Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Happy afternoon. Today is the January 29. It's still Friday. It's one

[Rep. James Masland (Member)]: Sure can.

[Rep. Carol Ode (Member)]: '20. Of course. You know?

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Thursday. Sure. The nineteenth, though. Twenty ninth. Whatever it is. Today is a day like any other day, and we are doing our work, and that matters. So here we are in ways and means. We are going to take within sort of the broad umbrella of education finance. Are gonna be talking about reserve guidance. We're gonna start off sort of big picture, national picture. Here are some best practices from School Business Managers Association and then hear from the Agency of Education. The goal is that we are really moving towards having clear guidance on reserves for districts. Yes, Representative Ode. I want

[Rep. Carol Ode (Member)]: to learn after the testimony just before lunch, after visiting the agency of education, I wanted to make a comment. My comment is, all I heard was data, data, data, and I don't know what we're spending on data and whether kids are learning better or how it's related to outcomes or whatever. And I just wanted to say, I have to say this.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: I appreciate that. The Agency of Education's budget and conversations around outcomes are all the education committee's purview. But a couple of people can pop down there for when they get their budget presentation and bring that back. But their whole budget comes out of the general fund, not out of the ed fund. It's not our thing. And we have actually, over the years, added quite a number of in the various pieces that we've passed, we have added a number of physicians for data.

[Rep. Carol Ode (Member)]: We can really I feel it's really worth it to collect all the data that's being collected.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Yeah. I mean, I know that over the last few years, we've been working really hard to actually understand what's going on. And I don't think we can do that without good data. I know that That's true. And so I ask people if they have questions for more testimony that's needed after this morning presentation. And it sounds like you'd like to have the data director back to talk about how they use the data.

[Rep. Carol Ode (Member)]: And how questions are asked of them, because how to frame a question really does everything.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Yeah, and I think there's a lot of federal stuff there that we did not get any

[Rep. Carol Ode (Member)]: Yeah, and I don't really understand it here. I don't wanna, no, but it's what's federal is federal. But anyway. Okay. Thanks.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Chris, thanks for joining us. The floor is yours.

[Chris Duncombe (Education Commission of the States)]: Great. Well, thank you to the chair and members of the committee for having me here today. Can you all hear me okay?

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: We can. Thank you.

[Chris Duncombe (Education Commission of the States)]: Great. Perfect. So my name is Chris Duncombe. I'm a principal with Education Commission of the States. We're a national policy organization serving state leaders in all 50 states. You invited me here today to speak about state policies governing local education agency fund balances or reserves. So I was going to provide a broad overview of some of the findings that we have found in our scan across the country and happy to take questions. I did want to just flag for you all that this is not a topic area that we have a 50 state database that we maintain. So I did review state statute. It's not necessarily a comprehensive review across the entire country. So there may be some examples that I did not identify. And so if there's any other states that jump out to you that you thought I might be discussing today, happy to follow-up on any of those requests. But I just wanted to put that out preliminarily before I kind of go through what we found. All right, so in terms of fund balances, obviously you all are familiar with the reasons for districts having

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Chris, I'm so sorry to interrupt you and I also, it's easier when we have folks on Zoom if we just let you say all your things and ask you questions, but are you working off of a presentation? No. Okay. Can you share your written words with us after you speak so that we can look back on them? Yeah,

[Rep. Carol Ode (Member)]: absolutely. Oh, they are posted.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Oh, okay. They are posted. Great. Okay. I'm sorry. Missed everything. Okay.

[Chris Duncombe (Education Commission of the States)]: I should have checked in to see if you had the the printed document that we provided in advance.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: We do. I was just late running into this room, and so had not actually opened the website yet. It is. The floor is yours. I'm sorry I ever said anything.

[Chris Duncombe (Education Commission of the States)]: Great, and please feel free to jump in with questions as I go, but you all familiar with reasons for districts having reserve balances, provides a cushion for unforeseen expenditures or revenue shortfalls. It can also be a stabilizing force for taxes while still being able to maintain services, can improve long term planning and enhance credit ratings. I did wanna note that if districts are maintaining large reserve funds year after year, that may be an indication of inaccurate budget forecasts which overestimate expenses, underestimate revenues or both. In terms of the state examples, I wanna clarify terminology. I'm largely speaking about unreserved fund balances. This is different from balances that have been restricted or assigned for specific purposes. This is the general fund rainy day fund that can be used for any purpose by the district. In terms of best practices, there's no real necessarily hard or fast rule that we found governing fund balance policies. We did identify that the government of finance officers association recommends a policy of maintaining a fund balance of no less than two months of regular general fund operating revenues or operating expenditures. So that's about 16.67% of revenues or expenditures. I imagine that the Association of School Business Officers from Vermont may have a perspective on that more specific to school districts in Vermont. As part of our national scan, we identified that most states have a maximum limit on LEA fund balances and typically only guidance around minimum limits. That limit ranges from the lowest limit is 4% in New York and the largest is 48% in Oklahoma. These ranges, these limits may range based upon criteria in the state that includes the size of the school district or the amount of per pupil expenditures. Typically there is a lower limit for larger school districts and a higher limit for smaller school districts, recognizing that smaller school districts may have more volatility in their revenue and expenditures. And then in to enforce these limits, some states will reduce state aid payments to districts in the amount that they exceed those fund balance limits, but some states do not have a financial penalty from the state. So that is a big distinction in how states use these fund balance reserve policies. New York, which has the lowest limit that I mentioned, does not reduce state funding by the amount, the surplus or excessive revenue. They do direct districts to lower their property tax levy by that amount, but there's not a financial penalty from the state. There has been legislation in past years to have a financial penalty, but they do not currently have any financial penalty for exceeding those limits. The trend that we've seen in states are states loosening those limits in recent years. North Dakota has a moratorium on their limit and they extended that to 2027. Their fund balance limit is 35%. Wyoming increased their limit. In fact, they doubled their limit in 2024 from 15 to 30%. There is a few states with active legislation right now that is being discussed to change their fund balance limit policy. New York has legislation to increase their limit, which I mentioned is the lowest in the country from four to 6%, and Oklahoma has legislation to eliminate their fund balance limit entirely. As I mentioned that these policies are mostly maximum limits, not minimum limits. Typically on the minimum side, that is just guidance that the state offers. I did find as part of my review after the completion of that summary that I can provide to members of the committee in California, I found policy regulations. So these were adopted by the State Board of Education and not enacted in state statute, but regulations with fund balance minimums. And that's the only example that I was able to identify of minimum requirements. Their minimums that they have for school districts varies based upon the size of the school district ranges from 5% for their smallest school districts that have less than 300 students. So these are very small school districts up to 1%, which is for their largest school districts that are 250,000 or more. And then there's ranges in between that I can articulate or I can send to you in written format, however works the best for you. But I did wanna note that this example from California was not included in the document I shared because I found it in regulations as opposed to state statute just recently. So that's kind of a broad overview of best practices and what we're seeing with states in terms of these policies. I'm happy to take any questions or provide any follow-up resources that would be useful for members of the committee.

[Rep. Carol Ode (Member)]: Yeah, Representative Ode. Thank you. In New York, I didn't quite catch it, they don't decrease state funding by the amount of reserve. They decrease the amount your increase can be, is that mandatory that you can't use it to decrease your, what would otherwise be a tax increase? Did I say that?

[Chris Duncombe (Education Commission of the States)]: Thank you, representative. The way and I have some of the language in the one in the explainer, but they direct districts to decrease their property tax levy by the amount that they exceed the threshold limit.

[Rep. Carol Ode (Member)]: It's like a requirement.

