Vermont Legislature SmartTranscripts:

[Emilie Kornheiser (Chair)]: Good afternoon, ways and means.

[James Masland (Member)]: Good afternoon. Hope you had a good weekend.

[Emilie Kornheiser (Chair)]: Today's February '15. We are doing our weekly work on the yield bill with Julia, and then are going to take some testimony on essentially how schools create their budgets, as if we are new members on the school board, and we're learning how it works to really get that base grounding that we have not gotten before. And then Wednesday, we are spending some time on the governor's proposal around the purchase and use tack, spending more time on prekindergarten. I don't know if folks remember last time we talked about that. We talked about how it might be easier for us to get our heads around all the different factors if we put a proposal on the table. So staff has drafted a proposal with my guidance that I want to be clear is not my proposal. It's a piece of legislation for us to work with. Not my proposal. Gonna keep on saying it. Great. Thank you. So it's not your proposal? It's not my proposal. It's just a

[Julia (Julie) Richter, Joint Fiscal Office]: piece of legislation for us to work with. Is

[James Masland (Member)]: it Charlie's? It's mine, guys.

[Julia (Julie) Richter, Joint Fiscal Office]: Because it's just gonna be easier for us

[Emilie Kornheiser (Chair)]: to work with somebody tangible. That's tomorrow. And then in the afternoon, we're gonna go back to tax classifications. And I know everyone's gonna come with all of the solutions that they have. I know Representative Kimbell has some really extra special homework on that one.

[Julia (Julie) Richter, Joint Fiscal Office]: So you will be tested.

[Emilie Kornheiser (Chair)]: And then revisiting school construction on Wednesday. And then Thursday, coming back to pre k and childcare and understanding the strength of that fund, childcare contribution tax. Then going back to the governor's budget with just the Department of Taxes, like annual ask, That's our responsibility with appropriations narrower than a lot of other committees. We have a joint hearing on special education with the Education Committee. We're going spend more time in the federal link up with a huge stack of witnesses. And then Friday, we're going to hear from some of our colleagues and then come back to regional assessment districts in a fairly similar fashion to how we worked on the tax classification. In other committees, a lot is happening. And I really please do pay attention to the agendas of the committees that you are responsible for. So for instance, Chittenden Caucus, someone mentioned a fee in passing. We were like, oh, didn't know there'd be a fee there. Two that seem to have a lot of action, Representative Waszazak, House General has a

[James Masland (Member)]: mobile phone bill that has a

[Emilie Kornheiser (Chair)]: lot of tax policy in it. And then they have a larger housing tools bill that has a lot of tax policy in it. House General? Oh, I'm sorry, gov ops. I meant gov ops. Mark, lottery. I think they're starting to take testimony. That was just my quick scan through, so really, please encourage everyone else to do a scan through of agendas, because I'm sure I've missed one thing. Anything else? Public service announcements? Birthday's coming out? So many visitors in

[James Masland (Member)]: the middle of the bag? Julia,

[Carolyn Branagan (Member)]: do you want to join us? Yeah. Thanks.

[Emilie Kornheiser (Chair)]: Similar to how I said the pre K language is not my proposal, the scenarios that Julia is taking us through are also not my proposal.

[Julia (Julie) Richter, Joint Fiscal Office]: I asked her to put together a few extreme examples

[Emilie Kornheiser (Chair)]: of how we could apply the governor's recommended buy down or general fund transfer in order for us to understand the implications of those scenarios. Are there any more caveats that I said I was going to make? Not that I can remember.

[Julia (Julie) Richter, Joint Fiscal Office]: Thanks. Good afternoon. I'm Julie Richter, joint fiscal office. There are three documents on the committee page under my name. Two, you've seen many times before, the annotated guide of the Education Fund Outlook to remind you what exists in each of those lines. And the other being the yield bill decision points. The last document is new to today, and that is the Education Fund Outlook that Chair Kornheiser was referencing with a number of different scenarios. So I'll go ahead and share my screen. Madam Chair, do you want me to start with the outlook or do a review of the yield build decision points?

[James Masland (Member)]: I would love a review of

[Emilie Kornheiser (Chair)]: the yield build decision points because that's what we're going to exercise.

[James Masland (Member)]: So I don't know how to answer that question.

