Vermont Legislature SmartTranscripts:

[Rep. Carolyn Branagan (Member)]: Relax.

[Unidentified Committee Member]: Oh, gosh. Hello.

[Rep. Edward "Teddy" Waszazak (Member)]: Good afternoon. I don't know what today's date

[Emilie Kornheiser (Chair)]: is, but it is February 17. I have an agenda. Thanks for sort of. So folks, we have this week and next week, and then we have town meeting week, and then we have crossover week. And so we are bringing it all in. So today, we are receiving a school budgets update. And then we are going to go deep on education finance with Julia about some sort of thinking across a few years. And then we are going to talk about school district debt service and have some language to look at there and talk again to the bond bank. And then at 03:15, we are doing a walk through and ideally a vote on H-five 57. Have somewhat technical amendments to offer for that, for something that we caught after it left committee. And then, essentially Wednesday and Thursday, we are looking at sort of the three bills that we looked at last week with edits based on committee feedback and then a lovely series of witnesses to join us for those. Continuing our work on school district reserve guidance. Just really telling you all the whole week, because it's Tuesday. We also have a lot of bills coming in from other communities. Folks who are the liaisons to that community could take the time to read them and catch up to be able to really carry some of the details in it, I would super appreciate it so that I can have less fewer details on my own. Because they're varied, and many of them, we have fairly narrow jurisdiction over. And I don't know, does anyone have any updates? Thoughts? Okay. With that then, I'll turn it over to Kelly and Ted. I've been hoping that you have final numbers for us.

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: Why don't we go that far? I'm sorry.

[Emilie Kornheiser (Chair)]: It's okay. I don't know if I ever asked you about my just sort

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: of was hanging out with my hope silently.

[Emilie Kornheiser (Chair)]: That's gonna have hope. It is.

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: Good afternoon, everyone. Kelly Murphy, Education Finance Director. On the screen, I've got Ted Yates with me, our senior fiscal analyst. I'm going to share my screen and just go over where we're at to date. The good news is we are really getting there. We've got almost about 90% of the budget stemmed. There are also a few

[Emilie Kornheiser (Chair)]: Are you still on

[Julia Richter (Joint Fiscal Office)]: your screen? Working on that.

[Emilie Kornheiser (Chair)]: Thank you. How's that? Lovely. Perfect.

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: All right. So I'm just going to go through the memo that's been posted online real quick and just add a few other comments. But of the 122 budgets, three of them being the unorganized town, so you've got 100 submissions in. So that's pretty good. I did check to see where we were at last year at this time to see if that's about the same. And it is. Just for comparison, last year, had about 105 districts in at this time. There are a few districts in the pool that are not in yet that are a good size that I would want to pull into this collection. And I think that we will. We did happen in last year at this time. And so I think it just might be timing. The deadline for this question was Sunday. And everybody loves a good deadline. So there are a few that we're going to hopefully get early this week, I think. So just kind of going through the details as we have with the past couple iterations of this, We have 84% of the budgets in. This represents about almost 90%, 88% of the long term weighted ADM. And it's just a mere 0.2% in education spending. So they're about the same. And they have been and it puts us at 4.3%. So we were getting really close to this being a good working number. I do want to caveat that with the final budgets that we'll bring in. Just getting into the tables here, and this is really small. So I'm going to try to maybe try to expand this a little bit so you can see it better. So just looking at this, so budgeted expenditures have changed about three and a half percent offsetting revenues. Last time you recall, they were down by 2.2. In this version with additional budgets in, it's 0.9%. Did ask some of the districts that were down and mostly, they indicated the reason for the down associated with the revenues that have fallen to the bottom line from previous years no longer being available. Then you can see just the education spending overall at 4.3%. Then in table two, you can just see the comparison of where we stand to the December 1 letters. So this is what I have for today prepared. We are right now this week working on getting together the sheet that will help inform the yield bill. And so we're working on getting the spending and student counts in there. And we'll have that hopefully very soon towards the end of this week.

[Rep. Edward "Teddy" Waszazak (Member)]: Will you tell me more about what

[Julia Richter (Joint Fiscal Office)]: you mean by that last thing?

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: Yeah, so actually just today, I was meeting with Brad James to develop sort of the forecasting sheet that we work with Jantel on. And so we haven't loaded the frozen long term weighted median counts in yet, but we will. And then also just making sure that the budgets that we've collected so far are kept in document, and we'll keep updating as we go along. The other thing I do want to note that I intended to and didn't yet is that there are and I'm sure that you all know this, but I was just thinking about it is there are some districts that won't be in yet because they're not going on their budgets until May.

[Rep. Carolyn Branagan (Member)]: Am I correct? Also, in addition to those districts that are waiting until May to vote and some even later, the budgets voted on town meeting day that are defeated will very likely come in lower when we get to July 1. Yes, that could happen. So are we correct then to be thinking that 4.3 is the highest increase it could be? Enough. Well,

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: so I mean, I would say that sort of a heavy emphasis on this being preliminary. So this is what we've collected to date. These are the budgets that have gone forward from school board votes. But they're not the town meetings votes. And so there are a lot of things that could happen. The other thing you mentioned for the expenditure side of the equation, but between, you know, the May 1 collection of those final voted budgets and the end of the year, we could potentially also see change in offsetting revenue too. So I don't want to confuse the issue. But there are changes that could still happen at this point. And so this is our best guess based on the information we have at

[Rep. Carolyn Branagan (Member)]: this So you're allowing for the budgets that are voted on the floor and not by Australia ballot. Those budgets are the ones that can change on town meeting day. Well, could, right? It looks like it goes down. Australian ballot is as printed. It's either up or down. Yes, it's they could go up or down.

