Vermont Legislature SmartTranscripts:

[James Masland (Member)]: Good

[Emilie Kornheiser (Chair)]: morning. Wednesday, January 14. We are going to spend our morning here focused on big picture, the yield bill, what decisions we'll need to make in order to pass a yield bill in March, and to some degree, why we are where we are. And we have both Julia Richter and the Agency of Education here. The Agency of Education, I invited them in to talk about what people are spending, what districts are spending their money on, essentially. And then this afternoon, we have a brief visit from the tax department to talk about the request and budget adjustments related to from legislation passed a number of years ago. At 01:45, we're gonna hear from the Department of Fish and Wildlife about a new fee that they have created. They have statutory authority to create that fee, but I think there's still a question about whether it's appropriate to have that statutory authority and whether a new fee is appropriate at this time. And then we're going to do our report, our list of reports, and who wants to read what. And that's it for the day. Anyone have anything they would like to say to you? Julia, you're up. Thanks.

[Carolyn Branagan (Member)]: I should probably tell you, Madam Chair, that today is the second day in a row that I forgot to plug in my hearing aids overnight, so I don't have them in to

[Carol Ode (Member)]: have a key.

[James Masland (Member)]: Oh great! Now

[Carolyn Branagan (Member)]: want my attention

[Emilie Kornheiser (Chair)]: yeah. Good

[Julia Richter (Joint Fiscal Office)]: Morning, Julia Victor, Deiapoille. Do you want me to try to speak loudly? I can hear

[James Masland (Member)]: I will

[Rebecca Holcombe (Member)]: try to project.

[Julia Richter (Joint Fiscal Office)]: Let me know if I'm not projecting enough. Yes, thank

[Carolyn Branagan (Member)]: you very much. Thank you. I appreciate that. It's my own age that made me forget. Not yours. Not yours.

[Rebecca Holcombe (Member)]: I think there are

[Emilie Kornheiser (Chair)]: lots of people with various hearing in the committee, and we have people watching at home. And I think it's just even more reason to not have crosstalk and to make sure that we're really taking turns speaking. Good point.

[Julia Richter (Joint Fiscal Office)]: Okay. So, Julie Richter, JFO, I have a bunch of documents on the committee page under my name the chair for today. Would you like me to start with the yield build decision points and then go from there? Yeah.

[Emilie Kornheiser (Chair)]: And I'm trying, given all the different pieces of a puzzle that we're going to be working on this year, I've really asked staff as much as possible to be framing our work in terms of decision points that we need to be making, or that we can make. Yes?

[Rebecca Holcombe (Member)]: Before we start, are we going to

[Emilie Kornheiser (Chair)]: have

[Rebecca Holcombe (Member)]: broader discussions about the yield bill, or are we only going to be talking about the decision points that are brought up right now?

[Emilie Kornheiser (Chair)]: We're going to be talking about the yield build every week between now and yep.

[Julia Richter (Joint Fiscal Office)]: So there's a a slide deck on the committee page under my name. I think it's titled Yield Build Decision Points. This will likely look familiar to those of you who were on the committee last year. And I think added a little bit more, just to be especially clear. So So again, non partisan. I've tried to compile these decision points as some of that really high level decision points that you all typically grapple with each year when considering the yield bill. So as we know, there's a number of policy decisions that need to be made each year for the yield bill. Essentially, the yield bill is, is it determines how to raise funds for the education fund after accounting for all of the uses and all of the non property tax revenue streams. So you'll recall that the way that we determine how much needs to be raised on property taxes, all else equal, is we take the total expenditures out of the Education Fund, fill up that stabilization reserve, and then we subtract the non property revenue sources, and the remainder is what needs to be raised somehow. And absent another policy decision, it's raised through property taxes. How it's raised, either from other revenue sources, from homestead property taxes, or non homestead property taxes, is a policy choice that you all will need to determine. And I've put together some really high level questions to provide context, but again, it's not exhaustive. Big picture, the yield build decision points, you need to figure out how to fill the education fund to ensure that we can pay all of the expenditures that have been determined. So you have the question of non property tax revenue. Should there be one time money used to lower property taxes? You'll recall in the past two years, there's been a general fund transfer of one time money. Two years ago, 25,000,000. Last year, a little over $77,000,000 In addition to that, the General Assembly has used education fund surplus dollars over the past years, since I've been here, to lower property taxes each year. Another question that you're confronted with is if the non property revenue streams that go into the education fund should be changed. A couple years ago, there was the short term rental surcharge that was added on top of the meals and rooms tax and dedicated fully to the education fund. An important piece of, or caveat, to keep in mind here in terms of non property tax revenue sources is that, depending on that revenue source, it may not be able to be properly implemented in the coming fiscal year. So we may not get the returns that you're looking for in that upcoming fiscal year. And then on the same note, should new non property tax revenues be added to the education fund? So those are some of the big picture non property revenue source questions.

[Woodman Page (Member)]: Is that

[James Masland (Member)]: the short term rental income? Is that on a different line on the outlook?

[Julia Richter (Joint Fiscal Office)]: It's included in the outlook. It's been rolled into the meals and rooms tax line. I'm happy to come back, or my colleague, Ted Barnett, could come back and talk about its performance since it was implemented. It gets to this constant question of what do we break out in the Ed Fund Outlook and what don't we? I'm always trying to keep it on one page. That's why

[Rebecca Holcombe (Member)]: it's been. So the other night

[Carolyn Branagan (Member)]: we had a presentation on all this TIP district stuff and the chip and all that. And one of the points that one of the speakers kept making was that then after a certain length of time, money comes back to the government and it gets dumped into the Ed Fund. Where does that money show on our income line, revenue line?