[Julia (Julie) Richter, Joint Fiscal Office]: I didn't bother to update the date on this slide deck because it's the exact same one that we've walked through before. So as a quick reminder, the yield bill, this is a ways and means bill every year that determines how to raise sufficient funds for the Education Fund for summing up all uses out of the Ed Fund and then subtracting out our non property tax revenues. We know that funds can be raised from other revenue sources. One time money, for instance, can be raised from homestead property taxes or non homestead property taxes. How that Ed fund is filled is a policy choice. So these are some of the high level questions, decision points that you all are grappling with as you consider the yield bill and are looking at the Education Fund outlook each week. Non property tax revenue. Should one time money be used to lower property taxes? If so, how much? Where is it directed to? Should Ed Fund current law non property tax revenues be changed? Recall that any change to a revenue stream doesn't necessarily mean immediate full returns on that change. There is usually an administrative rollout timeframe. And to that end, should new non revenues be added to the Ed Fund? You then have the question of property tax revenue. How much should be raised on homestead property tax and how much should be raised on non homestead property tax? Usually, that's thought through by looking at the average bill change across those different classes. So how much is the homestead bill average tax bill increasing? How much is the average non homestead tax bill increasing? Should they be different? Should they be the same? Also a policy decision. Then you have the question of income sensitivity. How should the property tax credit be calculated for the following year? Recall that the property tax credit is on a lag, meaning that the property tax credit earned for fiscal year 'twenty seven is going to be applied to FY 'twenty eight tax bills. Same is true. So when we're looking at the FY 'twenty seven column in the Education Fund Outlook, we're looking at the property tax credit that was earned in FY26. So if we want to adjust income sensitivity in the upcoming fiscal year, we need to address the credit that's already been earned. You also need to look at setting the income yield. How is the property tax credit going to be calculated next fiscal year? And then other decisions, these are a couple. Of course, there's more. Should education fund expenditures be adjusted? Of course, the more expenditures, the more revenue that needs to be raised. The lower the expenditures, the less revenue that needs to be raised. And then the question of reserves. Should funds be reserved for a certain purpose or no purpose in future fiscal years? That's both the additional reserves and the stabilization reserve. Those are the high level position points. Shall I move on to that outlook? I think so. Okay. We've officially moved from vertical to horizontal because of the columns. What we're looking at here as the chair in your office that you a bell. No. But perhaps I should. What we're looking at here is an outlook as a shared reference of a number of different modeling scenarios. I do want to note before we go through each one of the scenarios that there have been two underlying data changes from the last time that I presented the outlook. Those two changes are the final grand list data from the equalization study from the tax department, has now been baked in in the background in the yield model. And also, we have updated it with the long term weighted pupil count from the Agency of Education. FY26, nothing has changed from the last time. Does

[Emilie Kornheiser (Chair)]: that mean that the only assumption that's still subject to change probably this year is the spending?

[Julia (Julie) Richter, Joint Fiscal Office]: The underlying assumption that still is going to change that won't be reflective of a policy decision will be the education payment, so the sum of the education spending.

[Rebecca Holcombe (Member)]: And I know we talked about this last year too, but at this point, is there anything underway to look at reducing spending? Or are we just dealing with an subset of assumptions about spending?

[Emilie Kornheiser (Chair)]: I really don't know how to answer that, Rebecca Holcombe. I think you know what sort of in play to look at that. But right now, we're looking at how we set the tax rates.

[Rebecca Holcombe (Member)]: Well, actually, I don't, because we've talked about a number of possible things that could be done that would take cost out of the Ed Fund that isn't education costs, and a number of federal drivers, and it's unclear how we're going to respond to those. So didn't know

[Emilie Kornheiser (Chair)]: if those discussions are happening. I think many of them are happening, they're happening in other committees, but we can.

[Julia (Julie) Richter, Joint Fiscal Office]: Back to you, Julia. Okay. So the data updates, none of those are impacting FY26. This is the same column we've already looked at. We're seeing those underlying changes in FY27. So this is really using the December 1 letter assumptions and all of the data updates since then. So solving for a uniform average bill change, assuming the stabilization reserve is fully filled, using all of our updated data. And this column is consistent with the assumptions that were used for the emergency board modeling. It's really just showing the differences with the changes to the long term weighted pupil count and the grand list. What you're seeing here is that while there have been some shifts to the general tax rates, which makes sense because we adjusting the base that the tax rates are being Just against the underlying distribution of weighted pupils and grand less growth didn't really change between the December 1 letter and the final data that we've put in, which is why the uniform average bill change remains at 11.9%, assuming that it was December 1 letter parameters.

[Carolyn Branagan (Member)]: I have a question. Julia, I'm not remembering correctly, but I remember in the old days there being something about part of state law, which I haven't been able to find in the last four months maybe, that said something about the tax obligation wasn't supposed to be more than 3% of taxpayer's income. Do you remember anything like that?

[Julia (Julie) Richter, Joint Fiscal Office]: I don't know, and that would be a question for Legis Council, who we have in the room. I don't know if he can

[James Masland (Member)]: I didn't catch the very beginning, sorry?

[Carolyn Branagan (Member)]: So I remember from the old days a caveat that 3% was the limit anyone should be paying on their income. But it was when the bill first came through, so it might have been

[Rebecca Holcombe (Member)]: Like when Act sixty first came through?

[Carolyn Branagan (Member)]: Yeah, 2003 or 02/04 or 02/05, somewhere back in there, those days.

[John Gray (Legislative Counsel)]: John Gray, I'm split student council. I don't, but I can look at the early acts if you just want me to.

[Carolyn Branagan (Member)]: I'd like to be reminded of that history and how we got where we are at the end of the month. Bonds

[John Gray (Legislative Counsel)]: paid on income. Yeah.