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: Yeah. So whether you're on the floor or by Australian ballot, you

[Rep. Carolyn Branagan (Member)]: can If you're on the floor, you can amend the budget. On the floor, that voting and approved budget on the floor can actually be quite a bit different than the budget school board presents and is reflected here. But the budgets that are voted by Australian ballot, well,

[Julia Richter (Joint Fiscal Office)]: if they

[Rep. Carolyn Branagan (Member)]: are defeated, then that was my first comment. It'll certainly be lower. If they're approved, it's gonna be just it's gonna be the figure that's shown here. But you can't change an Australian ballot vote from the floor.

[Emilie Kornheiser (Chair)]: No.

[Bridget Burkhardt (Clerk)]: The

[Emilie Kornheiser (Chair)]: other piece that we don't have yet, Representative Branagan, of why that percent could go up is that there are districts that we just don't have their information yet, and they could be districts that could bring that number up.

[Rep. Carolyn Branagan (Member)]: And how many did you say that was? So it's about 20. Oh, wow. Yeah. Yep.

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: And then about half of that are districts that haven't had their school board votes yet.

[Rep. Carolyn Branagan (Member)]: So that's half of the change that we're looking at today because we had 40 that we're waiting on today. Oh, did we only get 20? So will you scroll back up for us? Course.

[Julia Richter (Joint Fiscal Office)]: Think that's happy too. So we're at 100 right now. Of the 120.

[Rep. Carolyn Branagan (Member)]: So that was only 20 that we got new over last week. Oh, yeah. Yeah. And the

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: point in time comparing this year to last year, it's consistent in terms of what we're seeing. And I do expect that we'll have a few more in even earlier this week. So this will hopefully come up a little bit.

[Bridget Burkhardt (Clerk)]: There.

[Rep. Carolyn Branagan (Member)]: Say or say.

[Bridget Burkhardt (Clerk)]: Aren't there a few districts that actually have their budget vote after?

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

[Unidentified Committee Member]: Any other questions about what we have in front of us?

[Emilie Kornheiser (Chair)]: Do you have a time frame for when you'll have enough about actuals from last year to do analysis of where that spending is or not?

[Rep. Carolyn Branagan (Member)]: So what I'm hoping to

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: do is really pull in what we've received since Sunday and work that into the file and compare that to last year's details. So we should have a little bit more analysis, hopefully, for the next time we come in. I actually was hoping that it would be today, but I got a little bit ahead of myself. So I'm sorry about that. But I do hope that with each iteration, it will get better and better in terms of the information that you're getting.

[Rep. Carolyn Branagan (Member)]: Thank

[Emilie Kornheiser (Chair)]: you so much.

[Rep. Carolyn Branagan (Member)]: Teddy, you

[Emilie Kornheiser (Chair)]: don't have anything? I just don't want to leave you out up there on the screen.

[Ted Yates (Senior Fiscal Analyst, VT Agency of Education)]: No, thank you. She covered everything very well.

[Emilie Kornheiser (Chair)]: Thanks for being here.

[Rep. Edward "Teddy" Waszazak (Member)]: Thank you.

[Emilie Kornheiser (Chair)]: I think next we have Julia Rutland joining us. So as we've been

[Julia Richter (Joint Fiscal Office)]: thinking

[Emilie Kornheiser (Chair)]: about this year's yield bill, and I think I mentioned last week that I've been trying to think about it as a transition. And a lot of us have talked about our concern about creating a clip, and we lower property taxes with one time revenue. So I asked Julia to do some analysis for us about what we're looking at across a couple years or a few years, which I think is what three is, is few. And in order to do that, she had to make a lot of assumptions that she doesn't like to make. And so in order for me to feel like I did not put her in a really terrible position, what I'm gonna ask everyone on the committee to do today is to pay a lot of attention to the assumptions slide when she gets to it, and to try to remember the assumptions slide when she's not on that slide, when she's on a different slide. Can we all do that? Thanks. Great. Appreciate it. Julia, the floor is

[Julia Richter (Joint Fiscal Office)]: yours now. Thank you. I'm Julia Richter with the Joint Fiscal Office. Good afternoon. Appreciate the intro, Madam Chair. I also included a lot of caveats throughout the slide deck. So you like me to start with the slides? Yeah, I think that would be great. Okay, so I'm gonna go ahead and share my screen. There are a few documents posted on the committee page under my name. And I'm gonna go ahead and share the slides that titled Education Fund Growth. So we are a nonpartisan fiscal office with unbiased information, only trying to provide information for legislative consideration and not policy recommendations. So what I've done today is first looking back at the Education Fund over time and Education Fund uses, and then looking forward. And to the chair's point, the looking forward is using a number of assumptions to get an intuition of the scale of things that we're looking at. So one of the questions that I was asked to look into today and that people have been talking about is how education fund uses have changed over time. You'll recall that education fund uses is that some line on the education fund outlook, that's all of the categorical aid, plus the pensions being paid out of the education fund, plus the education payment, the sum of all education spending. And so of course, depending on what years you look at for any sort of time trend analysis, it's going to impact the rate of change that you're looking at. If you're looking at it over five years, it's going be different than if you look at it over ten years, than if you look at it over twenty years. And we know that there's a number of factors that are impacting the changes in ed fund uses over time. I've included some of them. This is not exhaustive, but we know that there's inflation and cost changes, the local, state, and federal level. There's federal decisions on policy and funding that ripple down to the state and down to districts. State decisions on policy funding, but of course, impact state and districts, then of course the local decisions. So I decided to look at annual growth rates in two ways. One is with the compound annual growth rate often referred to as CAGR, and then average annual growth rate, which is a way that I've seen other people looking at it in the building in recent days, as different ways to measure changes over time. So CAGR is really calculating a smooth annual change over time, whereas the average annual growth rate is looking at what was the average change in each of those years, and then we're going just take a simple average of those annual changes. So the more volatile those year over year changes are, the more they're going to be sitting within the average annual growth rate rather than the compound annual growth rate. Are they going to be sitting on it? The more they're going to be captured by, because we're looking at the sum of the average changes year over year, whereas the compound annual growth rate is looking at the difference between two points of time and the number of time periods and then creating a smooth curve. And I put this here, I know you all know this, but I think it's really important to keep in mind that often when we're talking about percentage change, we're focusing on percentage change, and that's all people are talking about. But a percent matters based off of the base it's being applied against. So a 2% on a large base is going to be perhaps different or higher than a 10% on a small base. So we need to keep in mind when thinking about the average change that the base against which that change is being applied to really matters.