[Julia Richter (Joint Fiscal Office)]: So this is one of

[Emilie Kornheiser (Chair)]: those

[Julia Richter (Joint Fiscal Office)]: broader questions or conversation topics about CHIP and TIF. I will admit I'm not the CHIP and TIF expert in JFO, so if we want to go weedy, I need to tag in Ted to talk about that. Big picture, there's the question of how grant list value is going to be increased in the state of Vermont. So would that grant list value be added even if one of these incentive programs didn't exist? Or is that grant list value only being added because of the incentive program? And essentially, the way to think about it is the bigger the grant list, the more property that we are able to tax for the education fund, the less we need to raise from each individual person, because we have a broader face. So the thought would be if, for whatever reason, there is a growth in grand list value, those that are not experiencing the growth in their grant list value are not going to need to pay as much in the education fund, all else equal. So in terms of the education fund outlook, if you're looking at the Ed fund outlook, there's not going to be a specific line where you're going to be seeing that. Does that answer your question?

[Carolyn Branagan (Member)]: Not really, but I still don't know. Where does that money go? It goes into income that we get from property tax on that. So in the

[Julia Richter (Joint Fiscal Office)]: incentive program, those tax revenues are not going into the education fund because that is the incentive.

[Emilie Kornheiser (Chair)]: And so then once the incentive ends, the Ed fund is, hypothetically, if things go according to plan, then that property becomes taxable again. And it's just like any other property.

[Carolyn Branagan (Member)]: I understand that. But isn't there some cash revenue No. That people would pay for

[Bridget Burkhardt (Clerk)]: So mine is more about the Ed Fund outlook. And, Madam Chair, I wanted to ask if this is the right time to ask a question specifically about the Ed Fund. Let's give it a go. So my question, Julia, is sort of a follow-up to Representative Branagan's question, which is in that line where you say what brandless growth is assumed to be year after year, are changing how you calculate or how, I guess I should just ask, how do you calculate what that assumed percentage groundless growth is from year to year? And are you factoring in something different now that CHIP is in place in terms of that groundless growth that's generating product?

[Julia Richter (Joint Fiscal Office)]: So that estimate that we I pulled up the Ed Fund Outlook, which is also on the committee page under my name. We see that here in line I, just to level set. That is coming from the tax department's equalization study. So any question about how the equalization study has or hasn't changed because of CHIP or TIFF, I would need to defer to Jake or Jill or others at tax.

[Emilie Kornheiser (Chair)]: And they're gonna come in with that soon.

[Carol Ode (Member)]: Representative. So just in the interest of answering Carolyn's question, couldn't I be divided with grantless growth without ChIP, grantless growth, the additional grantless growth with ChIP, because there is going be some increased revenue even from the

[Julia Richter (Joint Fiscal Office)]: start, we hope. I think that that comes back to how effective Chip is. And I think that gets back to the question of the but for test. How do you break out that growth in the grant list? You'll recall the but for test, would that development happen but for the incentive program? That being said, certainly the grand list growth could be broken out into a ton of lines by municipality or whatever category within the equalization study. I would encourage you to flag those questions for when tax comes in about the equalization study, because they'll be able to speak to that in more detail.

[Mark Higley (Member)]: You. Again, real quick. So, you mentioned the short term rental tax is now in the rooms in Milano, correct?

[James Masland (Member)]: Correct.

[Mark Higley (Member)]: Wasn't there a cloud tax as well?

[Julia Richter (Joint Fiscal Office)]: Yeah, so the cloud tax, which is what it was referred to, was really the repeal of an exemption on those services. I forget the products, I forget the special title for But basically, the repeal of an exemption, sure, a tax, and that would be included in our sales and use line.

[Mark Higley (Member)]: Thank you.

[Julia Richter (Joint Fiscal Office)]: That's something else we could come back and talk about. That would be helpful.

[Carol Ode (Member)]: Cloud hosted software. Sorry?

[Charles Kimbell (Ranking Member)]: Cloud hosted software.

[Julia Richter (Joint Fiscal Office)]: Cloud hosted software, per rep Kimbell.

[Mark Higley (Member)]: Maybe you'll address this, but a lot of folks have asked me, so the current use program, I think is around $76,000,000 Where does that show up in an expenditure board and then the state coming back in or the big dog again?

[Julia Richter (Joint Fiscal Office)]: So the education component, the education property tax component of current use, right? There's two components of it. The education property tax component, again, we don't see a line here. I think it was either last year or a couple years ago. For one or two of the EdFund outlooks, I did include the current use. That's really a tax expenditure. So we can think about it as we're not collecting as much property tax revenue from those properties, so we need to collect it elsewhere, all else equal. And that would be included here in a source as a tax expenditure similar to the property tax credit. Okay, thanks. And it's an exemption, not a credit.

[Emilie Kornheiser (Chair)]: I think there's a philosophical debate about current use, about whether it is really an exemption or whether it is an appropriate valuation of that land. And the agriculture, food, and the agriculture committee last session spent a great deal of time taking testimony on current use, partly because we asked them to do that in the context of the education fund. And we're looking at places to change it in order to better meet current day needs. And they decided not to make any changes. We can get some more testimony on it. I know other people on the committee are interested in that. Thank you.

[Julia Richter (Joint Fiscal Office)]: The other piece that I would add about that is the PVR annual report. I don't think you've taken testimony on that yet. But that has a really excellent chapter every year that talks about current use in great detail and how it's changed over time. So I would encourage you, if you're interested in current use, to a good starting place is that that annual report.

[Mark Higley (Member)]: Thank you.

[Charles Kimbell (Ranking Member)]: There's I may add, there's just two elements. One is the net education property tax for homestead and non homestead reflects what is foregone and the tax expenditure for current use, but there's also $20,000,000 appropriation for the municipal hold harmless.

[Julia Richter (Joint Fiscal Office)]: And that's out of the general fund?

[Charles Kimbell (Ranking Member)]: In the general fund, yes. So it's 50,000,000 in the education fund, 20,000,000 are settled.

[Mark Higley (Member)]: Great. Into that 77,000,000 We

[Emilie Kornheiser (Chair)]: should let PBR know that people have talked about it multiple times a day every day since the session started, and we're so excited to have them in. Julia, back to you.