[Carolyn Branagan (Member)]: Thanks, Representative. Don't, you know, John, I know you guys are crazy

[John Gray (Legislative Counsel)]: busy. Once

[Carolyn Branagan (Member)]: you get to forty five minutes on this stuff.

[Rebecca Holcombe (Member)]: First. Representative

[John Gray (Legislative Counsel)]: Lamoille? Yeah. My recollection is that the 3% has to do or had to do the original way that we were to look at income sensitivity with Act 60, way back near the beginning in time. And I don't know where it's gone since then. I mean, you know, there have been changes in junk. It's it's maybe excavated.

[Bridget Burkhardt (Clerk)]: Excavated.

[Carolyn Branagan (Member)]: Just trying to be nice to

[Carol Ode (Member)]: me. Okay, great.

[Emilie Kornheiser (Chair)]: Thank you. I'm glad that we have all this institutional memory. It's actually very helpful to remember sort of the intent behind how we got after somebody places again.

[Rebecca Holcombe (Member)]: Julia, source yours again.

[Julia (Julie) Richter, Joint Fiscal Office]: One note related to that, JFO's fiscal facts does have an entire chapter dedicated to the history of the property tax adjustment. I don't think it has that specific piece, but if you're interested in looking at See, Representative Kimbell is showing it. There is a section. So if you're interested in looking at how certain thresholds may or may not have changed over time, that's a nice, quick cheat sheet of history. Fiscal Fact '26? Those have not yet been published. We're still finalizing those, but it exists in the 2025 fiscal facts. You.

[Emilie Kornheiser (Chair)]: I someone's gonna hand it to you soon, Representative Branagan.

[James Masland (Member)]: What

[Emilie Kornheiser (Chair)]: column are we on? We just talked about B, which

[Julia (Julie) Richter, Joint Fiscal Office]: is more of a reminder column, and so now we're moving into those different scenarios that are illustrative of how different pieces would work.

[Emilie Kornheiser (Chair)]: Just folks, I think we're probably going to eliminate column A the next time we look at this. Oh, sorry, that's '26. Great. Okay. I thought you had December 1 still, but you don't.

[Julia (Julie) Richter, Joint Fiscal Office]: No. Okay, great. So column C, this is taking the one time $105,000,000 from the general fund and dedicating it to uniformly lower property taxes. This doesn't include the purchase and use and one time backfill or purchase and use swap. It's just using the 1 and 4,900,000.0 of general fund. We see that showing up here in line eight in sources. So that's 105,000,000 of revenue that doesn't need to be raised for the property taxes. And using that amount, we then solved for the property yields, the income yields, and the uniform non homestead rate for an average bill change to be the same across all three classes. And that would result in an average bill change of 5.8%. So, the 105 were to be used in one year to lower property taxes uniformly, that's what it

[Rebecca Holcombe (Member)]: would look like. That's what

[Julia (Julie) Richter, Joint Fiscal Office]: we're seeing in column C. And just to be clear, the 105,000,000 is in addition to the $22,000,000 of surplus down in line 37, the unreserved unallocated, so it would be closer to $127,000,000 that we're actually talking about putting toward Massachusetts. Yes, thank you. So that's an excellent point. We see here the $22,000,000 that's the education fund surplus that would be used to uniformly lower property taxes. And then in addition to the $22,000,000 of Ed Fund surplus, we're also using $105,000,000 of General Fund one time. So in terms of one time money from both funds, yes. Patricia, can you ask them to?

[Emilie Kornheiser (Chair)]: Thank you. The other columns, have you applied the

[Julia (Julie) Richter, Joint Fiscal Office]: prior year uniformly? Yes. So in all of these scenarios, the $22,000,000 of Ed fund surplus has been used to uniformly lower property taxes. That's column C. Moving on to column D. Column D is showing us if the $105,000,000 of one time general fund were to be used to lower homestead property taxes, not adjust non homestead property taxes. And what we see here is that if the 104,900,000.0 of one time general fund were used to lower homestead property taxes, that the average homestead property tax bill would decrease in fiscal year 'twenty seven by 1.8%.

[Emilie Kornheiser (Chair)]: And to be clear, this isn't refundable Can't wait to hear what you're

[James Masland (Member)]: gonna say.

[Emilie Kornheiser (Chair)]: It's not gonna be a refundable It's not like a refundable income tax credit. People aren't gonna get money back. It's just that their taxes are gonna go down.

[Julia (Julie) Richter, Joint Fiscal Office]: Exactly. So it'll be Well, this is a comparison of a bill. So they're just going to have a lower bill than they had in FY 'twenty six on average. And here, I also solved the income yield to reflect the property tax credit to be calculated to the same scale as this decrease in average homestead liability. It's important to note this is, of course, C, D and E are all a one time buy down. So this would be a one time decrease of 1.8% on average per homestead. So moving on. D, we looked at if the 104,900,000 were to be lowering homestead liabilities. E looks at if the $104,900,000 were to lower only non homestead liabilities. Recall, non homestead is everything that's not a homestead and is subject to education property tax. So this is everything from apartments to second homes to offices to parking lots. So what we see here is, again, the 104.9, and the homestead and income on average bill would increase by 11.9%. And the non homestead average bill would increase by 0.3. This too is a one year impact.

