: No, well, it's weighted. And that's the nuance.

[Rep. Emilie Kornheiser (Chair)]: Back to you, Julia. Okay. While

[Julia Richter (Joint Fiscal Office)]: you were discussing, I had double time to answer the question that I was going to follow-up on. Thank you. Answer is that the supplemental district spending tax is imposed on all homestead and homestead property to everyone.

[Ezra Holden (Joint Fiscal Office)]: Okay, thank you.

[Rep. Emilie Kornheiser (Chair)]: Thank you. Fine. We're always here for you.

[Rep. Bridget Burkhardt (Clerk)]: Yeah, I think the challenge is there are people who are already meeting exceeding class size ratios, staffing ratios, pool size ratios, have chosen to negotiate salary schedules that they can't get out of quickly enough to stay under that on the base. And so you have to have a transition.

[Julia Richter (Joint Fiscal Office)]: So that was all that I prepared for supplemental district spending. Are there any more questions about the mechanics of that?

[Rep. Emilie Kornheiser (Chair)]: No, but I think we're going to have another chance to talk about it.

[Julia Richter (Joint Fiscal Office)]: We are. We're getting in transition. Okay. Next are the Act 73 changes to property classifications and property tax calculations that are also contingently effective on 07/01/2028? So, we know that prior to Act 73, there are two property classifications under current law. And this is what we were talking about yesterday. We have homestead, which is the principal dwelling in all the surrounding land, and then non homestead, which is literally all other property that is subject to tax, education property tax. Act 73 established a new property classification, so now there would be three property classifications for education property tax. Maintains the homestead property consistent with the definition we are familiar with, that principal dwelling and surrounding acreage. And then Act 73 splits non homestead. So it creates non homestead residential, which is a property that's a residential property, but not a homestead. So this could be apartments Well, actually, that's not true. The non homestead residential is more looking at short term rentals and Airbnbs. And then there's also non homestead non residential, which is all other taxable property.

[Rep. Mark Higley (Member)]: This is a non residential, is that like your second home?

[Julia Richter (Joint Fiscal Office)]: Exactly.

[Rep. Mark Higley (Member)]: Summer camp or a hunting camp?

[Julia Richter (Joint Fiscal Office)]: Not necessarily. Way that So Act 73 is sort of taking a step back. A lot of policy conversations are asking, if we want to tax Deer Camp separate than a second home, how would we do that? The way that the grand list data is currently collected around the state, there is no way to divvy up those properties. So all of those properties fit into the grand list and are not uniformly classified across the state. Act seven eighty three took one of the first steps in that process by creating a new classification and saying, We really want to at least understand the difference between these different kinds of properties and be able to look at the data and parse out the different categories. That being said, there's a lot of nuance and administrative questions of how would you do that. What counts as a second home? How do you define that? And so in addition to establishing the three property classifications, in Act 73, this new classification, the Act charged the Department of Taxes with coming back and doing a really comprehensive report, which has a lot of really good information in it. I think you're bringing If this is what it looked like, I think that you're going be hearing about it in the coming week or so. Really, what it's talking about is how do you separate those classifications. Oh, and there's a link. I added a link right here to that report. Basically, all to say, maybe. And it would depend on the policy choices that still need to be made and haven't been made yet.

[Rep. Emilie Kornheiser (Chair)]: I would say that the policy goal when we passed it was that non homestead residential was not to include deer camps, hunting camps, and really mostly un weatherized structures. Apartments. More apartments, yeah. Can you talk a little bit, the non homestead, non residential, when we say all other taxable property, can you give a few examples to demonstrate the full range of that, just for anyone who's watching it?

[Julia Richter (Joint Fiscal Office)]: Parking lots, mom and pop shop, Walmart, perhaps Deer Camp.

[Rep. Emilie Kornheiser (Chair)]: 30 unit apartment building? Yeah.

[Rep. Bridget Burkhardt (Clerk)]: Businesses within a home? Businesses within a home, yeah. Property

[Julia Richter (Joint Fiscal Office)]: outside of the

[Rep. Emilie Kornheiser (Chair)]: homestead and That

[Julia Richter (Joint Fiscal Office)]: property would still exist within homesteads. Thank you. But if that property were being used, say you had a home and you had 50 acres, and a couple of those acres, you had a shop, and you're a mechanic, and you are operating your mechanic business out of that shop, that structure, as well as the land being used for that shop, would So ACCESS MEAN three created this new property classification and also created a new property tax rate calculation. So essentially, we know that under current law, the two property tax bases, homestead and non homestead, are subject to different types of education property tax rates. Our homesick property is our locally adjusted homestead property tax based by the yield and also local spending per pupil. And that's where we have the property tax credit. And there's a non homestead property where the equalized rate, so pre local CLA adjustment, is uniform. That's what we're doing now. That's what we were talking about yesterday. Under Act 73, Act 73 changes that and creates a structure where there is a single uniform statewide education property tax rate set annually. And then that uniform rate is adjusted by factors that correspond with the different property classifications. Essentially, it would be a rate of x, and then for homestead, x times homestead factor. Non homestead residential, x times non homestead residential factor. Same for non residential. Act 73 created all of these three factors of one. So right now, all of these property taxes, all of these property types would be subject to the same tax rate. One of the things that we talked about last year when working on Act 73 was if there was interest in setting different factors for the different property types, how would we do that? What are different factor options? The reality is, as I just spoke about, we don't know yet which properties definitely fall within the non homestead residential category, so we can't do the estimate because we don't know which those properties are. That being said, Act 73 charged the tax department with calculating different factor groups for those three types of properties to get at certain goals that Act 73 laid out in terms of different ways to adjust the factors. And so the second part of the report that we were just talking about lays out those different factors. If the intent is for those property types, those property classifications to be taxed at different rates in the future, at some point, those factors of one would need to be changed. And that would be policy that would need to be implemented. Moving on. We're gonna take a break

[Rep. Emilie Kornheiser (Chair)]: in about 07/2008, so however you wanna

[Julia Richter (Joint Fiscal Office)]: Do you want me to start with homestead exemption, or do

[Rep. Emilie Kornheiser (Chair)]: you It makes sense to take

[Ezra Holden (Joint Fiscal Office)]: a

[Rep. Edward "Teddy" Waszazak (Member)]: break now.