[Julia Richter (Joint Fiscal Office)]: Okay. I'm going to pivot away from the outlook, but it still is there. We need to go back. So we just spoke about non property tax revenue as one of the big questions for you all to grapple with in terms of the yield bill.

[Rebecca Holcombe (Member)]: Yes, I didn't realize you were pivoting. So I think one thing that would be helpful to think about is what's happening with those revenue streams. Some of them are growing. Some of them are growing slowly. Some of them are likely to deteriorate. And it might be good to have a sense of each of those funding streams and what we think is likely because some of them are going to do better than that.

[Emilie Kornheiser (Chair)]: And I think that after, I think Friday, after the e board, we have a meeting with Tom, and it might be helpful for us to focus our questions on Ed Fund revenue sources when he comes in. And if you want to be responsible for remembering Chris to do that, that would be awesome. Thank you.

[Julia Richter (Joint Fiscal Office)]: And to that end, after the updated revenue forecast, that's when we'll come back with an updated Education Fund outlook that will show the new forecasted non property revenue streams. The other intuition there to keep in mind is if And I spoke about this a little bit in the all member briefing, and then I think I shared the graph with the committee. When non property revenue streams are growing by 1%, 2%, 3%, if education spending is growing at 5%, property taxes need to make up a larger and larger share because the growth is at a different rate. The other piece here in terms of non property tax revenue that's worth keeping in mind is the more one time money that is used in one year, the larger of a gap the the next year needs to make up. So that's one of the reasons why we're seeing the estimated growth that we're seeing this year, is because over $100,000,000 in one time money was used last year to buy down this year's property taxes. Another big question that you're going to be grappling with in the yield bill is the property tax revenue. So how much should be raised on homestead property tax? How much should be raised on non homestead property tax? The December '1 letter requires JFO and tax to solve it so that the average bill change across those three classes is uniform, meaning that non homestead average bills increase at the same or decrease at the same rate that homestead bills do, we need to do that for the summer one modeling. You don't need to do that in the yield bill. That's a policy choice. That's a policy choice that you did make last year, and that doesn't bind you to make the same this year. You could, you couldn't. It's up to you. Oh, this is the next. And we usually use the average bill change to talk about how much we're raising in homestead and non homestead property, because that's the best proxy we've been able to find in terms of how much liability, the change in liability on the two different groups. Of course, it is just an average. And we don't want to look, for instance, at rates, because bases are changing. The bases are different. Another big question has to come to income sensitivity.

[Bridget Burkhardt (Clerk)]: I was just going say, if we could

[Rebecca Holcombe (Member)]: dedicate a session just to talk about that, because there's so many moving parts there.

[Emilie Kornheiser (Chair)]: Talking about what?

[Rebecca Holcombe (Member)]: I'm sorry. About how, I think the base is changing, the rates are changing. We've got some issues around the weight. Things are moving, people are trying to figure out the difference between, still, long term weight of ADM, ADM, and believe it or not, equalized pupils are still coming up. I just think people are so confused, it would be worth it. About that part of current law. Yes, to just go through that. Even in here, I'm hearing things that are confused.

[Julia Richter (Joint Fiscal Office)]: Another big question has to come to income sensitivity and the property tax credit. So you'll recall the homestead property tax has the income sensitivity component, the property tax credit. One of the big questions is how to set the income yield. So you're setting the homestead yield and the non homestead uniform rate. There's also the income yield, which is used to calculate the property tax credits that are then on a lag. So they're gonna be showing up in the following fiscal year. So should the income yield be set in such a way so that the income sensitized folks have the same average bill change as Homestead, or should it be different? That's a policy decision. Oh, and I'm sorry, as I said, I reused this slide and I didn't update the fiscal years. So that's my bad. I'll update that and I will follow-up with Sorsha. But the question is, should the property tax credit earned in what this should say, earned in fiscal year twenty six and appearing on fiscal year twenty seven bills be adjusted. So you'll recall a couple of years ago, there was that one time increase to the property tax credit. Property taxes were estimated to go up by, I think, 13 something percent. And there was a policy choice made to increase that property tax credit one time for folks to soften the impact of that increase. So of course, increasing the property tax credit means that money needs to come from somewhere. And lastly, I just wanted to put a couple other pieces in here because they pertain to policy decisions that have been made in previous years. Should education fund expenditures be adjusted? The education fund expenditures are really what's underlying how much needs to be raised from revenues. So that's one question. And then another question is, should any funds be reserved for future years? So in the last few years, was a significant Ed Fund surplus, so there was money reserved for PCB remediation, and there was also money reserved for offsetting tax rates. Both of those reserves have been depleted, so this would be a choice to put more money into reserve for future fiscal years.

[Rebecca Holcombe (Member)]: As part of the last one, I think we really need to have better data on school based Medicaid, particularly as it interacts with the WAVES, and then also with changes in federal policy. I feel like there's very significant risk there that no one is talking about it with. The task is we're unable to get numbers to discuss your value.

[Emilie Kornheiser (Chair)]: Laurie, Quentin and I are co sponsoring a bill about it. And so as a couple of things work through, we can bring in time

[Rebecca Holcombe (Member)]: to it's just the note because if, I mean, at the basic- We're leaving, I mean,

[Emilie Kornheiser (Chair)]: we're at the most basic, we're probably leaving money on the table.

[Rebecca Holcombe (Member)]: At the most basic level, we could perform an entire state mental health system. Because if the weights make it cheaper for districts offering house, there's no reason to go to the DA and they lose the Medicaid match. I just think we need to really be careful.

[Emilie Kornheiser (Chair)]: That might be possible. I think there's a lot of complexity there and we can

[Rebecca Holcombe (Member)]: do There's a lot of complexity there. Absolutely.

[Emilie Kornheiser (Chair)]: We're asking about that in the context of education fund expenditures? Absolutely.

[Rebecca Holcombe (Member)]: Okay, great. Affects when we're using Medicaid or outside. Yep.