[Emilie Kornheiser (Chair)]: And the fact that the homestead was able to go down and the non homestead ish is going up a little bit, is that reflective of the different grand list?

[Julia (Julie) Richter, Joint Fiscal Office]: Exactly. Yeah, because the non homestead grand list is larger, and you can see we take a larger share of property taxes from non homestead traditionally. That's exactly the reason why. Moving on, column F. This is if we were to use the $104,900,000 to increase the property tax credit. Again, recall that the property tax credit is on a lag. If you want to increase the property tax credit that folks are seeing on their property tax bills in fiscal year twenty seven, you need to adjust the credit that was earned in fiscal year twenty six. And so what we see here is the entire 104,900,000.0 is dedicated to increasing property tax credits. And if all of that 104,900,000.0 were to be used to increasing property tax credits, and homestead and non homestead were not to receive any of that buy down, property tax credits could increase by 78%.

[Emilie Kornheiser (Chair)]: 78% more than last year.

[Julia (Julie) Richter, Joint Fiscal Office]: Correct. No, no, no, 78% compared to what was earned in FY '26. So $134,200,000 was earned in property tax credits in FY 'twenty six to be applied to FY 'twenty seven bills. And that's what we're seeing here consistently in line 1B. Here we see that bump in column F, and that's really just reflecting the 01/2002 plus the 01/2009. Can you help us understand what that means for people's bills? Like when? So when, FY27, what it means for people's bills is So you'll recall that somebody's property tax bill, homestead property tax bill, if they're income sensitized, is calculated by their homestead liability minus their property tax credit. So what we would see here is someone's homestead tax bill, the amount calculated based off of the value of their homestead, would be increasing by 11.9%. The property tax credit that they earned in the prior year would be increasing by 78%. So their homestead bill would be increasing, but their property tax credit would be significantly increasing. What that would the different What that would mean mean on someone's tax bill would really vary by household, because it would depend on how their household income is in relation to their homestead property value.

[Charles “Charlie” Kimbell (Ranking Member)]: So if they don't qualify for the property tax credit because of income or the value of the property, then those folks will not see a reduction in the property tax bill.

[Julia (Julie) Richter, Joint Fiscal Office]: Exactly. And I think it's important to note to that is you have some households who are very low income who do not qualify for a property tax credit because it's cheaper for them to pay on property than it is for them to pay on income. So the way the property tax credit is calculated is looking at, Okay, how much would you pay on homestead property? How much would you pay on income? If what you would pay on income is less than what you would pay on property, the state's going to credit you the difference in the following year. There are instances where someone's property value may be lower in relation to the tax rate than their income in relation to the tax rate. So in fact, it's cheaper for them to pay on property. And those households would experience an 11.9% increase. If

[Emilie Kornheiser (Chair)]: that scenario was playing out across households, would fewer households be in that category? Because it would become more expensive for them to pay on property.

[Julia (Julie) Richter, Joint Fiscal Office]: Oh, that's interesting. That's an interesting question. That would depend on how you would be setting the homestead yield and the income yield for the relationship between the homestead yield and the income yield for the following year. So you're setting the homestead yield and the income yield annually. And the way that this has been solved is that homestead property tax bills on average are going to increase by 11.9%, that's the yield calculation, as well as the income yield, which means that the relationship between the property tax credit calculation will hold true into the following fiscal year. If you wanted a more expansive property tax credit for the following year, that would need to be done by adjusting the difference between the two yields.

[Rebecca Holcombe (Member)]: Wouldn't it also depend on continued use of one time money or a change in revenue source? And that's a one time buy down. Yes.

[Julia (Julie) Richter, Joint Fiscal Office]: This is a one time buy down.

[Emilie Kornheiser (Chair)]: Yeah, Representative Ode.

[Carol Ode (Member)]: Thank you. Do we have data that shows what age groups take advantage of the property tax credits and which areas state geographically do?

[Julia (Julie) Richter, Joint Fiscal Office]: So the tax department has an excellent set of tables on its website that shows by town or by county, well, by both, the number of households that receive a property tax credit, on average, the size of that property tax credit. I can send that link to Sourcet so that you can look at it.

[Rebecca Holcombe (Member)]: Age,

[Julia (Julie) Richter, Joint Fiscal Office]: I don't know. I have not seen that, and I'm trying to think of the data set. I don't know. That would be a question for I could ask docs. I don't know.

[Carol Ode (Member)]: I don't that we should pay attention to that. We can ask Jason. It's possible that the data isn't matchable, but it

[Emilie Kornheiser (Chair)]: might be. Yeah. Representative Waszazak? The rent of rent

[James Masland (Member)]: is not.

[Julia (Julie) Richter, Joint Fiscal Office]: Correct, that's a general fund expense.