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

[Rep. Carolyn Branagan (Member)]: I hate to bring this up, but the fun has changed a whole lot since you're going back to 2005. Is we used to pay for the community college, not community college, but the school that runs in the present. It's the biggest school district. We used to pay for that out of the Ed Fund, and we didn't used to pay for school teachers' retirement out

[Kelly Murphy (Education Finance Director, VT Agency of Education)]: of the Ed

[Rep. Carolyn Branagan (Member)]: Fund, but we did pay for the assessor's instruction and changing the Okay, so what are we doing with all that stuff that's no longer in there, but the new stuff is in there? It's not the same thing

[Julia Richter (Joint Fiscal Office)]: we're dealing with over time. Absolutely. And that's an excellent point. What we're capturing here are the aggregate uses of the education fund. So what is the sum of all appropriations out of the Education Fund? What those appropriations are for certainly matters. And when we're thinking about just the dynamics of the fund, how big the fund is, how much needs to be picked up from property taxes, that's in relation to the total amount to be appropriated on the Ed Fund. A $1,000,000 appropriation for this or $1,000,000 appropriation for that, of course, where that appropriation is going matters, but on the tax side, we're just accounting for the fact that it's $1,000,000 out of

[Rep. Carolyn Branagan (Member)]: the Ed Fund. So as long as we, as members, remember that this all didn't go to kids, right now, we finally moved it down so that a good portion of it does go to instruction in the classroom or instruction in schools, but twenty years ago, it didn't.

[Julia Richter (Joint Fiscal Office)]: I guess the other piece I would note is that the structure of the education side may change over time, too. In 2018, we saw the revenue change where there used to be a significant general fund transfer. And then in 2018, that general fund transfer was done away with, and the non property revenue sources were increased into the education fund. So absolutely. And that's one of the reasons why I think all of these changes over time, looking forward, really need to be interpreted with extreme caution because they provide some insight and they're not telling all of the underlying story.

[Emilie Kornheiser (Chair)]: Are you still in college

[Rep. Carolyn Branagan (Member)]: in 2008? Carolyn, I didn't

[Julia Richter (Joint Fiscal Office)]: want to come back. Sorry.

[Rep. Edward "Teddy" Waszazak (Member)]: I hope they might

[Emilie Kornheiser (Chair)]: be out. Does anyone have any other questions about analyzing growth? Yes.

[Rep. Edward "Teddy" Waszazak (Member)]: Does the baseline number that we're I've jumped into the next slide, but does the baseline number that you're looking at include any of the buy downs from the past few years?

[Julia Richter (Joint Fiscal Office)]: It depends on which slide we're looking at, but when we get there, I will absolutely This first chunk, we're looking at education fund uses. We'll get here. This slide is showing the total uses of the ed fund over time. It's not been adjusted for inflation. It did not adjust any of the numbers for inflation in this entire slide deck. And the total uses, when looking at them solely in a chart, is agnostic to how they were covered. They needed to be covered, but what they were covered by, be it property taxes, non property, general fund, here does not we wouldn't see that showing up in the chart.

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

[Julia Richter (Joint Fiscal Office)]: included this slide, this chart. I went back and forth if it would be helpful to show, but I decided to include it because what we're looking at here is the relative percentage change in education fund uses compared to the prior year. So basically, what I did is I calculated what is the percentage change year over year, and then I plotted it on this simple chart. And the reason I included this is, while we look at the Education Fund uses over time and they look relatively smooth, when we look at those year over year changes, it looks a lot more volatile. And this gets back to the point of when we are thinking about the average changes, we need to consider it in the context of the base and the time span writ large.

[Unidentified Committee Member]: What happened in 2023? Was that the end of Esser Money? Was that Esser Money coming out so then we're relying on the end fund for? Or what was the story there?

[Julia Richter (Joint Fiscal Office)]: I don't know. I don't want to postulate why we saw a significant jump in that year. Some things that happened in that year are that Esser funds dried up, the pandemic was ending, Inflation was really high. Sales and use tax was performing really high compared to projections. We also saw that significant jump in education spending that year, and there was a lot of conversation as to why education spending was increasing so much. Beyond that, I don't know.