[Emilie Kornheiser (Chair)]: Representative Mossell?

[James Masland (Member)]: Yes, representative Holcombe. Thank you for bringing this topic about lack of data from AOE up over and over again, because it needs to be made frequently, because we're really at a disadvantage here. All of us are disadvantaged. Schools are disadvantaged. I'm trying to figure this out. Just to restate and I should speak up, you know, so

[Emilie Kornheiser (Chair)]: And when after Julia's testimony, we are going to hear from the agency of education with some data that they are bringing to us. That's we good. Can learn what they have. Yes.

[Julia Richter (Joint Fiscal Office)]: That's everything I prepared for yield bill decision points.

[Emilie Kornheiser (Chair)]: Okay. So really want to make sure that we are taking the testimony we need to make about all the various levers. Think well,

[Carol Ode (Member)]: I'll

[Emilie Kornheiser (Chair)]: just say this frankly. I think sometimes folks who are not on this committee come to the members of this committee with somewhat magical thinking about the yield bill. Julia describes it as a balloon sometimes. You squeeze one part, something else pops out somewhere else. And so we need to be also able to communicate with our colleagues that there's no magic solutions here. You need to put money in if money is spent. And there are only so many options for doing that. We have a bill on our wall to move purchase and use out of the education fund. If we do that, it needs to be made up with other revenue. There's no magic. So just really helping, as much as everyone here, ask for the testimony you need about those decision points so that we can both do our work in here and do our work out there. Yeah.

[Woodman Page (Member)]: Probably shouldn't raise this. Like we mentioned-

[Emilie Kornheiser (Chair)]: That's my favorite thing that people say before they speak.

[Woodman Page (Member)]: Meditate funds coming out of the education fund. Why do we do that? It's kind of like the TIFF, why don't they come out of human service, those types of

[Emilie Kornheiser (Chair)]: Let's take testimony about that.

[Carol Ode (Member)]: Along that line, I would like to suggest

[Woodman Page (Member)]: We can talk outside

[James Masland (Member)]: and take

[Mark Higley (Member)]: testimony

[Emilie Kornheiser (Chair)]: too. So, representative Ode, what were gonna So,

[Carol Ode (Member)]: along that line, I'm thinking, when we look at our per pupil costs in Vermont, it's compared to any other state, our costs look quite high per pupil. But in other states, there's general fund money being used for many things that we use our education fund for and that we count as per pupil expenditures here for our Vermont students. So I wonder if we could look at what are other states taking from their general fund that are embedded in our education fund so that we can kind of look at that and consider how to deal with this going forward. So that we have, maybe so we can have an apples to apples comparison, maybe that is important, maybe it's not. Maybe so that we can say, well, what amount is reasonable to think would come from a general fund rather than an ed fund and maybe structure things differently. I don't know if this would take a whole study committee or what this would take, but I think it's

[Carolyn Branagan (Member)]: a good idea. And there are

[Emilie Kornheiser (Chair)]: some great reports from the Education Commission of the States, is that what PCS is? Yeah.

[Rebecca Holcombe (Member)]: Look at the F-thirty three data and I'll share it with you, and you can see what we spend on versus neighboring states. And we are about to

[Emilie Kornheiser (Chair)]: take testimony when we're done with Julia about what the districts are spending money on now. That'll be a

[Carol Ode (Member)]: great place to start. Maybe just one last thing, because that's fine to say those things and that you would show me that, but I just think since it comes up in the group, wonder if we could all share the learning about that. It's really used to bludgeon schools and school boards and education provision, which We spend so much, we aren't doing that well, you know, so what's real, what are we really spending?

[Emilie Kornheiser (Chair)]: We're about to make testimony about what we're spending.

[Carolyn Branagan (Member)]: Yes, I really like your idea of spending some dedicated time on this issue.

[Emilie Kornheiser (Chair)]: The Medicaid issue. Yes, absolutely we will. Julia, you have two other presentations.

[Woodman Page (Member)]: I don't

[Mark Higley (Member)]: remember what they are.

[Julia Richter (Joint Fiscal Office)]: Yeah, I was asked to put together a presentation about the excess spending threshold and then to update a couple of charts that I presented in this committee a couple of years ago. I'm happy to talk through those now or later? Both? Do you want me to start somewhere?

[Emilie Kornheiser (Chair)]: Why don't you pick which one you're

[Julia Richter (Joint Fiscal Office)]: starting I think we should start with the There's two slides on the committee page under my name called Education Fund Over Time. I'm going to go ahead and share my screen. These charts were put together just for inflation to have a better sense of how the education fund has developed over the past years. So this first chart that I have here on slide three is showing the real education fund revenue over time. Real meaning it's adjusted for inflation, then adjusted to $20.17 dollars because that is what our state economists have based the inflation index of NIFA against. So what we're seeing here are the different revenue streams going into the education fund. The bottom two bars green are representing the property tax, the homestead property taxes net because it's factoring in the property tax credit. So the property tax credit has been subtracted out.

[Rebecca Holcombe (Member)]: I'm so sorry. You said that you used NIFA to adjust Yes. Is there that report coming? Because that's a products inflator, not a Yeah, we're

[Julia Richter (Joint Fiscal Office)]: working on it. And when we have it ready, we will follow-up. And I chose NIFA because that is the inflation index that's used throughout Title 16 with respect to the Education Fund.

[Bridget Burkhardt (Clerk)]: Just a quick question. The federal money that came in for COVID, is that outside of these revenue sources someplace? Because I would have expected to see a little boost of federal money in here someplace, but that's

[Carol Ode (Member)]: not included in Correct.

[Julia Richter (Joint Fiscal Office)]: This is the education fund, so this is solely talking about state dollars. I could come back and talk about federal money. The challenge is that a lot of federal money often flows directly to the district and not through the state. So this is looking at the state education fund. That being said, I don't want to postulate about why or why not the education fund was a certain size or why revenues needed to be raised. And we can look at the COVID years in the chart and see the adjusted state revenues.