[James Masland (Member)]: Curious about that, the two if we're

[Carol Ode (Member)]: a lot of terms,

[James Masland (Member)]: homestead versus non homestead, if not homestead rates go up significantly, that capturing this tax on renters, and there's another pool of people besides the property tax credit receivers that indirectly get into this. Yep,

[Emilie Kornheiser (Chair)]: you're welcome. So I

[Rebecca Holcombe (Member)]: heard from the Bedford School Board that last year expecting a very significant increase in their tax rate, they used local reserves to cushion it. And then after they voted the budget, we cushioned it even further. And now they have an enormous cliff this year. Has the CFO ever evaluated whether the choice of application of one to one and the timing of choice of application of money has an impact on local decision making?

[Julia (Julie) Richter, Joint Fiscal Office]: No. And I think that would be a better question for the school districts and school boards. I can't speak to how they're making their budget decisions. And I know that we have asked the school boards and superintendents that question in the past few

[Emilie Kornheiser (Chair)]: years, and we can have them in and ask them that again. It's an interesting question. Over to somebody.

[Carol Ode (Member)]: Can you review how current use fits into the different stories? There's any change.

[Julia (Julie) Richter, Joint Fiscal Office]: How current use fits into the different scenarios. So, current use is impacting the amount of revenue that is pulled from certain properties by adjusting their tax liability. So the distribution of property taxes that are covering for the current use tax expenditure is not changing in these scenarios, because the underlying system remains the same. That took me a minute

[James Masland (Member)]: to think through.

[Charles “Charlie” Kimbell (Ranking Member)]: In old versions of your education outlook, it had other lines where you had the property transfer I mean, current use, but it's not on this because we're trying to produce a more summary version of it.

[Julia (Julie) Richter, Joint Fiscal Office]: Yeah, I think last year I came in with an Ed Fund outlook that showed the current use tax expenditure, I could certainly include that line again. It's a little challenging to include in the Ed Fund outlook, because it's included our non it's included in it's just the shift of who's covering who's making up the property taxes. It's a closed system. So all else equal, if somebody's paying less in property taxes, somebody else needs to pay more. And if it would be helpful for me to come in next time and include a line with current use tax expenditure or something else, I can certainly include that. It wouldn't impact the high level numbers that we're seeing in the letter summary lines.

[Carolyn Branagan (Member)]: I just want to point out that is an excellent comment to make what we just heard from Julia and the consistent B in my bonnet that whenever we lower someone's taxes like for tips or chip or for current use, somebody else's taxes slip up. So it's not equal for all Vermonters. Have I said that enough times, Teddy? No. Like it. I'm sort of hearing myself say that before, because I said that.

[Emilie Kornheiser (Chair)]: I think we all repeat ourselves here. It's part of our charm. What I

[Julia (Julie) Richter, Joint Fiscal Office]: will repeat, I think,

[Emilie Kornheiser (Chair)]: I don't want this entire conversation to sort of move into a conversation about current use, but there is a debate about whether this really is a tax discount or the true property value of that land and the appropriate valuation of that land. And so, like, that's a debate we can also have, not right now, but yeah. Are you about to enter the debate that I just said we're not gonna have, representative Masland? Yes. You are. Uh-huh.

[James Masland (Member)]: Carolyn's comment about someone goes up, someone goes down, which is not necessarily a zero sum game depending on what we're solving for. It could be very it's not gonna be this. True. Very good. Okay. Good. That was a great point. Thank you.

[Emilie Kornheiser (Chair)]: Truly.

[Rebecca Holcombe (Member)]: I'm not having that conversation, except to say that you do have the question, but I'm going to use those CE words, but the challenge is that it's hard to know how progressive or regressive the property tax is relative to the income tax. But when we make decisions about what we fund and where we fund it, we're also having an as either regressive or progressive. And it feels like we're flying a little blind on that right now, in particular when we don't know where those cuts are.

[Emilie Kornheiser (Chair)]: Let's return to our columns. Okay. We just have one column left.

[Julia (Julie) Richter, Joint Fiscal Office]: So we just spoke about column F. And then the final column, column G, is a little bit different than the ones that we just looked at. This is if we were to take the $104,900,000 in one time general fund, use onethree of it to lower property taxes, and then put the other two thirds of that one time money into a tax rate offset reserve or a transition reserve. I use the term tax rate offset reserve because that's what I had used in the past. So this is putting twothree into reserve for future years of the one time money and using onethree of it to lower property taxes uniformly in fiscal year 'twenty seven.