[Unidentified Committee Member]: What was the year that we did the child care payroll? I don't know. I would need a follow-up. There was a change in teacher retirement. To me, total uses of Ed Fund over time. I guess I'm confused about what uses mean. So, if

[Julia Richter (Joint Fiscal Office)]: we go to I'm going to pivot just to the Ed Fund Outlook to center us when we're talking about uses, not to walk through the Outlook. But when we're looking at the Education Fund Outlook, we have all of the appropriations listed in lines 11 through 24. The uses is literally the sum of all of those appropriations included in the Ed Fund Outlook. So in addition to the Ed payment, the sum of all education spending, it's also all of the categorical aid. It's the pension and OPEB normal costs and a few other smaller uses. I get that.

[Unidentified Committee Member]: Thank you for that. But there are other things that schools have to keep picking up as we make them.

[Julia Richter (Joint Fiscal Office)]: So that would be covered in if there is not a specific appropriation for that, that would be covered in the education payment. Because as you'll recall, school districts' entire budgets after accounting for federal revenues are covered from the statewide education fund.

[Unidentified Committee Member]: Still looks, oh, look, this is going up. And then we don't, I don't see how I can separate this going up from what more and more and more and more schools have to take on?

[Emilie Kornheiser (Chair)]: You don't have to separate that out. There's no value judgment in this chart. It's just saying there's no explanation of why, there's no blame. It's just saying this is how much money the education fund needed to spend over those years. Because of federal mandates? No, not because of There's no because in the chart. And we're not even being asked to find a because right now. We're just teeing ourselves up to say what comes next.

[Unidentified Committee Member]: But then on page five, it says, for inflation cost changes, so it gives you a list. Yeah,

[Julia Richter (Joint Fiscal Office)]: I really wanna echo the chair's point that there's no value, there's no big, this is why any of this is happening. Often, when we are talking about the yields bill, we're talking about a single year. We're looking forward to FY 'twenty seven. And the chair asked me to provide a wider range, instead of looking a single year at the education fund, to look at a broader year. And the data that I had available went back to 2007, so I was like, let's go back to 2007. These that I've included here, inflation and cost changes, federal, state, and local decisions on policy and funding, I included those here to exactly the point that we can't look at this chart and say any increase is caused by one or two reasons. There's a whole host of things that have happened over this time frame that we can't point at one thing as to why it looks the way it does.

[Emilie Kornheiser (Chair)]: Okay, thank you.

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

[Julia Richter (Joint Fiscal Office)]: So, moving on? Okay. Moving on, so this gets into estimating average growth in the Ed Fund uses over time. This gets to the point of when someone says, How much have education fund appropriations changed over time? The question is, Over what period of time? The time period really matters. And so what I did here is I calculated the compound annual growth rate and the average annual growth rate for a twenty year period, a ten year period, and a five year period. Again, the rate increase is in addition to an increasing base against which the rate is applied. So what we're seeing here is that in the past five years, the Education Fund uses have grown at a faster pace than they grew on average over the last ten years or the last twenty years. Again, not saying why, but to me that's kind

[Rep. Carolyn Branagan (Member)]: of key, because how do

[Unidentified Committee Member]: we change anything? How do we rescue our school boards? How do we rescue our schools if we don't look at what we have the power to do so many things. We are impacting this so much. And if we don't tease it out, we need to

[Julia Richter (Joint Fiscal Office)]: So I guess I would say that's not the I understand, and that's not what this analysis is trying to do. What's a trend you're

[Rep. Carolyn Branagan (Member)]: I'm sorry.

[Unidentified Committee Member]: Just showing that it's going up.

[Bridget Burkhardt (Clerk)]: The rate of increase in the most recent past five years

[Unidentified Committee Member]: is

[Bridget Burkhardt (Clerk)]: It's higher

[Julia Richter (Joint Fiscal Office)]: a bit higher, And therefore

[Emilie Kornheiser (Chair)]: There's no therefore. There's no therefore. It's just laying the assumptions groundwork for Julia to be able to explain how she got to looking at the next three years. So I guess,

[Julia Richter (Joint Fiscal Office)]: looking forward, if we scroll forward, I am frequently asked, what is going to happen to the education fund in the next three years? And I say, I don't know. There are so many confounding factors that I have no way of doing any sort of forecasting or estimating of that because of all of the things we've talked about. Local, state, federal, inflation, everything that's happening, I can't forecast that. And then the question is, but if you had to, how would you do it? And my answer is, well, I have no way of predicting the future. I can't forecast what the federal government is going to do, the policy decisions you all are going to make, and the policy decisions that local school boards are going to make. So my best way of being able to hang my hat on something is to look at over the past twenty, ten, five years, how have things changed? And then use those trend lines into the future. And at least if people disagree with that decision, they understand why a certain decision was made and where an assumption is coming from.

[Rep. Carolyn Branagan (Member)]: Totally get it.

[Unidentified Committee Member]: Thank you.

[Julia Richter (Joint Fiscal Office)]: Yeah. So we see that Ed Fund uses are growing over time at an increasingly faster rate in recent years. However, the non property tax revenues that are dedicated to the education fund are growing at a slower rate than education fund uses. This is a chart from the January forecast. And I put little yellow boxes around each of the estimated growths in the non property tax revenues. So what does that mean? Well, in the education fund's current structure, it means that if the total uses of the education fund grow at a faster rate than the non property tax revenues, that absent any other policy change, property tax revenue or some other revenue, like the general fund revenue you're asking about, need to make up that difference. And so this is that classic alligator chart. We see the increasing growth of property taxes that are needed forecast into FY '27. And here, I went back to FY '18 because that's where there was the significant funding shift, and so I thought this provided a little bit more apples to apples. This next chart is the same information as was included on the previous one, but I thought that it would be helpful to see the actual numbers that we were looking at here. So what we're looking at is this top line that's blue is showing the total uses of the Education Fund and the corresponding millions of dollars in uses for each of the fiscal years. The two bars, the bar that's going up to the education fund uses is showing of those uses, how much was raised from non property revenues, those consumption taxes, sales and use, meals and rooms, purchase and use. That's what we're seeing in the orange bar. And then how much was included in how much needed to be raised in property taxes or other funds. And here, I've included the general fund transfer amount in 2526 in the orange bar, the total non property tax revenues. What's included in the green bar is any education fund surplus that was used. In

[Rep. Edward "Teddy" Waszazak (Member)]: the green bar? Yes.