[Emilie Kornheiser (Chair)]: The funding went to some degree when all that federal money was here. I bet there is definitely a correlation with that. Both of those things are happening.

[Julia Richter (Joint Fiscal Office)]: Both of those things happened. I don't know. Correlation, causation, I don't know. I will say that I know that Agency of Education has, or their consultants, I don't remember, published some charts that showed funding all education funding in the state, including federal funds. So perhaps they can speak to it after.

[Bridget Burkhardt (Clerk)]: Was going to ask if there was another chart that showed all school budgets adjusted for inflation. Because my sense, anecdotally, is that school budgets didn't really shrink during COVID. If anything, they

[Emilie Kornheiser (Chair)]: went much higher. And I just wondered how yeah. And I went into I was hunting for a vague memory of a colored pie chart the other day, deep inside the past. And I looked at a lot of the testimony that the Education Finance Subcommittee of the Future of Public Education Committee took. And there was a lot of testimony about those cost drivers that included the semester fund discussions. And so that was a we took a lot and we also took testimony about that in 2023, maybe. And it's usually under Nicole Lee's name, if you also want to go into a deep punt. I never found the actual colored pie chart that I was hunting for, but maybe someday it'll turn up.

[Charles Kimbell (Ranking Member)]: Chittenden, can you talk about the rationale in 2019, fiscal year 2019, about moving all of the sales and new specs and getting away from the general fund transfer. You know, the reasoning behind that, all the state funds are fungible in a sense as the yellow is creeping back in, as you can see. But so can you speak to the decision why that was made?

[Julia Richter (Joint Fiscal Office)]: I can't speak to the decision as to why it was made, because it was a policy choice. That being said, a couple of pieces that might be helpful. I'll start out with one, JFO was required to publish a report, and we didn't, and I'll send it to Sourcia to send her under the committee later that talks about the impact of the revenue shift, that change that happened in 2018 of exactly what you're talking about. Getting rid of the general fund transfer, changing the underlying revenue streams into the education fund. It was just last year that report came out, right?

[Rebecca Holcombe (Member)]: I think it

[Julia Richter (Joint Fiscal Office)]: was two years ago. I'll just remind the committee that what we saw in 2018 was a bill was passed that changed the revenue going into the education fund. So that's why we see the change of the general fund transfer, this bright yellow box sitting here at the top, go down after FY2018. The CliffsNotes version of the report is at the time it was considered to be a revenue neutral shift. However, there was the Wayfair decision that followed just after. So the Education Fund actually ended up seeing an increase in sales and use revenue that wasn't anticipated when that was determined to be revenue neutral.

[Rebecca Holcombe (Member)]: I think for policy context, the fiscal year 'seventeen budget used $40,000,000 in unallocated education surplus to buy down the tax rate. And that was also the next year was when the body decided to move teacher contracts to the state level, and this was- -Teacher health care contracts? -Yes, smoothing that. So this was, I think, a byproduct of that larger conversation.

[Carol Ode (Member)]: Representative Ode. Are we gonna look at what the statewide negotiated healthcare costs, contracts look like, or the cost of those, and what they're projecting to be in the

[Emilie Kornheiser (Chair)]: next few years? We're going to talk about costs in the education fund, so I imagine health insurance will come up, yes. We're not going to go deep into the negotiated contracts. No. I imagine that will be part of the testimony that we're going get from AOE in a second.

[Rebecca Holcombe (Member)]: Imagine 7%.

[Carol Ode (Member)]: A

[Woodman Page (Member)]: We can look at all these things, but in the end, what can we do?

[Emilie Kornheiser (Chair)]: Such a great question, Representative Page. Thank you. That's very clarifying. Agreed. And that's the decision points that Julia laid out, right? Thank you. Yeah.

[Julia Richter (Joint Fiscal Office)]: One more chart that I've updated. Sorry.

[Emilie Kornheiser (Chair)]: I wanna answer that a little more thoroughly. I think to some degree, the reason that we explore the cost drivers that we can't do anything about is so that the rest of the body will know that we explored the cost drivers and decided that we can't do anything about some of them, and that we're trying to do something about others. And so to some degree, are cost drivers that we're aware we can't do anything about that we're probably going to spend a little bit of time talking about just to make that explicitly clear. I don't know if I should have said that on the record, but I did. I

[Mark Higley (Member)]: hate to bring this up now, but maybe to answer the representative's question to some degree, what can we do? I mean, I'd be interested to know and as I'm sure you're all aware, there's a particular bill in the House and there's one in the other body in regards to a free, so to speak, on education tax at the time. I, And I'd at least like to know how that would work.

[Emilie Kornheiser (Chair)]: We will absolutely have representative Gelfetting in to introduce our bill.

[James Masland (Member)]: Mechanics of it. Yeah. Right.

[Emilie Kornheiser (Chair)]: My understanding is it could actually increase people's tax bills sometimes, but we will take testimony on it. Julia? So

[Julia Richter (Joint Fiscal Office)]: the other chart here in the slide deck, this is also an updated chart. What we're looking at here, again, are these dollar figures. So these two, if you can see colors, are blue lines. They're the flatter ones. These are representing real appropriations out of the Education Fund. Again, these figures have been adjusted by NIPA to $20.17 dollars and these correspond with the left hand axis in terms of millions of dollars. This declining line that's red is representing the long term average daily membership. So essentially, the number of kids in schools each year. And this corresponds with our right hand access. So what we see is the number of students in schools are decreasing over time.

[Charles Kimbell (Ranking Member)]: That's, of course, not adjusted for inflation.

[Julia Richter (Joint Fiscal Office)]: Yeah. Right. I don't know how you would adjust kids for inflation.

[Carolyn Branagan (Member)]: You could also change the answer.

[Rebecca Holcombe (Member)]: It might be better. And

[Julia Richter (Joint Fiscal Office)]: I will note the axis here doesn't start at zero. It starts at 80,000 to show the trend.