[Chris Duncombe (Education Commission of the States)]: It's a requirement. I do not know what the enforcement mechanism is. There isn't a financial one in legislation or how regularly it is enforced, but I can talk with our state relations team here at ECS to see if we can reach out to someone at the state if there's interest in learning more about that policy. But they're just in the actual language itself. I don't see the teeth that you see in some of the other state statutes where it's very clear that the state reduces the aid going to districts by that amount.

[Rep. Carol Ode (Member)]: Thank you. Just want to jump to the fire, but thank you, Rob. Thank you.

[Rep. Rebecca Holcombe (Member)]: Chris, two questions. One is for all the states you were looking at and you referred to, how many of those were using a foundation formula, so where the state is actually directing how much money is getting sent to the schools? And the second question is, is there any provision for those reserves to be held for a school construction project, like a sinking fund for capital expenditures?

[Chris Duncombe (Education Commission of the States)]: Thank you for that question, representative. In terms of states with foundation formulas, most would fit in there, North Dakota, New York, Oklahoma, Arkansas, California, Pennsylvania. So Texas, I think those are the examples I have. I think actually all of them have a foundation. No, Wyoming being the difference. So Wyoming would be the only state that provided in that overview that doesn't have a student based foundation formula. Other than that, they all do. In regards to your second question, most of the state examples in the legislation itself refers to unreserved or uncommitted dollars for their fund balance. So my understanding is if there was a designation by the board or if they were put into a separate reserve account that those would not be go into the calculation for their unreserved fund balance. And therefore, if you were had money dedicated for capital planning or capital investments, that would not go into this calculation.

[Rep. James Masland (Member)]: Great. Thank you. Yeah.

[Rep. Carol Ode (Member)]: And so when

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: sort of looking across the states, are you seeing states where they allow 10 different kinds of reserves for different purposes and all of those reserves add up to the reserve maximum? Or is it a single reserve that the reserve maximum applies to? And then slightly separate question. In looking across all the statute, do you see an emerging best practice model? I don't want to call it a model law because that's sort of more explicit term, but is there any consistency?

[Chris Duncombe (Education Commission of the States)]: Thank you, representative. In regards to your first question about reserves, the policy is generally around the the unreserved fund balance. So I I don't see policies in statute or regulations typically governing the other reserves that they have. And that was just based upon this this review that I completed. In regards to your second question around best practice or trends, For the trends, there had been a period of very positive financial positions for districts. That outlook has changed recently, but because of the positive financial position, districts were exceeding those limits. And so that's why we saw states loosen the maximum amounts because districts with particularly with the amount of federal emergency relief that they were trying to spend down, were having difficulty spending funds in appropriate ways. And so they saw their reserves grow and that's, you know, a positive thing to have happen, particularly now when those federal dollars are gone and the financial outlook for many states and local governments has shifted as well. So I would expect that reserves to be used in the coming years as opposed to growing. I do think that having guidance for districts as opposed to regulations or having varied size of the fund balance limits based on school district size is important just because small districts may have more volatility in their revenue or their expenditures, and so providing them with more flexibility can be positive. For example, California and their limits that they do have, they exempt their smaller school districts from those limits entirely.

[Rep. Carol Ode (Member)]: Thank you.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Anyone else? Thank you so much for your time, Chris, and for the memo. Really appreciate it. A number of the committee will follow-up with questions.

[Chris Duncombe (Education Commission of the States)]: Great. Thank you, representative. And I'll provide you that additional citation that is not in the memo just directly to you to share with the committee, if that works.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Thanks. Yeah, that's fine. You could also just send it to Sorsha.

[Chris Duncombe (Education Commission of the States)]: Okay. Great. Works Thank you all.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Elizabeth and Heather, are you? You can self organize. Welcome, gloris.

[Elizabeth (President, Vermont Association of School Business Officials)]: Hello everybody. Yes, I have Heather here with me today. We want to thank you for the opportunity to testify on behalf of FASBO. Heather is our past president of FASBO from last fiscal year, and I'm the current president of FASBO. And I think I'm gonna go through our testimony that we created together first, and then I'm gonna have Heather chime in. She's gonna talk about kind of some historical information in regards to this same topic, because this is not really a new topic for us. With past presidents prior to both Heather and myself, this has been a topic of conversation. And so we've been able to pull some of that history in our testimony today. So we're here today to speak about the best practices for school district fund balance reserves, why they matter and why Vermont would benefit from a clearer statewide guidance on what constitutes the appropriate reserve levels. Fund balance is often misunderstood as excess or unused money in practice. It functions as working capital and financial insurance, allowing our school districts to manage their cash flow, respond to unforeseen events, maintain stable educational services in the face of volatility. According to the national best practices published by the GFOA, which is the Government Finance Officers Association, maintaining adequate unrestricted fund balance is essential to mitigate revenue shortfalls, address unanticipated expenditures, and avoid sudden program reductions or tax increases. These risks are especially relevant for school districts, which operate within fixed fiscal years and have limited flexibility once our budgets are approved by our voters. The ASBO, which is the association that is more national for the professional community, consistently frames fund balance as not as surplus, but as working capital necessary to avoid short term borrowing, ensure program continuity and manage timing difference between revenues and expenditures. The GFOA recommends that at a minimum general purpose governments maintain unrestricted fund balance equal, as Chris shared, to no less than two months worth of operating general fund capital for revenue and expenditures. Importantly, they emphasize that this minimum is not a target or a ceiling, but it's a floor that should be adjusted upward based on each entity's risk profile, their revenue volatility, their exposure to one time costs and their cash flow timing. Additionally, their guidance cautions against evaluating reserves in isolation or using a single rigid metric. Instead, reserve levels should be considered with a broader framework of risk analysis, long term forecasting and financial transparency. Reserves function best when they're governed by a formal policy that clearly defines the purpose of the reserves, the conditions for their use, the expectations for replenishment when reserves are drawn down. This policy based approach helps communities understand that reserves are not hoarded funds, but a deliberate and necessary financial management tool. And why does this matter in Vermont? Vermont school districts faced unique challenges that heightened the importance of our prudent reserves. Reliance on education funding mechanisms that are sensitive to enrollment shifts and state economic conditions. Exposure to one time cost pressures, including special education placements and facilities emergencies, limited authority to adjust spending mid year without voter approval. And despite these realities, Vermont currently lacks clear, consistent guidance on what constitutes an appropriate level of general fund reserve for school districts. As a result, districts receive mixed signals. Some are criticized for having too much fund balance while others will struggle to create any reserve balances often without a shared framework to explain those decisions to their taxpayers and policymakers. Many Vermont school districts and supervisory unions do not currently have a formally adopted fund balance or reserve policy approved by their governing boards. While some entities follow informal practices or internal procedures, the absence of a formally established policy creates inconsistency and financial vulnerability. Independent audit firms have recommended that districts would adopt formal fund balance and reserve policies to address the risks associated. Across the state, the existence and level of reserves varies widely. Some districts and supervisor unions have established reserves while others have none. Where reserves do exist, they are most commonly restricted to capital improvements or facilities related purposes. Fewer districts maintain operational or educational stabilization reserves and only a very small number have established a health insurance reserve. To our knowledge, no Vermont school district or supervisory union currently maintains reserves sufficient to cover approximately two months of their operating expenditures. In any public or private enterprise operating without a reasonable level of reserves would be considered unsound financial management and would expose them to unnecessary financial risk. Our request to the committee, we respectfully request that the Vermont legislature direct the agency of education to partner with VASBO to deliver guidance as directed by section seven of act 183, H. A. 87 from 2024. The work should include identifying and communicating a recommended range for general fund reserves for Vermont school districts grounded in nationally recognized best practices, such as those established by the GFOA. We are not advocating for a statutory mandate or a one size fits all requirement. Rather, we believe that this guidance could establish a baseline range for, or a minimum benchmark such as the GFOA two month standard, or a percentage of a school district's operating budget. It could encourage districts to adopt formal fund balance policies, promote transparency and consistency in how we reserve levels are explained to voters, boards, and the legislature. It could reduce confusion and misinterpretation when fund balance levels fluctuate from year to year. This guidance would strengthen our local governance while respecting Vermont's tradition of local control. And in closing, we would say the sound financial management is not about accumulating excess resources. It's about ensuring stability, predictability, and continuity of public education. Fund balance reserves are a critical part of that stability. Clear guidance from the agency of education aligned with our national best practices would help school districts make prudent decisions while maintaining public trust. And on behalf of the Vermont Association of School Business Officials, we wanna thank you for your time and your continued commitment to responsible stewardship of our education funding. Thank you.