[Emilie Kornheiser (Chair)]: I want to explain a little bit of my thinking in asking to make this column. So one, and I also want to name the amount that she's applying to the general fund transfer is very far from a set in stone number. The appropriations committee just started looking at the budget this week. What? $105,000,000 I mean? Yes. They just started looking at the budget this week. Not entirely it's not clear how much money will be available or won't be available to move to any other funds from the general fund. And we know that our revenues are growing slower each year right now. They're not declining, which is sort of a way that they've been talked about a little bit, but they are growing slower each year. And so might have less money for a general fund transfer next year than we do this year. And as we move forward with Act 73 implementation, we're stuck in this few year window of these year over year transfers that are creating clips for the next year that cause panic that I think we're all familiar with that cycle. And so this is a way of thinking about our work, not just in a single year yield bill, but across a couple year transition. I don't know if it's the right way to do it. The particular numbers are not a proposal. Maybe it's a combination of all of these columns is what we need to be looking at in some way, some configuration of them. But just want to sort of explain some of the background of why why Julia modeled a third. And, you know, an increase of 9.8% average bill change still feels uncomfortably high to me. Any questions or thoughts about this fund?

[Bridget Burkhardt (Clerk)]: Is this idea of preserving the remainder, is that supposed to prevent excess spending?

[Julia (Julie) Richter, Joint Fiscal Office]: I will defer to the chair. I

[Emilie Kornheiser (Chair)]: think it's sort of the excess spending threshold is a different question. I think in some ways, Representative Holcombe's question about how does our decisions about general fund transfers and yield bill affect budgeting decisions. I think to some degree, it lays out an expectation of a promise for a few years rather than sort of continuing question, hope, every district interprets the tea leaves of what we're doing at this table differently. And sort of, you know, everything we do is subject to every, you know, women decision each following year, but it sort of sets us on a more consistent path possibly that could, for some districts, say, Okay, we know that this is what they're planning, so this is how we'll budget. In both, that could also I think some districts could see that exact thing and say, We're going to spend up, and some districts could see that exact thing and say, We're going to spend down, because that's how we, to some degree, wound up in this to some degree, wound up in the you know?

[Charles “Charlie” Kimbell (Ranking Member)]: So I was looking

[Bridget Burkhardt (Clerk)]: at it as an alternative to a fending cap.

[Emilie Kornheiser (Chair)]: Ah, well, that's a whole other purpose. It's not making its way over here yet.

[James Masland (Member)]: I remember that.

[Emilie Kornheiser (Chair)]: Can't feel it.

[James Masland (Member)]: Just wondered if

[Julia (Julie) Richter, Joint Fiscal Office]: this is preventive.

[Emilie Kornheiser (Chair)]: I think in a natural consequence way, yes, but not in a statutory way. I mean,

[Carolyn Branagan (Member)]: you believe a natural consequence will help you don't

[Rebecca Holcombe (Member)]: lie down? Because then people pay higher tax rates, and if they don't like higher tax rates, they lower their tax rates. Think I part of the challenge is if we tell everyone they're going to get a 12% tax rate increase, and then they don't, it's confusing. We're, because we're interfering with the budget. I'm not saying that are in a bad situation now, but I think we also help create it.

[Emilie Kornheiser (Chair)]: And this might be getting a little too philosophical, but I In a perfect democracy, I think that vision of natural consequences would be true. And I think we're not existing in a I don't mean perfect in terms of good, mean perfect in terms of sort of definitionally sound and absolutely everyone contributes and participates and understands the consequences of their decisions. I agree, but I also think when 01/1927

[Rebecca Holcombe (Member)]: was passed and it significantly dropped the tax price, the message is you have more spending capacity. Absolutely. So that people are surprised by that increase is just mind boggling to me because that's what people voted for. So I don't I mean, I just think that's Yes, that's exactly what I'm saying. And at the same time, if we have I keep hearing people, we pass bills, every bill we pass has fiscal consequences for school districts. And so we cannot keep passing legislation and then be surprised when we see tax increases. So I guess that's my point. I don't know how, as a shared body, we're gonna try to address that issue this year.

[Emilie Kornheiser (Chair)]: Any other questions for Julia, who has to sit there while we have philosophical conversation? Okay, thank you. Encourage folks to really look at the dynamics of each of these and develop thoughts. None of them are perfect. They're all deeply imperfect, and that is

[Charles “Charlie” Kimbell (Ranking Member)]: the situation. Just say, I don't think he has a chance.

[Carolyn Branagan (Member)]: Know what? Well, yes.

[Julia (Julie) Richter, Joint Fiscal Office]: Time down the non homestead rising by 11.9%.

[Carolyn Branagan (Member)]: It's for illustrative purposes.

[Rebecca Holcombe (Member)]: I want to say I really appreciate the case studies because I think it helps people understand the dynamics. I appreciate that approach.

[Julia (Julie) Richter, Joint Fiscal Office]: I'm just wondering about

[Carol Ode (Member)]: GN, a reserve for the future. I

[Carolyn Branagan (Member)]: don't think that

[Carol Ode (Member)]: reserve might be able to make it till '73 comes into effect because we're going to have such pressure otherwise in the budget with Medicaid cuts and SNAP cuts and other cuts that maybe, oh, well there's a

[James Masland (Member)]: reason to

[Emilie Kornheiser (Chair)]: use that to buy down your tax rate

[Carol Ode (Member)]: next year instead of taking anything from the general fund.