[Emilie Kornheiser (Chair)]: There are no questions, just bad jokes. Can we move on to the next slide?

[Julia Richter (Joint Fiscal Office)]: Okay. There's no more slides in that slide deck.

[Rebecca Holcombe (Member)]: Let's go to

[Emilie Kornheiser (Chair)]: the next one.

[Charles Kimbell (Ranking Member)]: Okay.

[Julia Richter (Joint Fiscal Office)]: So the last new slide deck that's on the committee page under my name is the excess spending adjustment. So we're pivoting a little bit from looking at the education fund writ large and all of the ins and outs, or some of the ins and outs, and now focusing on one specific tax mechanism that exists within our system, the excess spending adjustment.

[Bridget Burkhardt (Clerk)]: And to be clear, I

[Emilie Kornheiser (Chair)]: asked you to discuss this partially because it's one of the things that we do do in order to try to keep costs contained to some degree, or to keep spending contained. It doesn't contain costs that contain spending to some degree. And it shifts taxes in ways that could be considered more I don't know. I'm not going finish my sentence. Julia?

[Rebecca Holcombe (Member)]: Okay.

[Julia Richter (Joint Fiscal Office)]: So I've separated this into two chunks. First, we're going to talk about the excess spending adjustment under the current law. So how does it currently work? What is the landscape that we're working within? And then briefly talk about the history of the excess spending threshold and adjustment. So under current law, we have something called the excess spending adjustment. What it is, is it increases a district's tax rate if it spends above the excess spending threshold. So essentially what that means is for the amount that a district spends over that threshold, there is a double tax on that amount they are spending above the threshold.

[Mark Higley (Member)]: Madam Chair, I can, and maybe you'll clarify this, but that really only goes to the homestead tax rate, correct?

[Carol Ode (Member)]: Yes. Thank

[Emilie Kornheiser (Chair)]: you.

[Julia Richter (Joint Fiscal Office)]: We'll recall that, and we will talk about the formula in little bit more detail, but level setting, the homestead property tax rate is set by taking a district's per weighted pupil education spending and dividing it by the statewide yield. That varies by district, while the non homestead rate does not vary by district. So this is only focusing on that homestead property tax rate and income sensitivity. So the excess spending threshold is calculated annually. And for FY 'twenty seven, which is the yield bill year that we're talking about right now, the threshold is 16,470. We'll talk through what that means and how that number is calculated. Now, we will talk about that. So that is calculated. This is written into statute, and this was implemented a couple of years ago. We'll talk about the history of when this was implemented. The way this threshold is calculated is take the Or really, AOE takes the average FY25 per pupil spending for the state, increases it by inflation, by NIFA, which is the inflation index we have in Title 16, and then multiplies it by 118%. So I've included the average per pupil spending amount that's used or that existed in FY '25. So this 13,168 is what sits in this part of the equation. So that's calculated each year.

[Emilie Kornheiser (Chair)]: Sorry, represent Masland.

[James Masland (Member)]: Can you remind us

[Mark Higley (Member)]: why

[James Masland (Member)]: it's 118%?

[Julia Richter (Joint Fiscal Office)]: That was a policy choice.

[James Masland (Member)]: That's correct. Yes. Thank you.

[Julia Richter (Joint Fiscal Office)]: We'll get we'll get to the history at the end of the slides, but spoiler alert, it used to be 121% on a different base. And they're not directly comparable because there has been an underlying funding change, underlying change to the funding formula.

[James Masland (Member)]: Thank you.

[Carol Ode (Member)]: I'm trying to understand the use of NIFA based on a comment that you just made and I could be totally off here, but if that's pegged to goods and services, even though it's used throughout Title 16, but 80% of what schools spend on is personnel, how do we

[Emilie Kornheiser (Chair)]: deal with that? Julia's writing a report that's about inflators and the Ed Fund. And when she's done with it, we will have a robust conversation about inflators that I'm excited everyone's so excited about. We had Joyce come in and give a presentation on inflators two years ago that I thought was thrilling, but maybe not everyone else did. So I'm glad that people are getting more and more excited about inflators as time is going on. Julia?

[Julia Richter (Joint Fiscal Office)]: So essentially, one plus NIPA is essentially saying that we're increasing it, 100% plus whatever the inflation is.

[Bridget Burkhardt (Clerk)]: And so was it then a policy choice that we were only doing it times one year of inflation, even though we're taking FY '25?

[Julia Richter (Joint Fiscal Office)]: So perhaps this is a little misleading. It is not one year of inflation. It's one plus whatever the inflation is. So for For instance two years. Exactly. So in FY27, the excess spending threshold is calculated by taking the average spending of $13,168 increasing it by NIFA inflation from FY 'twenty five to FY 'twenty seven, and then multiplying it by 118. So assuming this still exists in FY 'thirty, the NIFA adjustment will be FY 'twenty five to FY 'twenty three. Moving on, there's one exemption to the excess spending adjustment in current law. This is for all principal and interest payments for any approved bonds that were approved prior to 07/01/2024. And this date was chosen because it represented decisions that had already been made prior to the unfreezing of the excess spending threshold.

[Emilie Kornheiser (Chair)]: I think there's a question about whether it makes sense for that to be 07/01/2024 or 12/31/2024, given that bonds could have been in process but not completely made throughout that year. Because the November vote was part of that. And so I just want to flag that as something that might need a little bit of tweaking.

[Charles Kimbell (Ranking Member)]: You'll be seeing a bill to change that.

[Emilie Kornheiser (Chair)]: Think there's gonna be a bill to change a lot of it, and that's just a tiny piece that I'm talking about that's really still within the exact same legislative intent rather than different legislative intent. Agree with that.

[Rebecca Holcombe (Member)]: Representative Holcombe?