[Rep. Carol Ode (Member)]: Heather, Yeah, do you wanna chime

[Heather (Past President, Vermont Association of School Business Officials)]: I think I will just add, you know, as we noted, there was guidance that came out in 2024 in Act 183 that that spoke to this issue. And, you know, I continue to be an advocate for trying to come up with some guidance. I think, you know, particularly as we've been going through these last couple of years with threats to federal funding declining. And last year, all districts were in a place where we didn't think we were going to get some of our title funds. And so having reserves help school districts be able to deal with those types of things in a responsible way and and also helps us, you know, in a in a situation where we're not having to rely on tax anticipation notes as much, which, you know, with interest rates on those tax anticipation notes, if we have adequate cash flow and reserves, we're able to sort of finance our timing of when we get our payments through the state education fund versus when our bills become due. And, you know, that saves everyone money by not having to, you know, pay interest on those tax anticipation notes. So I've been around a little bit for this conversation as it started in 2024. And so I'm happy to, with Elizabeth, answer any questions that that we can.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Thanks. Can you start by just telling us a little bit about how you think of the differences between reserves and unobligated funds and reserves that are sort of specific to things like capital maintenance or capital construction?

[Heather (Past President, Vermont Association of School Business Officials)]: Yeah. I can start, Elizabeth, and then if you have something that I missed, let me know. I think that the unrestricted reserves, which would be the place where we're looking for guidance, helps districts to sort of manage those cash flow issues, unexpected revenue loss, unexpected expenses that may come in, which could very well be, you know, a roof started leaking and we didn't anticipate it, and now we need to fix that. And then as we look at districts, there is a lot of variability in what districts have for assigned or committed funds. Can be special education related, facilities related. And I do think, as we heard Chris speak to some of the policies that are out there, it is good to have a maximum amount too, because we want to get to a place where unrestricted dollars are just growing and growing and growing and not being utilized to offset the impact to taxpayers. So while, you know, I would advocate for a minimum, I also think there's a place for a maximum on that. I think we know as a state, we've struggled with districts to be able to afford capital costs that are coming up. So I would worry about a limit on that because I think right now we're really in this crisis of having real costs to maintain our buildings and keep them open for students to have safe and healthy schools. And we have to have the flexibility to put funds aside to be able to do that, absent any state funding that we haven't had for a very long time. So I hope that answered the question, but Elizabeth, is there anything else that I didn't speak to that you would add to that?

[Elizabeth (President, Vermont Association of School Business Officials)]: The only thing I would add is as I think about what you were saying, another area that kind of makes things inequitable for many school districts in Vermont is that oftentimes districts that have the capacity to be able to ask voters to set aside reserves, they typically have an easier time getting in a reserve that is specific to say capital improvements passed through voters. Whereas once we start talking about an education stabilization reserve or something that's just an operating reserve for all those purposes that Heather was saying, people are a little bit afraid of that. They don't really like the idea that it's not got a specific purpose that's designated and restricted. And so they tend to not be as willing to vote those things forward. And even at a board standpoint, even if it never makes it to voters, boards typically will kind of assess that possibly those communities aren't going to approve such a thing. And so they're more willing to set up a capital reserve or a restricted reserve of some kind. And it just leaves all of these districts open to not having any of that unrestricted reserve money to fall back on.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: And so what I think I hear you saying, please correct me if I'm wrong, is that by having clear guidance on this, districts would be able to follow best management practices and have something to tell voters and boards about why they're following best management practices.

[Rep. Carol Ode (Member)]: Yes, exactly. Great. Thanks.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: One more question, then Representative Ode has a question. We've been having a well, we've always had conversations here in the legislature about our really excess use of special funds, which we use similarly, I think, in some ways to how you're describing some of the specific reserve that you're talking about, which is it is more politically palatable to tuck money away and put a fancy title on it than it is to just keep the money sitting there or raise it just to sit there or whatever it is. And it, in a lot of ways, becomes this year in particular, it seems like it's gotten extra silly as money is being just pulled out and put into almost all of them. And so I wonder, thinking about the number of reserves with specific types of reserve accounts and how that might sort of create more privilege for one district over another, and I don't know, things like that, if you have thoughts on that. Maybe that's too abstract question.

[Elizabeth (President, Vermont Association of School Business Officials)]: Think that yes, I think that districts will use that in some ways if they know that they can get certain more approval easier by restricting the different funds and what they're going to be utilized for. It's much easier to separate them out into multiple different categories such as capital improvement or health insurance or special education. Therefore voters may feel more confident that those funds are going to be restricted and used for specific purpose. I think it does disadvantage other school districts that are unable. Maybe they don't have the resources to be able to set aside. Maybe they have no surplus funds that they could request to be set aside, or it could be also a situation where they just know that voters in their communities aren't going to approve them. I think it goes both ways. I think it, you know, maybe it looks like they have a smaller overall dollar amount set aside in reserves if they're designating them into multiple pots of money or funds rather than having one big ed stabilization that has, you know, millions of dollars in it. Maybe they feel like that looks better and makes it more palatable, but I think overall that districts are disadvantaged in cases where they can't have any kind of reserves. And then when you restrict the reserves that they do have to be in say capital improvements only, what if they have a fund balance shortfall in their general operating because of something that's completely out of their control? They have no ability to go back and you know, retrace that money that's in a capital improvement fund that would otherwise be available and use it for a different purpose. They would have to go through the whole process of going back out to voters, having a new article and having that voted upon in order to access any of that fund for a different purpose. So it just makes it really super complicated. Representative Woody.

[Rep. Carolyn Branagan (Member)]: Well,

[Rep. Carol Ode (Member)]: with Act 73, unless a school district needs supplemental district spending, voters won't have any direct budget vote at all. So, if you're going to have a recommendation for best practice, do you think that it should be a shall or a should or?

[Elizabeth (President, Vermont Association of School Business Officials)]: For just to kind of backtrack a little bit when we talk about voter approval for budgets and and how Act 73 could be different, I think there's also a misunderstanding of how districts can set aside funds into a reserve. There's So a couple of different ways that they can do that. They can put it in their general fund budget as a line item. And when voters approve, if they have authority to approve a budget in that manner, they would be essentially approving that amount of money to go into a reserve by approving the overall budget. However, a lot of school districts don't necessarily do it that way. A lot of them will create a separate warned article that they'll put before voters, which is completely separate from their general operating budget to make it very clear about what they're intending to do with that money and where they're going to set it aside and reserve it.

[Heather (Past President, Vermont Association of School Business Officials)]: Thank you. Yeah, so I think it highlights a little bit of a challenge with Act 73 that if taxpayers are no longer voting on a budget, we don't have a great mechanism as districts to be able to set aside fund balance because right now the statute requires that it go before voter approval. So I think this is something that does need to be considered in in partnership with Act 73. And And I do always think that a may rather than a must is a good place to start things because you know, we at Essex Westford, for example, even though perhaps we would be identified as a district that is well resourced, we haven't ever had a fund balance reserve. We just established our policy with our board and are just starting to do some of that work. And we've had to rely heavily on a tax anticipation note and making sure that we get those funds right away at the beginning of the year because the timing in which we get our funds from the state is in a few separate payments. And so we have to float those expenses until we get the money from the state. So that's just a reality of what we face as school I'm

[Rep. Carol Ode (Member)]: thinking about Act 73 and some things that both of you said. Once a budget passes, there's little flexibility in how you can spend the money. True or false? Yeah, I think I heard you say that. All right, so then changing spending mid year without voter approval doesn't happen. One of you said that. And I think that's kind of how it looks too, with my experience. So I am concerned that if a school district, if the voters don't vote on a budget, they don't need any supplemental district spending, then really the school board could say, well, this is what we're voting our budget to be. And then two months later, they could say, notwithstanding that vote, we are going to do this next thing. The voters never get to weigh in on what that budget is. Can you react?