[Emilie Kornheiser (Chair)]: I just can't imagine something like that. Well, think that's sort of the idea, is that next year there'll be way less general fund available for exactly that reason, and so we would want to reserve this

[Carol Ode (Member)]: now. For them?

[Emilie Kornheiser (Chair)]: For them. Because it's free because of Both things. Better. Yeah. But you can think of it as just one of them if you want to.

[Julia (Julie) Richter, Joint Fiscal Office]: I mean, but then why not reserve them? Why not keep the

[Emilie Kornheiser (Chair)]: Representative Waszazak? Representative Wilkombe? Oh, sorry. Mark,

[James Masland (Member)]: go ahead.

[Mark Higley (Member)]: I know this is a tough thing to think about, but how much of our thinking or possible thinking about the future should be contained and what might happen in a bill from the Senate or even in the House in regards to testing costs for a couple of years.

[Emilie Kornheiser (Chair)]: I mean,

[Mark Higley (Member)]: are we? I mean, should that play a role in our decision whether or not to reserve some of this money or not?

[Emilie Kornheiser (Chair)]: So even in the most I don't know how much people are following the conversation in the Senate. Even in the most conservative versions or the most penalizing versions of what they're working on, we're still going to see spending growth year over year. And so we're still going to have a significant need for dollars the following year if we make a general fund transfer this year. Yeah. Represent us.

[James Masland (Member)]: And consistent with that, Mark, as Rebecca has pointed out, there are cost drivers that we can't address in this room or over the other body. Tax bill will be greatly affected by the tax cost drivers regardless of what we think we're doing or keeping the spending down to a certain percent.

[Emilie Kornheiser (Chair)]: And if and when the bill gets here, we'll take testimony on whether or not it's a good idea.

[Rebecca Holcombe (Member)]: Another thing I hope we can

[Carol Ode (Member)]: get some modeling on from Danfoe because it might

[Rebecca Holcombe (Member)]: help us anticipate growth in spending. There are significant transition costs associated with mergers. Act 46 spread them over three to five years instead of doing it in one year, and it also paid for them in the merger transition grants and there were

[Carol Ode (Member)]: tax subsidies for districts

[Rebecca Holcombe (Member)]: We're that did not providing those things upfront, which means they're gonna come in after the fact because those are real costs. Instead of being spread over five years, they're going be concentrated in one year. And I'm trying to figure out what the plan is for dealing with that reality.

[Emilie Kornheiser (Chair)]: And that was definitely Some of that, I think, was accounted for, and some of it wasn't and was planned for to be figured out this year.

[Rebecca Holcombe (Member)]: What was it accounted for?

[Emilie Kornheiser (Chair)]: There was an appropriation to AOE for some of the technical assistance side of it, but it didn't include sort of money directly to districts to account for their side of it. And I think that was anticipated to be figured out this year once the districts were figured out.

[Carolyn Branagan (Member)]: They've been using that on consultants for

[James Masland (Member)]: a whole year.

[Emilie Kornheiser (Chair)]: I don't know exactly how they're spending it yet.

[Charles “Charlie” Kimbell (Ranking Member)]: So one question on this, and I failed to ask it when Julia's in the chair, but this does not reflect the governor's proposal to reduce purchase and use tax by $10,000,000 and make it other general on transfer of $10,000,000

[Emilie Kornheiser (Chair)]: it was just moving money back and forth with no actual impacts on bottom lines, I'd ask really to just skip it because it confused the issue.

[Charles “Charlie” Kimbell (Ranking Member)]: Got it. So just

[Emilie Kornheiser (Chair)]: We'll look on that when we take more cuts of money, that'll Yeah. Be

[Bridget Burkhardt (Clerk)]: Yep. And that reserve would sit on line 30 or line thirty

[James Masland (Member)]: five? Five. 35. Five.

[Bridget Burkhardt (Clerk)]: 35. Okay. So Yeah. School boards and districts see that money sitting there, and they'd

[James Masland (Member)]: be tempted to spend. Maybe.

[Emilie Kornheiser (Chair)]: I think it's also I think there was someone else before

[James Masland (Member)]: you. Yeah, I'm interested in the structure of bubble math, playing with the property tax credit. I don't think we should put all of our eggs in a lot of these baskets in terms of putting the whole money towards the property tax credit, the non homestead or homestead. I'd like to look at how we should play with those two buckets of relief and see if I think that's a very interesting idea of just messing with the other side of the equation. But we don't have to put all of our eggs in that basket.

[Emilie Kornheiser (Chair)]: Regularly get questions from members about just applying it to sort of the folks who most need it, and that's viewed as the property tax credit or the income adjustment. And I the sort of the folks who are have the lower property value homes that get left out of that, I just write like, we can't use And the back of so that's, I think that's one of the reasons the extreme examples are helpful is to sort of remember those folks who get left behind when you

[James Masland (Member)]: And do then I think on the reserve idea, I think it's very interesting, but I do worry about the implications of it. I think if going set a goal that we're going to buy tax rates down to a certain amount, I think we should just name that goal, take that money this year, because we can try to predict dollar 1. Everything's gonna be so much different next year that we really don't know.