[Bridget Burkhardt (Clerk)]: I just think that

[Rebecca Holcombe (Member)]: in the vein of the 3% cap, anything that we do that is sort of an arbitrary point in time has disrupted arbitrary conditions, and it's worth thinking about that.

[Julia Richter (Joint Fiscal Office)]: So this exemption that exists currently and could be changed would be a policy choice to change yet, but as it exists currently, not decrease the general education spending that's used to calculate a homestead property tax rate. It only impacts determining the amount how much is over the threshold. So it's adjusting that amount over the threshold to determine the amount that's double taxed or subject to the adjustment. And any amount that qualifies under this exemption is exempt from that double tax. So how does it work? How does it work? I think we've already really spoken about this, but essentially what we do is we look at how much the The AOE looks at how much a district's per pupil spending is greater than the excess spending threshold, which is a per pupil amount, determines how much is over that threshold after accounting for exemptions, however much is over that threshold after accounting for exemptions, it essentially added back on to per pupil spending to double count it. So this is the way that that formula looks. So we know that that excess spending is already sitting in the education spending, and then we add it in a second time, which is where that double taxation happens. It's not all education spending that's being double taxed within that district, only the amount that's over the threshold.

[Emilie Kornheiser (Chair)]: Can you talk about the dynamics of when some districts do this, it pays for itself. And when some districts do this, there's still more ed fund spending separate from their district spending that

[Julia Richter (Joint Fiscal Office)]: Yeah. So we know that there's 119 school districts in the state with really varied grant list value. And so this is one of those challenges when thinking about an illustrative example. It really depends on the district. So there's some districts where, if that district has a significant grant list value, the higher the tax rate on that district, the more money that's being raised from that district going to the statewide education fund. Other districts that have less grant list value within that district, while they may have a higher tax rate or they will have a higher tax rate, they're not going to be raising the same amount from their grant list because their grant list is smaller. So depending on the size and scale of the district will depend how much money is being raised from that double taxation. Because that tax is being applied to a different base, dependent on the district. And really what we do see here as well is this is shifting liability in the state. We spoke about in the first slide deck how, all else equal, there's a certain amount that needs to be raised from property taxes, absent a different policy choice. And the question is, where is it raised? And this is saying more is going to be raised from the districts that are spending above the threshold, which then means less is raised from the districts that are spending below the threshold. However, the district spending above the threshold likely won't be raising all of that money locally.

[Emilie Kornheiser (Chair)]: You're welcome.

[Rebecca Holcombe (Member)]: So how does that work? Had me until the very end. I'm thinking of, say, Jay and Westfield. And I think Jay is being hit by the excess spending penalty and Westfield is not. But they actually go to school side by side all the way through. They belong to the same districts, the middle and the high school level. So the excess spending will be applied to Jay because once you apply the weights, it will be a high spender, but Westfield will not. So how does that work? It's not about the district, it's about the town that's paying.

[Julia Richter (Joint Fiscal Office)]: I'm not sure I understand the question.

[Rebecca Holcombe (Member)]: I'll send you the numbers. I'll send you the numbers and maybe you can come back and explain. Okay.

[Julia Richter (Joint Fiscal Office)]: So my brain works better with numbers than words. I think some of yours do as well. So I put together this table that's really just a number. Very simple, totally made up number example that walks through how this would or wouldn't impact the tax rate of a district. So we have two example districts, District A, District B. I made them up. They don't exist. I made up their per pupil spend. So they're per weighted pupil education spending. Education spending divided by long term weighted average daily membership. District A and District B. And so then the first step is to calculate the excess spending threshold. Let's pretend that we use that equation of calculating the threshold and we get $16,000 That's the threshold. So then the next step is to look at how much is over the threshold within those districts. So District A has a per pupil spend below the threshold, so they have $0 over the threshold. District B has $1,000 over the threshold. Then we need to add. We need to double tax that amount that's over the threshold. We're going to say that District B has no exemptions in that $1,000 Add that amount over the threshold to the district's per pupil education spending. So District A, of course, has no adjustment. District B increases its per pupil ad spend for the purpose of its property tax calculation from $17,000 to $18,000 And then we use that amount that we've calculated here in step three or row four to calculate the tax rate. Here I've assumed a yield of 9,000 because it's a round number. It's also made up. In district A, we do the normal calculation and get a tax rate of 1.67 And in district B, we use that adjusted per pupil spending to get a tax rate of $2 If this final row here, row six, is showing what the tax rate would be if no excess spending adjustment were to exist, it's important to note here I'm still assuming the same yield. We just spoke about the fact that the yields or the allocation of funds may differ or will differ with an excess spending adjustment. But using the same yield, we see that District B's tax rate would decrease, of course, because we're no longer adding in that additional $1,000 of excess spending.

[Carol Ode (Member)]: So one of the things at the end that I understand that you said from the application for more raised from school districts above the threshold, but one raised the money locally most. I'm confused because I thought that, well can you just explain that because when you look at the $2 versus the 189 it is our money, and that is local.

[Julia Richter (Joint Fiscal Office)]: Yeah, so there's more money being raised from that homestead tax rate. What I was talking about is the fact that we have a statewide education fund. So a local homestead property tax rate is not raising the district's entire budget. It's proportional to their spending decisions. And it doesn't function as a municipal tax would, where all of that money is being raised for that district.

[Carol Ode (Member)]: Yeah, I see that it's not all being raised for the district, but there isn't direct tax impact Absolutely. Alright, so it is meant to, it's disincentivizing, standing above the threshold. That's what I thought, okay. Won't raise the money locally most probably because it's going to get Okay, I see what you

[Rebecca Holcombe (Member)]: mean by that. Okay, thank you.

[Mark Higley (Member)]: I have a math

[Rebecca Holcombe (Member)]: question. So,

[Charles Kimbell (Ranking Member)]: when you were talking before the excess spending, you were saying it would be multiplied by two and then added to the per pupil spending. Would be The amount over the threshold.

[Julia Richter (Joint Fiscal Office)]: It's either multiplied by it's either double that amount or added to the excess spending.