[Emilie Kornheiser (Chair)]: Where was the general fund? Sorry, you just said it. In the orange.

[Julia Richter (Joint Fiscal Office)]: So just looking at the numbers, of course, they're not adjusted for inflation. You literally can see how the property taxes have had to increase to make up that difference in growth.

[Unidentified Committee Member]: Observation truth. I mean, I was thinking about this, for the past ten years, we've had, we have increased some taxes, payroll tax, paid shop here, but basically it's been no new taxes and fees, so the one place that taxes have gone up has been education tests, and so it's almost been like a pressure valve for everything else.

[Rep. Carolyn Branagan (Member)]: Just wanted to say that. Thanks.

[Julia Richter (Joint Fiscal Office)]: So that's all I prepared for our looking back. We get to the looking forward,

[Bridget Burkhardt (Clerk)]: which

[Julia Richter (Joint Fiscal Office)]: Chair provided a lot of caveats around. I, too, will provide one. These charts are meant to be illustrative, and they're not any official projection or forecast or estimate of Vermont's Ed Fund from JFO. And I also wanted to note that we're looking at the Ed Fund at the aggregate level. So we're not looking at how different types of property taxpayers are or are not impacted by increasing property taxes. Course, that's included in the yield bill policy conversations. Do we have a uniform bill change or increase one or not the other? None of that is being captured here.

[Bridget Burkhardt (Clerk)]: So

[Julia Richter (Joint Fiscal Office)]: this is why it's challenging. Property taxes, we know they're set to ensure that the education fund is fully funded, meaning that all components of the education fund impact property taxes. So both our non property tax revenues, as well as all of our uses out of the education fund. Federal changes, state and local decisions, non property revenues, they all impact the Education Fund. And ultimately, because property taxes are that flexible lever to ensure the Ed Fund is fully funded, property taxes are impacted by all of those pieces. And doing any of this analysis requires multiple significant assumptions. So this committee has talked about this a lot. I included it here again because buying down property taxes using one time money puts upward pressure on future year property tax changes. And that's because any one time money that's used in one year to buy down property taxes creates a bigger difference against which the following year property taxes need to make up. Last year, 118,000,000 was used to buy down property taxes for FY '26. So this was at 77.2 in general fund and the 41 of Ed Fund surplus. So the charts that I put together have a number of significant assumptions. Here are some of them. I assumed that Ed Fund usage would grow by 5% based on the analysis we looked at earlier. I decided to go on the ten year trend line. Assumed the non property revenue forecast from the consensus revenue forecast. Assumed no Education Fund surplus or one time general fund money in future years unless it was reserved. Assumed no reversions into the education fund, no contribution to the stabilization reserve, no changes to the federal and state policy that would impact funding, no impact from Act 73 in fiscal year twenty twenty nine, and all else is held equal. And I assumed all of those things so that we could get some intuition in terms of what things would look like. Using all of those assumptions and assuming no buy down, what we're looking at here is a growth in property taxes by approximately 13% in FY27, approximately 7% in FY28, and 4% in FY29. And essentially what this table is showing is here's that grown ed fund uses at 5% over time. Here's what's forecasted to come into the education fund from non property revenues. What is the difference? And that difference needs to be made up by property taxes or another revenue stream. And then calculating that year over year change, relative year over year change.

[Rep. Edward "Teddy" Waszazak (Member)]: Question, but can people tell me?

[Emilie Kornheiser (Chair)]: Does anyone else have a question? What

[Unidentified Committee Member]: if, So the 13% for FY 'twenty seven, why is that different than the 11.9%?

[Julia Richter (Joint Fiscal Office)]: Great question. It's because we're looking at the aggregate tax collected and not at the average tax bill. I wanted to say it, but I forgot, and then I'm really happy that you asked.

[Emilie Kornheiser (Chair)]: Represent Waszazak, how are you?

[Rep. Edward "Teddy" Waszazak (Member)]: That's good, thank you. Of the million assumptions that you put into this, why is the slope going down between '27 and 29?

[Unidentified Committee Member]: Could you repeat that, I'm sorry.

[Rep. Edward "Teddy" Waszazak (Member)]: So the slope of those assumptions is going from 13 to seven to four. I'm wondering why the slope is decreasing.

[Julia Richter (Joint Fiscal Office)]: Because if we just take a step back and we think about the intuition, if we've got education fund uses growing at a steady 5% and our non property tax revenues growing at roughly a steady increase, If there is no significant one time year buy down, the comparison to the prior year is not going to be as up and down as it is with a buy down. So one of the significant reasons that we're seeing a 13% increase in total property taxes collected in FY27 is, in part, we're still using the December 1 budget projections of 5.8, But also, 118,000,000 in one time was used for FY '26. So FY '27, the change is being compared against that property tax amount that would have been collected, minus 118. And then, so what we're going be seeing here over the next few slides is using a lot of one time money in one year, will create, absent another use of one time money, we'll see a significant one time year change. Bridget Burkhardt. Whereas, once that use of one time money is either smoothed out or phases out, like we're seeing here, the year over year change, assuming all these assumptions happen, won't be as volatile.