[Heather (Past President, Vermont Association of School Business Officials)]: I believe that is a true statement under the way Act 73 was written and then approved by the legislature.

[Rep. Carol Ode (Member)]: And what's your reaction to that? Like, do you have any concerns when you hear that? Do you feel like there could be governance issues with that between a superintendent of school board? Where could that go wrong?

[Rep. James Masland (Member)]: Yeah,

[Heather (Past President, Vermont Association of School Business Officials)]: you know, I think what we know today is that we have challenges with votes and districts that are struggling to pass budgets in their towns. Slate Valley, as an example, is one that, I don't I think maybe five times that went out to vote, and they just they're a really low spending district because they can't get their town to approve their budgets. And so I I think those are our tensions. Right? Like, we know right now with the system we have today that we have these inequities because voters just will not approve spending in some towns. And then we're shifting to a model whereby that would go away. And I haven't lived under that new model, so I don't have experience to draw from to be able to share with you what that looks like in the future state.

[Rep. Carol Ode (Member)]: Madam Chair.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Sorry, Madam Chair, can I ask a question about that? I think Representative Burkhardt is next, but then we can go

[Beth St. James (Office of Legislative Counsel)]: Yep. To

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Just can't see. Sorry. No. I get it.

[Rep. Bridget Burkhardt (Clerk)]: Have one clarification. I just wanna clarify,

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: and then I do have a question. Can I do both of Yeah? Of course.

[Rep. Bridget Burkhardt (Clerk)]: Okay. I'm confused now because when I was on the school board, my understanding was that once we passed a budget, we're not passing a line item budget where everything that goes to a specific purpose has to go to that purpose. Basically, once that amount of money is approved by the voters, the administration of the school district can reallocate that between line items and things. Because now in a lot of districts, I know in South Burlington, for example, the voters don't even see what those line items are. There's a budget that's presented. It says spending is going to go up X percentage, spending for people is going go up X percentage and we vote on that. But we don't vote on New York going to hire six special education teachers and we are going to do away with this program. They may present that as how they're getting to that number, but they are not tied to that once. I just wanna clarify, that's helpful.

[Heather (Past President, Vermont Association of School Business Officials)]: That is true. That is true. We are limited to that appropriation amount. So going above and beyond that appropriation amount, again, if circumstances arise, we can do that, but it needs to be by statute addressed in the next year's budget on you know? So you're you're just sort of pushing that down the road of if you're you need to spend beyond your appropriation. And, like, as we're operating in this space where federal funds are really volatile right now, I think we're talking about potentially some large numbers at risk for districts that could result in them either needing to figure out how they're going to cut other things to be able to afford to continue to do their programming that was funded by federal dollars, or they're spending beyond their appropriation. And I think district by district that depends on sort of policy governance and what things are written into their board policies that allow them to, know, what restrictions they have on spending beyond that appropriation authority. Elizabeth, is there something you would say differently?

[Elizabeth (President, Vermont Association of School Business Officials)]: Yeah, no, not different, but just to add to that, when we were talking about, so yes, as your general fund budget is voted in, it's not necessarily, the voters are voting on a bottom line appropriation that you have basically explained, usually what you think you're going to accomplish with that money and how you're going to go about it. You can change within that what your plan is and how you actually end up spending that money. What I was talking about in regards to restricted is if your voters approved either a separate article or something indicating that you were going to reserve funds into a specific restricted capital improvement fund or some other kind of reserve, you would no longer, once that vote passes, you would know that is different. You are not able to move that money for any other intended purpose because you had voter approval to do that one restricted thing. So it's restricting you in that way, and that is different than a general fund budget.

[Rep. Bridget Burkhardt (Clerk)]: That's helpful. Thank you. And then my question was, could you see a scenario under Act 73 where a district that's had trouble passing budgets so far, it's underspending, if you will, right now, and they are given an allocation of funds under Act 73 under the foundation formula, could you see a scenario where they simply build up funds for a few years, don't necessarily spend them, and then take a tax holiday or basically keep taxes lower than they were intended to be under Act 73, even if we're saying you need to be spending this money on programming.

[Elizabeth (President, Vermont Association of School Business Officials)]: Think, Heather, am I correct that if you actually were able, like as you said, they would generate a surplus from year over year because the amount of money they're receiving per student is not what they're actually spending. They're receiving more in the foundation formula in that situation than what it's costing them per pupil for a period of time. So they're generating a surplus and you're saying that they would later on be able to put that funding towards the tax rate. I'm curious about how that actually works in Act 73 because each fiscal year that foundation formula is set and their dollar amount they're gonna receive is gonna be set and that's what their tax rate is being based on. I believe surpluses would have to have another mechanism of what do you do with them? I don't know if they would be able to be used to decrease the tax rate in any given year. I almost feel like the way it's written, you would almost be forcing districts to reserve that money or request to reserve that money into one of these other balanced reserves. And maybe that's the way those school districts would be able to gain an actual reserve account. But I just don't quite clearly understand how they would use surplus money the same way we do today, where we have a choice between either asking voters to put it in a reserve or putting it back against the budget the following year. Because there's a

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: there would be a state like that that wouldn't be based on local spending.

[Rep. Carol Ode (Member)]: I think they could do what I don't she suggest, don't you? I don't want, and I don't think Elizabeth does either, but we

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: can take some more testimony from our staff team to clarify later. Does anyone have any

[Heather (Past President, Vermont Association of School Business Officials)]: And I will just say, yes, I do have that concern. Do, you know, we've had other times in which we had hoped that legislation would give lower spending districts the ability to spend more, and that hasn't always panned out the way we had hoped it would. So it is absolutely a question for me.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Representative Bushbone? That was actually my question. I think it also applies to the transition in 01/1927. When we gave some districts additional tax capacity, they chose to actually still reduce spending. And so the question is if you set, for example, a base or a foundation level, even under the current system, there's no way to know that it couldn't be banked and used to offset tax rates or tax expenditures in future years. Well, take some more testimony. My understanding is that Act 73 sets a tax rate regardless of what your spending is. And so it could be used to bank for reserves, which I think would benefit some districts, but couldn't be used to offset taxes. We can take more testimony on it. Do you anyone else for the business managers? K. Thank you both so much for all that you're doing in our communities and for how often you show up here to answer our questions.

[Elizabeth (President, Vermont Association of School Business Officials)]: Thank you for having us.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Take care. Can I just put a

[Rep. Bridget Burkhardt (Clerk)]: You would ask for additional testimony? I would really love to have testimony from school business managers or a school business manager just for the committee's understanding of how a school budget works.

[Rep. Carol Ode (Member)]: Can we Yeah, that'd

[Beth St. James (Office of Legislative Counsel)]: be great.