[Charles Kimbell (Ranking Member)]: Okay. So in your example in District B, so $17,000.16000 is the threshold. 1,000 is the amount over. I was assuming it would be $1,000 times two, add to the 17,000 not to the 16,017

[Julia Richter (Joint Fiscal Office)]: thousand. It's included here in the 17,000. So it's the 17,000 that exists in the education spending plus the amount over.

[Bridget Burkhardt (Clerk)]: So it's getting taxed once as part of the 17, and then it gets taxed again as the extra thousand gets That added on and taxed

[Charles Kimbell (Ranking Member)]: just gets added on, not multiplied. For some reason, thought it would be multiplied.

[Julia Richter (Joint Fiscal Office)]: Then the example worked, because it clarified something. Okay,

[Carol Ode (Member)]: so

[Julia Richter (Joint Fiscal Office)]: this is the example how it works. In FY26, so this was last year's yield bill, it's the year that we're in right now. The excess spending threshold was 15,926, and there were six school districts that exceeded this threshold. I went and looked, and the range was $429 per pupil, over the threshold. So that was the lowest of the districts above the threshold, and the highest was $15.82 per weighted pupil. So these were the amounts in those districts that were being added on top of their district.

[Carol Ode (Member)]: Out of four people.

[Julia Richter (Joint Fiscal Office)]: So that was under current law. We're I'm sorry.

[Carol Ode (Member)]: Let me look back.

[James Masland (Member)]: Fiscal year '26, thank you. Okay. Right

[Julia Richter (Joint Fiscal Office)]: now we don't know what is the case in fiscal year 'twenty seven, because we don't have the budget information nor the weighted pupil counts for FY 'twenty seven. But we will, as the session goes on, before we pass the yield bill, we'll have a lot more information, including some of those details. Yes. Now we're looking back. So this we already spoke about, but back in Act 01/1927 of 2022, the excess spending threshold was frozen from FY '25 through FY '29. And then two years later, Act 183 was passed and unfroze the excess spending threshold and then amended it. And it needed to be amended because the funding formula changed in Act 127. So in addition to those necessary amendments, there were policy decisions that were also made in Act 183. Those, I'm not sure. Oh, I do talk about what it was beforehand. Great. So prior to Act 183, the excess spending threshold was calculated by taking the FY15 average education spending per pupil, per equalized pupil, adjusting it by inflation, and then multiplying it by 121%. So this is how the threshold was calculated. There are also a lot of exemptions to the excess spending threshold. Act 183 did away with all of those exemptions and then just implemented the one that we spoke about. Beth St. James put together an amazing slide outlining all of the exemptions that she was able to locate prior to that, and I've linked to it here.

[Emilie Kornheiser (Chair)]: And so there was no excess spending threshold for a few years of pandemic time. And we're talking now about what

[Julia Richter (Joint Fiscal Office)]: was in law and active before that. Yeah, thank you. So the excess spending threshold, I should have included this, was first suspended during the pandemic. And then it was, with the funding change, further suspended in Act 127. And then ultimately reinstated in Act 183. So I spoke about this earlier. I do want to caution comparison of looking at the excess spending threshold pre Act 183 and post, because it was using a different funding formula, using different exemptions than exists under current law. And I included this here in case it was helpful. What we're looking here is the historical excess spending threshold pre Act 183 in Vermont. This is data that's available on AOE website, so you can grab the data yourself if you're interested. What we're seeing here is that it's spending per equalized pupil, so you'll recall, this is a change of how pupils are counted. This was changed in Act 127. And then, of course, it was suspended.

[Rebecca Holcombe (Member)]: I really appreciate you indicating when it's equalized spending and weighted spending, because people at home are super confused about that. And we sometimes just talk about per pupil spending and it's weighted spending, and they can't tell if we're talking weighted or just unweighted. So I really appreciate that.

[Julia Richter (Joint Fiscal Office)]: Thanks. And I do think to that end, something that's important or helpful to keep in mind is technically the legal term for pupil spending means education spending per weighted pupil.

[Rebecca Holcombe (Member)]: That can also be conflated with education spending per kid. And because we changed the way we weight it from equalized to long term weighted, there's still that tail that's showing up in budget books. And people are still confused because they're conflating them at some place.

[Emilie Kornheiser (Chair)]: And it was confusing before, and it's still confusing. Young people will be confused.

[Rebecca Holcombe (Member)]: You get to minimize taxes. Absolutely.

[Emilie Kornheiser (Chair)]: Did you go Can we look at the exemption list that Beth provided? Yeah.

[Julia Richter (Joint Fiscal Office)]: So this is Beth. This is not my slide deck, so I'm not going to speak to it. And she put this together. Here is a list of all of the exemptions that she located.

[Emilie Kornheiser (Chair)]: A little. So many attorney words.

[Charles Kimbell (Ranking Member)]: Starting in 2009.

[Julia Richter (Joint Fiscal Office)]: I don't want to comment on her slides. Yes. And it is hot linked in the slide deck, so you all can link to it yourself, too. That was the easy part.

[Emilie Kornheiser (Chair)]: It did help them, it's very helpful.

[Rebecca Holcombe (Member)]: You've said multiple times, the problem is every good intention creates unintended consequences.

[Emilie Kornheiser (Chair)]: Have I said that? I think you said that, but I do agree with the spirit. Yes. And I think we all know that it's a legislative skill to get an exemption for your district into statute. And the longer a statute sits there, the more exemptions get piled in that might even cancel each other out sometimes. Who knows? That's just part of the Band Aids and masking tape that we put on the law to hold it all together or pull it apart.

[James Masland (Member)]: I can just step out. I'll be right back.

[Emilie Kornheiser (Chair)]: Great. Enjoy yourselves. Okay. We're going to take a break in, I guess, now, actually. That was your last slide. I'm done. Okay. Does anyone have any questions for Julia? Great. So we're gonna take a break until 10:20, and then pick up with the agency of education.