[Charles “Charlie” Kimbell (Ranking Member)]: My true sense.

[Rebecca Holcombe (Member)]: I was just thinking, I think we should be cautious in assuming we know what districts are doing locally. Mean, I was hearing from Jim that the preliminary tax rate increases could be in the 30s this year. They don't want to spend them. Just don't have a lot of flexibility. And so I just think we should, it's not that they want to, and at the same time, there's somebody who's going to get a pretty big tax decrease this year, and they're going have that. I just think we should be cautious, because the things that may be driving high rates may not be in some board's control.

[James Masland (Member)]: Right, absolutely.

[Emilie Kornheiser (Chair)]: Thanks, absolutely. Yeah, representative.

[Carol Ode (Member)]: I was thinking, if the idea is to have an offset, that keeps going forward, reserved for the future, and that's in the yield bill, of course, but might we put other cost drivers in the yield bill this year to try to solve going forward? I mean, if there's going to

[Emilie Kornheiser (Chair)]: be a cap, if there's discussion about a cap on school spending. I would really, I would prefer we wait for our schools, the cap conversation until we have it in front of us, if at all. Healthcare negotiations, there's

[Carol Ode (Member)]: a deal about that out, and that is a huge cost driver, and if a change, if people are concerned about the future and reserves, and there were a change in how that is negotiated, and that were to go into the yield bill, that would act like a reserve going forward, it would be something that

[Emilie Kornheiser (Chair)]: might go up less in the future. So you're saying put cost Put cost drivers. Cost driver reductions or changes in cost drivers into the yield bill. I think it's an interesting idea, and we would need to gather them from the other committees that are working on them. I don't know if I would call it similar to a reserve, because some districts who feel more comfortable with their tax bills would save that money in one place and spend it in another place. And some districts would reduce their spending from it. And so it's possible that it wouldn't actually save money out of the Ed Fund overall because of the nature of our local control system. Representative Masland? Yes. I got a nod from Julia on that one.

[James Masland (Member)]: I was like, alright, especially if remember, but it doesn't make possible that if you point out a slightly subject and other committees that we need to dig in, I would say perhaps in considerable depth, while we can solve those problems and then consider allocating in resources to it. Well, you get the mic.

[Emilie Kornheiser (Chair)]: Hey, I have an idea. So everyone is a liaison to a committee, and if everyone could scrub the wall of each committee that they're the liaison to for bills that are designed around reducing costs for education, then we would have a delightful crowdsourced list. And I'm sure there are many policy ideas that are not bills yet, but there are many that are. And it doesn't mean just because you add to the list doesn't mean you think it's a good idea. Could mean you think it's a bad idea, but it does have that intent attached to it. Yes, Representative Ode.

[Carol Ode (Member)]: I would love to see that.

[Emilie Kornheiser (Chair)]: Will everyone sign up for that?

[Carol Ode (Member)]: Yes, I love that because I want to see all the bills with increase education spending because they're unfunded mandates.

[James Masland (Member)]: Okay. Just to prove

[Emilie Kornheiser (Chair)]: the point. Okay, but can you also make a list of the other thing? Keep this

[Carolyn Branagan (Member)]: Am I also what?

[Emilie Kornheiser (Chair)]: Make a list of the things that are just not bringing the cost down and keep your list separate? Stop and down. Just separate list. It's off. Let's actually just, like, pull up all the bells that were introduced this session and just look for all

[James Masland (Member)]: of them.

[Emilie Kornheiser (Chair)]: That'll be so much fun. Yeah. Know you are.

[Carol Ode (Member)]: They said it's a lack of knowledge of

[Rebecca Holcombe (Member)]: everybody that if you tell a school to do something, it's going to cost money, which will raise spending and

[Carol Ode (Member)]: possibly property taxes. Yeah. No.

[Emilie Kornheiser (Chair)]: Or, you know, regarding food purchase and use will also increase property tax. Representative Waszazak, I think you had your hand up, but maybe No. Was. Last year. Okay. Representative Masland? Yeah.

[James Masland (Member)]: I'm paired up with judiciary. I don't know if there's very much there.

[Charles “Charlie” Kimbell (Ranking Member)]: I I'm sure.

[Emilie Kornheiser (Chair)]: I actually think there is. There

[Carol Ode (Member)]: is actually.

[James Masland (Member)]: Yeah. And also, if anybody would like a backup with whatever your assignment is,

[Carolyn Branagan (Member)]: I think they'll

[Rebecca Holcombe (Member)]: see what you have to do first.

[Emilie Kornheiser (Chair)]: I think there's actually a decent amount there.

[Rebecca Holcombe (Member)]: There's actually a

[James Masland (Member)]: Okay, good.

[Emilie Kornheiser (Chair)]: Thank you.

[Carolyn Branagan (Member)]: So much of following.

[Emilie Kornheiser (Chair)]: Okay, we're gonna take a five minute break before our next witness comes up.