[Rep. Carol Ode (Member)]: Would also need to hear from the superintendent, because I am a school board chair, because I think things could be very different from one superintendent to the next. Okay. Know what we say in our town, we're gonna add three of this and subtract two of that. That's what you have to do. I mean, I know.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. We will take testimony about that. Absolutely. Thank you for the reminder about that. I had it on the list, but the list shouldn't go into the next list. Would the AOE team like to join us? And there's that second chair there, if you wanna sit next to each other and represent, while Zazak is not is inside the Zoom today, so his desk is up for grabs.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Okay, so thanks for having us. I'm Kelly Murphy. I'm the Education Finance Director. And here with me, I've got Cassandra Ryan, she's our Chief Financial Officer at the agency. I'm going to share my screen so we can go over the slides that we do have posted. I'm happy to take any questions at that point. So some of this may be a little bit redundant based on the testimony that we've already heard, but really what we wanted to start with is just sort of the high level overview and definition of the funds or fund balances that we're talking about. I also want to register that I realize that I'm entering the stream in this conversation when it's already been happening for quite some time. So please forgive me if something that is in the slides is not up to speed, but I will work

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: to get there. We appreciate how much you got thrown into the I don't want to pick whatever metaphor is necessary here. Just want to say thank you for being here.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Glad to be here. So just to start here, we've got the definition and scope of the fund balance. The reason why I just wanted to sort of call this was just when we look at what falls to the bottom line, it's a surplus or deficit, it's a net of asset and liabilities. And there's a lot that kind of goes into it. We're talking about reserves specifically. There's also a throughput here. So when you talk about fund balance and you talk about sort of the accounting terms, I just want to distill very basically sort of what we're looking at, because this also helps inform, I think, what the guidance might be for a balance. And as we talked about in testimony previously, there are many things that districts may reserve money for, and so they wouldn't necessarily be available on the bottom line. And that varies from district to district. So I can get into the categories or classifications, but they are levels or shades. So non spendable is just off the table, not available. And so I just sort of indicated what each of them are. And then also going down to unassigned, which is really what we want to be thinking about. This will come up in a future slide, just so you have it. And then just reserves are really important for the financial management school Rutland,

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: can you ask them to play it out there?

[Rep. James Masland (Member)]: Healthcare function.

[Rep. Carol Ode (Member)]: What's going

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: on with there? Something's fun.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Sounds like it. All right. We've got the source here, sort of their industry standards. And so you can reference back if you want to. So for statutory reference or frame of reference, as I was sort of orienting myself to this conversation, the first statute is associated with the secretary's ability to gather the information. So on the reserves. So we've got that specific reference. The next is on surplus, but really gets into how districts could reserve these funds. And so they have a couple of options. The first is that they would carry it forward in revenue year over year. And then the next two are pretty specific in terms of applying it to a capital expenditure or reserving it for some other purpose. And so it is prescribed in statute how those reserves would work. And we need to talk about that and that'll kind of get into Act 73 and what the agency's guidance might be going forward. And then also here, did reference what the charge was from Act 183 of 24 in the yield bill. That's important too when we do hear that guidance. And then the next piece is just Act 73 and the advisory committee and the work that needs to be done there. And I think based on the testimony that we just heard, there is some nuance there that we'll wanna talk through. And so that is all to say that we are here for the conversation and we're committed to working it through. So I put this slide in because we wanted to kind of register the positioning around reserves and how we've had this conversation to date. So we understand that's a need, but we also have not issued guidance at this point. And we are also kind of waiting to see what happens and takes hold with Act 73. So I just wanted to register that piece here. Next is the exciting or interesting part. So the good news is we collect the data. And I know you heard this data, data, data piece earlier, but it's important and we are taking stock in it. But what I will also say is that there's work to be done in sort of what we're finding within that data and how we might be able to use it. And so in this slide, what we've broken down is just so we can demonstrate where we pulled it from. So this comes from the annual stat book collection, which is where we get all the information from the districts. We pull it through a supplemental worksheet. The point in time is kind of a look back. So we would be looking at the prior year when we get this information in. The second bullet here is associated with what districts have registered as the use of those funds. And so in this word soup here, there's many different things, and they probably would be classified differently as a type. So for instance, some might be restricted, some might be unassigned. And so there's some variability there. And so I just want to call that. But there are things that you would anticipate that folks would be using this funding for.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: When you say variability, do you mean that one district might label the same thing differently than another district?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Yeah. Be a Or it different type of use. You know what I mean? There's some It's a good example. So there's capital reserve or there's tax stabilization. And so that tax stabilization piece, you may say stabilization, but then it also might be for a reduction in taxes. And so we would really probably need to get into the specifics and nuances around that. And I also wanted to put this all in here because they're all good uses. And so it's just not a judgment, but just the money is put to good use. So in this next bullet, it's just a range. So we have this file. We do have information. But as you can see, it's a wide range. So one district at the low end of the range is in the red to about $700,000 And then we have a district at the higher end of the range, which is to the good about 17,300,000.0. And the reason why I wanted to show the range and then also in the examples below, do call out the 17,300,000.0. And it's important because in the 17,300,000.0, there are separate classifications for that fund balance. So when we talk about the types of fund balance that we have. So for instance, this, just getting into the examples, in this district, we've got $17,300,000 14,600,000.0 is committed for programming or special services. So they've made that decision. That funding is no longer available to just spend. It's for a specific purpose. The next is non spendable at 302,000. And so that would be things like prepaids for contracts. Like, for example, I don't know what it is specifically because I haven't talked to this district, but it could be something like an auditing contract or insurance or something like that, that they pay ahead in advance. And then the last is, I think the most important piece and is critical to this conversation is the unassigned fund balance. So that's what's available. So of that 17,300,000.0, there's actually 2.4 that's unspoken for. And so on a percentage basis, that's not really a ton. Dollars 2,400,000.0 is a lot to me, for this district and what their full budget is, which is in the 90s, is pretty high.

[Rep. Carol Ode (Member)]: So when I see that $14,600,000 committed for programs and special projects, are you coming in, when you look at that, don't know, I'll say, you thinking on July 30, that 14,000,000 is there, and as they're using the things that they budgeted for, that is spent.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: It could be, exactly. And you could also be getting into this conversation around what's budgeted versus what's actually booked in the audit. So there's a point in time there too. But also just in terms of the timing, it is point in time. So it would be sort of like a point in time at that audit, but then it would be totally spent down and changed over the course

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: of time.

[Rep. Carol Ode (Member)]: Yeah. So, how

[Rep. James Masland (Member)]: would you

[Rep. Carol Ode (Member)]: think it should be handled if you were really going to compare apples to apples?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Well, so I think what's important and the reason why I wanted to provide some definitions upfront is thankfully we do have an accounting language that does sort of capture the types of fund balance. This one is committed and has a specific purpose decided on by that district. And so there are some local decisions up by. So

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: then Well,

[Unidentified Committee Member]: after attending the luncheon yesterday, Cassandra was talking about federal funds. So that must come into play here too if any of those reserves are contained in the federal funds that

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: the trustee Yes,

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: so not in this particular example. However, if you do look back at the descriptions, the committed funds would be the federal piece of that. So there is a designation associated with federal funds specifically. So whether it's the funds or something like that, those would be a separate of action committed restricted and misspoke.