[Bridget Burkhardt (Clerk)]: Julie, we've had a couple of large capital construction projects. The Colchester bond, for instance, isn't going into full repayment for a couple of years. So is that reflected in your numbers as well as some of the assumptions to some of those capital projects then hitting full repayment? Because it won't be in their budgets until then.

[Julia Richter (Joint Fiscal Office)]: No, the assumptions are a flat 5% growth year over year. That's not what it's going to be. And I don't know what it's going to be.

[Bridget Burkhardt (Clerk)]: Maybe that some bonds get paid off, and that same time they cycle out

[Rep. Edward "Teddy" Waszazak (Member)]: as the new ones come up.

[Julia Richter (Joint Fiscal Office)]: And I think that one of the challenges and I was talking with Jake a lot from TACS about this. Of the challenges about trying to forecast Ed fund uses going into the future is there are any instance where you can say, Here are 10 reasons why costs are going to be increasing. And here's 10 reasons why they're going to be decreasing. And then for each one of those ups and downs, you then need to form some sort of assumption. How much are they going be increasing? How much are they going to phase out over time? What is going to be their rate of change? And instead, I say it's simple.

[Bridget Burkhardt (Clerk)]: But

[Julia Richter (Joint Fiscal Office)]: it's a fair point, and it's a goal to think it's been mine. So this is what that would look like since FY 2023. Now we're looking at the estimated total property tax or other revenue needed over time for the OTHM fund.

[Bridget Burkhardt (Clerk)]: The

[Julia Richter (Joint Fiscal Office)]: The next next two scenarios are referring to the one time general fund revenue. So this scenario is if there were to be $105,000,000 in one time general fund revenue used to decrease property taxes in FY 2027, how would things shake out? And what we're seeing here is it's essentially pushing that balloon, pushing that increase one year forward because we're assuming no more general fund money in FY 'twenty eight. So we see here the total estimated property tax or revenue needed in millions. This is the same as the prior slide. Here, we're looking at the one time buy down. I've summed the general fund and Ed fund surplus, the one time general fund and Ed fund surplus used. And then this is the difference, the total property tax or other revenue needed. So here we see aggregate increased collection of property taxes by about 5% in FY 2027. And then there would be that jump up in FY 2028 absent more one time money of an estimated 15% year over year increase. This chart is showing that in an image. So what we're looking at here, this blue line, this is the same line we were looking at on the previous slide. So this is without a buy down, the total property tax or other revenue needed. Here, I've included a gray line showing if there were a total buy down, how much would be needed. So you can see here that trend of using one time monies over the last few years to decrease the amount needing to be raised from property taxes. And then absent more one time money in FY '28, there would be that sharp increase. That's where we would be seeing the 15% increase for property taxes to then make up the full freight.

[Bridget Burkhardt (Clerk)]: I'm just curious, there's been talk about putting a cap on education spending. Do we have anything that shows what would happen if we were to do that after the fact?

[Julia Richter (Joint Fiscal Office)]: After the fact can I jump in for a second?

[Emilie Kornheiser (Chair)]: So the bill that's the sort of talk of that from the Senate has changed, like, 20 times in the last three weeks. And so

[Julia Richter (Joint Fiscal Office)]: I think it might be

[Emilie Kornheiser (Chair)]: in our best interest to just wait another week before we figure out what it is. But the last many versions have not been for this year after the fact. They've all been for the following fiscal year.

[Bridget Burkhardt (Clerk)]: Thank you. Sure. You need to go down the

[Emilie Kornheiser (Chair)]: rabbit hole. No, no, you're right. I mean, it's a very reasonable rabbit hole to go down. I keep on going down it myself and then being like, I'm gonna wait.

[Unidentified Committee Member]: Destroy, Woody.

[Julia Richter (Joint Fiscal Office)]: So that's what we're looking at here without the buy down and then with the buy down and seeing that increase in FY '28, as it gets squeezed further down the line.

[Emilie Kornheiser (Chair)]: Sorry, one more thing. If that bill does actually get here, then I think it would be pretty easy to overlay that with this. Yes, absolutely.

[Julia Richter (Joint Fiscal Office)]: I've done extensive modeling and presented a lot of data in Senate Finance. So absolutely. Ultimately, the way that that would look would be impacting FY assuming that it's a similar construct to what's being contemplated in the Senate, it would be adjusting this FY 'twenty eight and FY 'twenty nine. And to what degree would depend on the cap they land at. Right now, they're considering different partitions of a cap. Okay. So this is the last scenario. This is if that $105,000,000 in one time general fund were to be used over the next three years, so FY twenty seven, twenty eight and twenty nine, to decrease the amount needed to be raised by property taxes. And what we see here is that instead of squeezing that bulge for the bulge to exist in one year, it would be making that bulge less extreme over three years with the amount of property tax to be increased estimated 10 in 'twenty seven, 8% in 'twenty eight, and then 5% in 'twenty nine.

[Rep. Edward "Teddy" Waszazak (Member)]: Did your hand just go up? That's why Julia I'm going like this.

[Rep. Carolyn Branagan (Member)]: You want to ask a question? No.

[Unidentified Committee Member]: I'm

[Rep. Edward "Teddy" Waszazak (Member)]: doing half of my head.

[Emilie Kornheiser (Chair)]: Maybe on your hands.