[Unidentified Committee Member]: They wouldn't get mixed in with some

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: No, so there would be a specific classification. That is a really good question and how it all plays together. And also to say that if you're looking at a fund balance, there's a lot tied up in it. And so there may be a discrete piece that's actually available of the total. So these other examples, and the reason why I brought these forward is because they demonstrate variability in the data that we have. And so we do have a lot of good information, but there's also a lot more work to be done around this so that we can help inform. So this next one, we looked at the detail that was provided from the districts and admittedly we could provide guidance on this. And you'll see in our recommendations going forward that we'd like to. So the district reported that this fund balance type is unassigned, but then classified it as capital facilities, buildings and maintenance. And you can kind of see how those two pieces don't really quite match up. So we would wanna kind of figure out what that means. And I know we've been talking a little bit about capital expenditures and how one district over another may reserve them or not. And so there's a little bit of variability there that we're seeing that we wanna kind of dig into. And then this last piece here is that when we were looking at the detail that we collect, we wanted to take a look at the audit because that is the document of record to make sure that the unassigned fund balance, which is available in all the audits, matched what we had. And in the test that we did, it did not, which just means that it's a timing issue with when the data was reported and maybe when they received their final audit. Because typically with the timeline for audits is that you close your fiscal year out on June 30, but then you might not have final numbers until the fall or late fall. So there's just variability in the timing, there's variability in the classifications, and then there's just a whole range of options depending on which district it is. So just getting into current state and key considerations. Currently there are no statutory reserve caps or targets, which we know any statutory change that would be recommended. We would really want to make sure that there is a deep understanding of the impact on school districts, because there is just such a variability to them in terms of their individual circumstances. So what might be good for one might not be good for another. And we would just wanna make sure that it's just not a one size fits all sort of situation. And so we need to talk about that. And so we also heard earlier, but consistent with GFOA, we pulled similar guidance just for consideration. So the two months, looked at some policies and saw 5% to 15%. And based on what the Commission on States, the gentleman testified, that could be different depending on what that district is experiencing. We did do a quick sort of back of the envelope to see what the district's budgets were in 'twenty four, and then what they were for an assigned fund balance and the variability in what districts actually had available, which I think would help inform a policy. We want to work with our partners at FASB to ensure that we had a good sense of what would make sense. So next steps for us. So this has been eye opening, certainly for me, because I know that that's probably not a shocker at this point. But we really would want to improve the data and we've got committed partners. So we've got some really good things going for us, I'd say. But we really probably would want to enhance the accuracy, consistency and reliability and tying that back to standard documents of record and just making sure that it's transparent. We want to improve some of the standardization around the data that we're collecting so that we've got procedures around it, that there's formalized workflows. People know what they're getting when they're looking at this. And then we would love to provide training on reserve collection and reporting tied to the annual audit, just so that we're working with our partners out there in the fields that we're then also reporting out and bringing back is helpful for decision making. And then we are committed to understanding the current state and how it will then flow into future state. So that's what I have prepared for today. Any questions, I can take them.

[Rep. Carol Ode (Member)]: Since the earliest that we would get foundation formulas, 2029, do you think we should fix some studies now make some choices now, and have them go into effect now, rather than wait for 2029 and then 2029 roll it into that? What do you think? Well, that sounds like some policy. I hear that. Sorry about the policy

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: question. What would be easier for

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: It's reasonable for the agency to comment on policy recommendations. We actually look to you on that.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Yes, thank you for that also. So we are happy to come back with some guidance on what that might look like and what some options might be.

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: Yeah, I think it is reasonable. I just want to comment on that. It is absolutely reasonable to look to the agency for policy,

[Rep. Carol Ode (Member)]: but not everyone at the agency will be commenting on.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Thank you. Yes. Appreciate that nuance.

[Rep. Carol Ode (Member)]: I just, one thing, that there shouldn't be a one size fits all, but we are going toward more of a one size fits all system. So then I think to myself, why maybe you put in May so you don't have to write all the rules and if you happen to be billed to this thirteenth year paying back the thing then you have May, but unless you're doing a lot of this training and chewing up from district to district, things could go all right. I mean, they could just go in many, many different directions, which may be okay, but.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: I think I lost your question.

[Rep. Carol Ode (Member)]: Yeah, sorry. Oh, well, it's to be thinking about when you come back, the other thing is how much do we want to say may and how much we want to say shall, but Act 73 is trying to get things more in line, Or do we say, you can't possibly envision how each specific circumstance is going to work and write rules to go with that, so better to just say, so if you could, would you, here's the question, would you think about that?

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: Let's take a note on it.

[Rep. Carol Ode (Member)]: I'm not doing that right now.

[Rep. Rebecca Holcombe (Member)]: Pursuant to our conversation yesterday about uniform chart of accounts, you listed about seven or eight different potential reserve types of accounts, each is a little different. Are those consistently entered on the uniform chart of accounts under fund balances for different things?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: So the types of funds are categories or buckets and not necessarily account codes per se. And so those account codes may, depending on what it is, fall into a certain category of bucket or be classified in that way. So it's a little bit of a nuanced answer to your question.

[Rep. Rebecca Holcombe (Member)]: Is the reserve a bucket or a code?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: You could have an account code for a reserve.

[Rep. James Masland (Member)]: Reserve,

[Rep. Rebecca Holcombe (Member)]: okay. And then the overall bucket, that would be a consolidation of the different codes.

[Rep. James Masland (Member)]: Yes. Is

[Rep. Rebecca Holcombe (Member)]: that right? Yeah.

[Rep. James Masland (Member)]: Alright. I was just trying

[Rep. Rebecca Holcombe (Member)]: to figure out how you're tracking it now, and I know you talked about the variability, and that's very interesting. I just didn't know how many different type of funds are being managed by different school districts. Municipalities are all different with the different specific funds for a new fire truck or for police station, all that kind of stuff, I haven't seen that same reserve fund accounting at the school level.

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: So both are fund accounting. And with a municipality, it's a little bit different because you do have some enterprise funds, for example, and monthly definitely has a few. But for the purposes of what we're talking about today, we're talking about general operating, which is what this would fall into. So yes, there is classification in how they're registered.

[Rep. Carol Ode (Member)]: Robertson Rosland? Did you Did you to say something?

[Rep. James Masland (Member)]: I'm sorry.

[Rep. Carol Ode (Member)]: You go. That's what I thought.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. But then you looked surprised when I said your name, so I was so sorry.

[Rep. James Masland (Member)]: No, that's okay. Prior to today and yesterday, maybe the best way to say is I was unaware of how much precise accounting might be necessary to come up to where we are. And I can see with foundation formulas, and we might call more specific accounting district by district or whatever we're gonna call it, this sort of stuff is necessary. First of all, I am impressed with the level of detail that you might be concerned with so that school districts can get it right. I'm not exactly sure where I'm going with this questioning right away. But it so I don't have an outcome in mind. Right? We're all learning here at least. Some of us. And concerning the potential policy questions, I'm not sure from my perspective, I'm not sure how they ought to be framed just yet as we kinda work our way through this. It is clearly in in broad terms that collectively we wanna treat everybody, use the same rules in every school district and that sort of stuff like that. We have this local control issue that we talk about from time to time. And as I said, I'm not exactly sure where we come out here so long as everybody's been treated fairly. It seems to me that's sort of the bottom line here. And so I'll stop there for the time being. If you return, I may have more specific questions. But thank you. No, this is a challenge, I can see. Let's go back. Just say that now. Thank you.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: One piece that I'm thinking about in the context of this conversation is without reserve guidance, and I really mean guidance, not law, I think we could be putting districts in an awkward position as we transition to a foundation formula, where we would be entering a very new fiscal landscape with very different standing. And we're looking at ways of managing debt so districts will have more similar financial standing entering that phase. But reserves are part of that. Not part of district I don't mean part of district debt, but part of the new fiscal standing. And so I'm curious what you need from us in order to start rulemaking around that, and if you would like us to weigh in on it, or if that's something that you already have authority to do that without us. We gave you that authority. And I know that Vazbo is eager to work with you on it, as I'm sure any the other partners would be. But do you need anything from us in terms of taking next steps for that?

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: Don't know that we need anything to take a next step. So I think it's encouraging. We're looking at it. It's been an exciting week as we prepared for this. So hearing Heather and Elizabeth talk, I didn't hear anything that I was surprised to hear. FASBLO remains great partners to the AOE. We work well together on discussing these types of topics and coming up with some more questions that might lead to some more needs, but at the moment, I

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: don't know that we need anything else from you. Great. And I personally have some urgency about this, as does the law. And so please do be in touch if you need anything to help fix the law.

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: Yeah, we certainly will.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Representative Ode, no, it's fine, we have fifty minutes.

[Rep. Carol Ode (Member)]: What do you think our intent is when we're Oh, 03:30. So confusing, 03:30. When you go write the rules. What children are you about to write again that chair was talking about?

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: So there's a, we've been given the authority for rulemaking at the agency level to add some rules around reserve funds. Okay, and we

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: can have John or Beth pull up the statute around that if that's helpful What

[Rep. Carol Ode (Member)]: do you think our intent is when we go forward with that?

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Which one of you would like to do that?

[Rep. Carol Ode (Member)]: This is kind of important. What do you think our intent is?

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: What do I think your intent is?

[Rep. Carol Ode (Member)]: What would you, I mean,

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: I'm not sure I can, from now what I think your intent Okay,

[Rep. Carol Ode (Member)]: so I would like them to think about that,

[Cassandra Ryan (Chief Financial Officer, Vermont Agency of Education)]: Well, think we heard a lot today about some things, right? Like we're looking for fairness, we're looking for making sure that there's equity involved. Think that I heard making sure that we don't overly restrict in and that we're making sure that we're providing fair and consistent guidance that supports the districts, particularly as they're conversing with their constituents, right? Like to try to make sure that everybody understands transparency, accountability, those types of things, I guess. But I don't know what your intent is.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Ask. So we can when the agents of education is finished testifying, we can bring up the statutory language gives them the authority that we passed, and that maybe that can help you refresh your intent. Great. So anything else you want to add?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: Does anyone else have any questions?

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. Thank you very much. Really appreciate it. Sorry, that was a little testimony on the fly, Legion Council team. Anyone who wants to jump in?

[Beth St. James (Office of Legislative Counsel)]: St. James, Office of Legislative Council. Let me talk amongst yourselves. I need to log into Zoom.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Talk amongst yourselves on the record team. Or be silent amongst yourselves. That's always soothing to me.

[Rep. Carol Ode (Member)]: I'm gonna get more tea. I'll be right back.

[Unidentified Committee Member]: Send it

[Rep. James Masland (Member)]: myself. So? That's on the tea. That believes your son. Yeah.

[Rep. Carol Ode (Member)]: Lots of trouble with hot water on my jerky.

[Beth St. James (Office of Legislative Counsel)]: Okay, did I already introduce myself? Beth St. James, Office of Legislative Counsel, maybe for the second time or third time. I'll raise your eyes. We are in Act 183 from 2024, which I think we all remember as the yield bill that year. We're going to be looking at section seven, which is, I believe, the language that we are talking about related to reserve fund accounts and the district quality standards. So the agency of education has a rule series called district quality standards, and Section seven of Act 183 required the agency of education to initiate rulemaking on or before 01/01/2025, to update the district quality standards to include recommended reserve fund account standards. And then it also required them, prior to initiating rulemaking, to consult with local school officials. And that, as far as the rules, that was all that was in Act 183.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Thank you. And I don't mean this as a gotcha, like things fall through the cracks. Was very much like, I just wanted you to remember that you voted for that. Okay. No, course I can remember the second I've forgotten a lot of things that have happened and then I voted for it. I think it's very reasonable to not remember.

[Rep. Carol Ode (Member)]: I'm more focused on before we get into rulemaking, making sure if there's any intent that we probably not express, that we do it now rather than with rulemaking and find out that.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: And you, I think that's really nice that we have two LCAR members here so that we can express that intent, and you can remind us about that. So maybe that is something that we should take some time to figure out. I think Beth agrees. Yes, intent is very important when you are delegating your legislative authority to make the law through the rulemaking process to the executive branch.

[Rep. Carol Ode (Member)]: How would you, oh, Hunter,

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: can I ask you the question?

[Rep. Carol Ode (Member)]: You may. How would you think it's best for us to put that together now?

[Beth St. James (Office of Legislative Counsel)]: Oh, I think you can put that language anywhere that you see fit, as long as it's germane, which is

[Rep. Carol Ode (Member)]: not a question for me.

[Beth St. James (Office of Legislative Counsel)]: And it would just be you being very clear about what your legislative intent would be for what those rules or recommendations would include, not include, timing, really what you hope to see the final product include or not include. We could put

[Rep. Carol Ode (Member)]: that in the miscellaneous tax bill or something. Or do you want

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: add anything? Yes, can put anything in the miscellaneous tax bill. It's one of the joys of miscellaneous. Though we do sometimes want to be careful in the miscellaneous tax bill, what we create germane ness towards in it.

[Rep. Carol Ode (Member)]: Yeah, so it's very much policy. Thank you. Okay.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: While you're sitting there oh, sorry. Represent Masland.

[Rep. James Masland (Member)]: Question. It may just may seem

[Rep. Carolyn Branagan (Member)]: from my field or something like that.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Well, we're talking about Germainness, so give it a go.

[Rep. James Masland (Member)]: Great. This guy's this guy's shoot there was just on reserve funds and accountability to start something.

[Beth St. James (Office of Legislative Counsel)]: Not a statute. Think that's important. Is the piece of session law.

[Rep. James Masland (Member)]: Yes. Law. District quality standards include recommendation reserve fund accounts. I may have been out to lunch when we voted on that language, but district quality standards to include reserve fund account standards seem to me, from a layman's constituent's point of view to be really quite different things. I mean, I can see that reserve fund account standards are actually necessary along with a whole bunch of other stuff. But I'm I'm looking at the words and saying, okay. I see what they are. I know what those words mean. But I'm not sure, for me on left field, how those things work necessarily combined in the same sentence, other than we need to do it to move this thing forward. And I don't expect an answer.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: No, there's an answer. It's a very it's yeah.

[Rep. James Masland (Member)]: You can help me, I'd be grateful.

[Beth St. James (Office of Legislative Counsel)]: So we have two when we think about quality standards, we have kind of two sets that live in rules. There's education quality standards, which is what we think of when we think of curriculum standards, staffing standards, etcetera. Then there's district quality standards, which is a relatively new construct. And that is the rule series that the agency owns. And I'm trying to find the enabling language here so we can look at it together. Related to school, like the business operations of school districts as opposed Understood. To And I think the thought behind section seven was the business quality the rules governing business practices would be a convenient place for the reserve account guidance.

[Rep. James Masland (Member)]: That makes perfect sense. Yeah. Okay. I get it. Okay. I'm just as a lay constituent, shall we say, surprised to see him in the same place. That's all.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: It was a deeply germane question, and there was an answer to it. And it's helpful. Just call me Betsy Anne right now. Okay. Beth, while you're sitting there, or maybe John wants to trade seats with you, I don't know, or maybe Julia wants to sit here, we had an earlier question about under the foundation formula back '73, whether not spending could result in lower tax rates. I'm definitely gonna give up the chair. Cool. Love that for you. Thank very

[Rep. Carol Ode (Member)]: much. Charlie probably has a coin if you wanna flip one.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. You don't have a coin?

[Rep. Carol Ode (Member)]: Really? Swear. Woody, coins?

[Rep. James Masland (Member)]: I have it in my wallet. Have to get it out.

[Rep. Carolyn Branagan (Member)]: Okay, cool.

[John Gray (Office of Legislative Counsel)]: It's John Gray, Office of Legislative Counsel. I think we're addressing the question whether you could take reserve funds to buy down local rates. You could not. That's the answer under a statewide tax

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Perhaps, Burkhardt is hoping for a few more words. But I'll let her speak further.

[Rep. Bridget Burkhardt (Clerk)]: My question is, then what does happen to that money if it's not spent? So you get a certain amount of money, what happens to

[John Gray (Office of Legislative Counsel)]: We don't have anything in the act that says what happens to that. But because it's a statewide imposed rate, you would not be able to, in the same way that you could today, account for local variation in your budget by using that reserve to buy down rates, you couldn't buy down the rates for the statewide. But we don't have anything in Act 73 to say limitation on building out reserve or how much can you build over time. So yeah, I think that's an unanswered question in the deck.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. And Julia, do you wanna add anything? Julia, don't think I have anything to add on to what John said. I guess I would just put an exclamation mark next to what he said about the way that the state rate is changing. So we're no longer having these locally varied types of tax rates based off of your per pupil spending.