[Julia Richter (Joint Fiscal Office)]: And then this is the visual of that. So here we're seeing instead of a steeper increase of the gray line, the amount that would need to be raised from property taxes, instead we see that phasing closer to the blue line or the amount absent of the high down. So what we're really seeing here is really pushing that average change over multiple years rather than having that significant change happen in just one year. So we've talked about all of this, that buying down property taxes in one year puts upward pressure on the following year's changes to property taxes. The more one time money used to buy down property taxes, the bigger the difference to make up the following year. Again, we looked at aggregate tax growth, not how different property taxpayers would be impacted. And we know this, but I'll say it again. If Ed Fund uses continue to grow faster than non property tax revenues, property taxes or another revenue stream will need to continue to make up a larger and larger share of the education fund and will need to continue to increase. And that is all I prepared in these slides.

[Emilie Kornheiser (Chair)]: Can you show us a corresponding outlook? It's probably the wrong word.

[Julia Richter (Joint Fiscal Office)]: I can show you the outlook at the third place.

[Unidentified Committee Member]: Thank you so much.

[Julia Richter (Joint Fiscal Office)]: Pivoting to the outlook, also posted on the committee page under my name. The first columns A through G have not changed. I've not updated this with the data from AOE. Once they have that in the form and share it, I will do so. The next two columns, columns H and I, are new today. What we're looking at

[Emilie Kornheiser (Chair)]: in I'm gonna make a public service announcement. If someone with a school district or a superintendent or a business manager is looking at this and trying to figure out the future, I think they're probably best off looking at the December 1 for the PAA. We don't there are so many choices here, and we're just working through our options.

[Julia Richter (Joint Fiscal Office)]: Okay, back to you. Many choices, two new choices today that I was asked to prepare. Those are column H and column I. No underlying data changes. Column H, so a little bit Do you want me to go back through what each of these columns are or dive into H?

[Emilie Kornheiser (Chair)]: Anyone have a preference?

[Julia Richter (Joint Fiscal Office)]: Type an H. Okay, so H is saying, Okay, what would happen if we set aside two thirds of the $105,000,000 in general fund for future years, and we only use one third of the general fund monies for FY '27, and we use the entirety of that one third of the 105 to lower homestead property taxes. We don't do anything about non homestead. And we don't adjust the property tax credit, what would happen? And that's what we see in column H. We see that the homestead property taxes would increase on average by 7.3%. The non homestead would still be estimated to increase by 11.9%, and that's consistent with what we would see if there was no buy down. And then we see that two thirds of the $105,000,000 of one time general fund to be reserved in the tax rate offset reserve. That's what it used to be called. I just haven't renamed it.

[Emilie Kornheiser (Chair)]: What would you rename it to?

[Julia Richter (Joint Fiscal Office)]: Whatever I was asked to. I was like, that seems like a fine enough thing to call it.

[Bridget Burkhardt (Clerk)]: Which which line are you on? Line eight under sources? Time general fund transfer, no? Property tax reserve.

[Julia Richter (Joint Fiscal Office)]: We are looking at column H.

[Bridget Burkhardt (Clerk)]: I know, but row.

[Julia Richter (Joint Fiscal Office)]: It's 29?

[Bridget Burkhardt (Clerk)]: No. 3535

[Julia Richter (Joint Fiscal Office)]: is the tax rate offset reserve.

[Bridget Burkhardt (Clerk)]: Yep. Got it. Thank you.

[Julia Richter (Joint Fiscal Office)]: It looks like the formatting didn't carry through into these lines. They should be blue also. So that's what we're seeing in column H.

[Bridget Burkhardt (Clerk)]: 9.95.

[Julia Richter (Joint Fiscal Office)]: If twothree were set aside, onethree were used to lower homestead property taxes. And the income yield has also been set to correspond with the homestead average bill increase.

[Emilie Kornheiser (Chair)]: Not as much property tax reduction and less of a cliff.

[Unidentified Committee Member]: Was there a reason not to put any relief toward non Whenever I look at non Homestead in its current form, I just think of renters and apartment buildings and all of that, and I get nervous about their taxes going up 12%. Me too.

[Emilie Kornheiser (Chair)]: Every iteration of this, I feel nervous about one part of it. And so this is just, I don't know, shifting nervousness around.

[Julia Richter (Joint Fiscal Office)]: It's like my Fair enough.

[Bridget Burkhardt (Clerk)]: Yeah. But that is cheating anyway.

[Julia Richter (Joint Fiscal Office)]: Yeah. So I would say all of the scenarios I'm presenting I was asked to put together. G is if we were to use onethree of the general fund monies to uniformly lower. So we see that using one third of the 105 to lower homestead and to non homestead would result in a uniform average increase of 9.8%. So here in age, we're dedicating all of it to Homestead.

[Emilie Kornheiser (Chair)]: And then I guess I would say, let's say we dive into our nervous feelings on H. I'm really hypothesizing here. If we dive into our nervous feelings about H and think that if it's that we're focused on the challenge of renters and we're talking about using a general fund transfer anyway, maybe that we increase the renter credit with a general fund trans with part of a general fund transfer. I don't know. But as we dive deeper into each column, we can say, Okay, what are the challenges that are sitting here, and are there other ways to wrap them up? Again, that was not a policy proposal. It was just me thinking out loud.

[Julia Richter (Joint Fiscal Office)]: So then, moving on to the final column called I, this is saying, again, we're going to put aside twothree of the general fund one time 105,000,000 into a reserve, and you are saying you're only going to use one third in FY 'twenty seven. And you're going to use that one third in FY 'twenty seven by dedicating half of it, so a sixth of the total general fund money towards homestead property tax relief, and you're going to dedicate the other half of the one third or the one sixth towards a one time increase in property tax credits. So that's what we're seeing here in column I.

[Bridget Burkhardt (Clerk)]: That's property tax credits in its existing form, not the future form.

[Julia Richter (Joint Fiscal Office)]: Correct. So it's the property tax Exactly. The property tax credit earned in FY '26 that's showing up on FY '27 bills. In doing all of that, what we see is that the homestead and income yields would result in an average bill change of 9.6% increase compared to the prior year. The non homestead rate, our average bill increase, again, would be 11.9% because we're not touching it with the general fund money. And finally, the property tax credit would be able to be increased by 13%. And we can see that corresponding increase here in line 1B, dollars 151,700,000.0 compared to the $134,200,000 And again, these should be blue, but that's showing the same, the two thirds of the general fund money is going into a reserve.

[Emilie Kornheiser (Chair)]: And so one of the things We're not sure about anything about the future at all, even in the most stable of historic times, which this is not. Though our consensus revenue forecast is looking at much less revenue next to you know, like, our revenue growth is slowing considerably, even in the general fund, right? So that'd be less one time money to be doing things like this with. I also remember that when we passed 01/1927, I know some of us were sort of well, not at this table. We were downstairs, I think, when we did that. But when we passed 01/1927, we created a tax rate offset reserve because we thought that spending might go up as a result of 127. It was, in fact, one of the goals of it to some degree. And that was really absurdly insufficient to make any difference at all. And so that's one of the challenges of predicting the future. Senator Kitchell has a really great idiom for that that I'm not going to use. It's the perfect guess for President Kimbell.

[Bridget Burkhardt (Clerk)]: So I'm thinking about this and also your previous slide deck and to the chair's comment about the unlikely could of continued strength in general fund revenues. But what we've seen over the past two to three years is really almost a general fund transfer essentially from the general fund support, the education fund. So the question is, is that sustainable? If you assume, is the last year was 01/2018, it was 105, could it stay in the $109 range?

[Julia Richter (Joint Fiscal Office)]: So last year, One technical note. Last year was 118 total, of which $77200000.077800000.0 dollars was general fund. We are seeing an increase from FY '25 to FY '26 to FY '27. As for if it's sustainable, I don't know. I don't focus on the general fund. That would be an interesting conversation to have with my colleagues who focus on the general fund. That said, this is a policy decision of money is fundable. If $105,000,000 of general fund money is coming into the education fund, that's $105,000,000 that can't be spent elsewhere. That's a decision.

[Emilie Kornheiser (Chair)]: We can pull back up some other time projections.

[Rep. Edward "Teddy" Waszazak (Member)]: Represent was the next. Also, I just want to point out for the one third over three years or using one third now putting the rest in reserve. If you the presentation we just went through, if we used all of the, call it 01/1927, with all of those assumptions that Julia talked about, it was 5% and then 15% and then 4%, 24% over three years, just with large spikes. Using that same 105 over three years, it was ten, eight, and five, which looks more stable, but that's a difference of 1%. It's either 24% if we do it all this year or 23% if we were to spread that over three years. So just the futility, like either way, we're looking at 20% plus over the next few years, regardless of how we use that 170.

[Rep. Carolyn Branagan (Member)]: Can you speak to that?

[Julia Richter (Joint Fiscal Office)]: Yeah, I guess I'm going to respond from my perspective, not try to rephrase what you said, which is that what we're looking at here is all of these scenarios are not changing the total amount of education fund uses that need to be covered. Have a finite number in And these scenarios, a finite number of dollars, and it's essentially how you all choose to spread that relief over those years. So yes, between looking at the total amount that needs to be raised from FY27 to FY29, it doesn't change in the scenarios. Is it a steep increase in one year and then a more gradual increase in the other years? Or is it a more gradual increase over those three years? And that gets to the spreading it out or using it in one year or some other permutation.

[Rep. Edward "Teddy" Waszazak (Member)]: Which just per my soapbox, I think underscores why we should not be waiting until twenty nine to thirty to perform this on. Soapbox, appreciate it. Thank you.

[Emilie Kornheiser (Chair)]: I love if we all said soapbox before we said I'd be soapbox y. That would make

[Julia Richter (Joint Fiscal Office)]: everything so much more fun. Easy peasy.

[Emilie Kornheiser (Chair)]: Julia,

[Unidentified Committee Member]: I don't quite understand. So, it looks to me like in the total sources, you're looking at the 2,000,616 and then you go down to the total allocations, appropriations, and it's back to the 2,565. What's the difference? It must be more than just the 69,000,000 set aside for the reserve, right?

[Julia Richter (Joint Fiscal Office)]: No, so that's exactly what we're capturing here is the $69,900,000 set aside for the reserve, as well as the filling of the stabilization reserve.

[Unidentified Committee Member]: And

[Julia Richter (Joint Fiscal Office)]: using the education fund surplus from the prior year. So it's So

[Unidentified Committee Member]: that other 22,000 something?

[Julia Richter (Joint Fiscal Office)]: 22,000,000, yeah. 22,000,000.

[Unidentified Committee Member]: Thanks, Steve.

[Julia Richter (Joint Fiscal Office)]: And that's one of the challenges with looking at the sum of the sources and the sum of the uses is because it's not fully capturing all of the other pieces that we have captured below, including the surplus stabilization reserve and putting the money towards the additional reserve.

[Rep. Carolyn Branagan (Member)]: Thanks. Any

[Emilie Kornheiser (Chair)]: other questions, Padilla? Okay. Next week, we're going to start needing to make some decisions. Your thoughts? We're going to take a five minute break, we're back here at 02:20