[John Gray (Office of Legislative Counsel)]: So there's nothing to buy down to adjust your tax rate. And while we were sitting over there, just thinking about, oh, how might you navigate this if you wanted to find backdoor ways of escaping this? Could you cut a check and send it so effectively you'd still be paying the statewide rate or you'd still be imposing the statewide rate and raising the funds, but then could you send out funds to people to effectively produce the same economic impact? I don't think that you could do that either. That's not the purpose in the budget. Not it's been to distribute checks to folks. So I don't

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: And to that end, you also couldn't use those funds, for instance, to reduce the municipal tax rate. We're talking about two different budgets. Which is, from my perspective, another reason why I preserve guidance sooner rather than later is helpful. Representatives.

[Rep. Carolyn Branagan (Member)]: There are some schools who use leftover money, usually small amounts of money, dollars 2,000 at the end of the school year. They propose an article to the taxpayer on town meeting day. Would you like to receive this money to lower your taxes? Or would you allow the school board to set up a capital fund, and we'll save it to buy a new gym floor in ten years? So that way, the voter gets a choice of what to do with that money. I know some schools have done that for years. I mean, groups of schools have done that kind of thing as a way to I mean, for some schools, a new June floor would be a large capital expense, and it would help to offset that. You're thinking that that's not going to be allowed.

[John Gray (Office of Legislative Counsel)]: That's not what I'm I think you're pointing out the reason that folks create reserves in the first instance, which is to build funds for things that they might not otherwise be able to fund in a given year. Nothing in Act 73 to prohibit that. I'm just responding that under the current structure, if you're creating a local reserve, you could use that reserve in crafting your next year's budget, for instance, to reduce your per pupil spending, which would translate into lower rates for your district. You would no longer be able to do that under Act 73 because there's just a uniform statewide break that's being raised. But you could still have a reserve into which you deposit funds, but there's a question within the budget, you can only propose certain items. So I think the question of school construction is one that's limited over everything at this point, and we just don't have an answer as to how.

[Rep. Carolyn Branagan (Member)]: Okay, so schools could do that kind of thing for construction, a new kitchen, a new gym floor, whatever. But wouldn't that, that would have to affect the tax rate.

[John Gray (Office of Legislative Counsel)]: The tax rate is just, it's based entirely on, maybe it's helpful to remind what Act 73 does. Unlike the current structure where you vote local budgets and your per pupil spend is determined on that basis, and it translates into your district's homestead tax rate, that's gonna be different for each district. In the future, the way that starting fiscal year twenty nine, the way that it works is that your school district receives some of money that is a pure mathematical function, it's the base amount 15,033 multiplied by your weighted long term membership, and the statewide tax rate that is set, unlike the current locally varying homestead tax rate that reflects those voted budgets, the statewide tax rate that is set is set to raise those funds after accounting for other revenues going into the Ed Fund. So it's just not the same structure at all, and that's why the initial answer is no, you wouldn't reduce local tax rates.

[Rep. Carolyn Branagan (Member)]: And in that first example, that example that I gave you that either or, we use it to reduce your tax or we use it to chuck it away and save it for a new gym floor, the voter then no longer has that choice.

[John Gray (Office of Legislative Counsel)]: There is no vote on the educational opportunity payment, which is the core amount of money that you're receiving, the amount deemed appropriate to educate the student count of the student qualities and characteristics that you have. The vote itself, and this came up earlier, is only for the supplemental district spending piece, which is amounts above your educational opportunity payment, which is again that $15,033 multiplied by your weighted long term membership for a district. So there's no vote on that initial piece.

[Rep. Carolyn Branagan (Member)]: You know what, every single town in Franklin County spends less than the $15,000 Everyone. Even St. Albans City and St. Albans Town. So there's going to be a lot of money left on the table.

[Rep. James Masland (Member)]: That may be. I don't know.

[Rep. Carol Ode (Member)]: Yes,

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Representative. I'm just a veteran.

[Rep. Carol Ode (Member)]: You're not a No. The only thing I wanted to add is, if you, let's say you were saving up the money and then you decided, well, still wasn't enough, you might put a vote to the voters for supplemental district spending and then you could use, that would affect your tax rate and then you would use whatever you could raise from that plus whatever you had saved up to fix the gym. I understand. I just wanna make sure

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: that questions for John are finished. Because I, okay, are they? It's fine if they're not, just wanna check,

[Rep. Carol Ode (Member)]: because he's sitting there. Anyone?

[John Gray (Office of Legislative Counsel)]: Like it if they're

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: finished. Appreciate it. Now I wanna come up with a question.

[Rep. Carol Ode (Member)]: You so much, sir. Appreciate you.

[Unidentified Committee Member]: My name stepped out. Jim has a policy question for the AOE.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay. Wait. I think representative Page, did you have something, or did you take back your thoughts? Okay. Great.

[Rep. James Masland (Member)]: It was partially answered. Let me see if I can conjure it back up, Phil. Now try

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: to

[Rep. James Masland (Member)]: be more articulate at the next iteration, but thank you.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: So I think we've named today that there are reasons for reserve guidance now. There are reasons for reserve guidance once Act 73 was created. We still have a school construction problem to solve, which we are on track to solve because we've started, which means that we are on a track. You start, and then finish. It's great. And there are other things that also we are it is our job to find the holes in this so that we can fix them, including some data questions from this morning. I believe representative Holcombe is trying to there were a few data holes this morning that we identified. And so she's going to pull together some language with staff to close those holes. Representative Masland, you were gonna say something.

[Rep. James Masland (Member)]: Just to say, well, rep rep Deborah Holcombe is online with us. It's a district quite kept at Norwich. Whether the fifteenth, 333, or whatever it is, will never be enough. There are gonna be serious heavy duty discussions on how we pay for our schools, and it's gonna interesting haul from here to there. That's all.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: I think it's one thing that I said if, I don't know, last week, I don't know why I tried to say when something happened. Someone was testifying, I believe it was some superintendents, but it could have not been, maybe it was business managers, about the foundation formula and if it will be enough or not enough. At this point, comparing current spending to the foundation formula is like comparing apples and I'm going to say, oranges and pomegranates, because I think apples and pomegranates are slightly related to each other. Because we have not created all of the other grants that are necessary under their law. The transportation grant, school debt grant, special education still has work. We still have all these other grants, and we don't know how much those will be. And so I want us, as hard as it is, to caution us on an apples to apples.

[Rep. James Masland (Member)]: Appreciate very much the apples and pomegranates.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: It's oranges and pomegranates, I changed my mind on my experience.

[Rep. James Masland (Member)]: Just to remind the committee and anybody listening online, including members of this committee, as you just said, there's some serious, there's long, simple, very long roads to hope before we get to the end of this session and figure out where we are. And they're gonna be challenging for some voters, as we know. So, here we are, this is our job. I'm just saying, okay, here we are, we understand that. That's what we do here, guess, right?

[Kelly Murphy (Education Finance Director, Vermont Agency of Education)]: It is

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: indeed. We have twenty minutes before we go

[Rep. Carol Ode (Member)]: to the floor. Does anyone have anything else that needs?

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Okay.

[Rep. Carol Ode (Member)]: Thanks. See you then. Still got a lot of work.

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: Sure do. Oh, we've opened a lot of doors, and now we get to continue walking through them. I think

[Rep. Carol Ode (Member)]: we're done for the

[Rep. Emilie Kornheiser (Chair, House Ways & Means)]: day.