Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Morning.

[Rep. Mark Higley (Member)]: Morning.

[Rep. Emilie Kornheiser (Chair)]: Is April 8, and it's 9AM, and we are continuing our work on education and finance. We are going to do a walkthrough of S220, because the topics in it are relevant to 06/09/1955, but I don't anticipate running a vote on it this week. John?

[John Gray, Office of Legislative Counsel]: Hi, good morning everyone. John Gray, Office of Legislative Counsel. I will screen share as always. F220, I'm sure you've heard of this one. This started as an allowable growth bill, which had a quite different structure as first introduced, it is now an act relating to the excess spending threshold. It doesn't use an allowable growth concept anymore. So as it came over from the Senate, it is really an amendment to the statute that spells out how the excess spending threshold currently works. So I'm gonna scroll so that you can see currently as you know, way that excess spending works is we basically talk about education spending and then we apply a portion of it that exceeds a particular threshold and you get hit twice for taxation on that piece. And as you also know, certain things have historically been excluded from the calculation of excess spending. So that's the first piece that you're gonna see in this bill is if we read the struck language and ignore the new language, so just to get at what existing law is, currently for all bonds approved by voters prior to 07/01/2024, voter approved bond payments for principal and interest shall not be included in education spending for purposes of calculating excess spending. So the current law approach is to set a cutoff date and say that school construction bonds approved prior to that date are excluded from the capitation of excess fit in, which means that a district's per pupil spending doesn't go, I'm sorry, that their rates don't go up as much. And the proposal that you see here is to just remove that cutoff date and say that any bonds approved by voters, regardless of whether that occurred prior to 07/01/2024 or thereafter, would be excluded from education spending for calculating excess spending. So that's the first piece of the bill is saying there is no cut off date. All school construction would not count toward ed spending when calculating excess spending. That's the first piece.

[Rep. Emilie Kornheiser (Chair)]: Even like two years from now?

[John Gray, Office of Legislative Counsel]: Even in two years.

[Rep. Rebecca Holcombe (Member)]: Okay. But the thing is, we're trying to

[Rep. Emilie Kornheiser (Chair)]: We're just trying to understand the bill right now. I'm not like, yay, yes, 02/20. I'm just

[Julia Richter, Joint Fiscal Office]: No discussion right now. Let's hear

[Rep. Rebecca Holcombe (Member)]: about the whole time.

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

[Rep. Emilie Kornheiser (Chair)]: have a new protocol where we always print everything?

[Julia Richter, Joint Fiscal Office]: Okay, cool. Great. So

[Rep. Edward "Teddy" Waszazak (Member)]: it's any bond payments. We've been having discussions to whether or not it's limited to bonds incurred for construction because a school district may incur bonds for other purposes?

[John Gray, Office of Legislative Counsel]: Think that's Yeah, that makes I mean, the language is voter approved bond payments toward principal and interest. So if they have other bonds of a kind, which are presumably voter approved, then yes. I just don't know how regularly other bonding is used for other purposes. But you're correct that we certainly use the shorthand school construction. And I think that that is the as I understand it, that's the intent of these exclusions. But yeah, think the language is capacious enough that any voter approved bond payments regardless of subject matter would be captured.

[Rep. Edward "Teddy" Waszazak (Member)]: Capacious, I love it.

[Rep. Rebecca Holcombe (Member)]: That was awesome,

[Rep. Edward "Teddy" Waszazak (Member)]: Yeah, I don't know the degree to which, and we'll have to ask another person as to how often bonds are taken out for nonconstruction, and I don't know the answer to that.

[John Gray, Office of Legislative Counsel]: I guess part of why I just maybe unfairly assume that it is, is you take on general obligation bonding for capital expenditures, not for other, even just from a financial perspective, folks don't necessarily consider, you want to link the terms of your financing to the life of what you're doing. So that's why you typically don't see non capital expenditures funded through bonding, but I guess there's no reason why you couldn't.

[Rep. Bridget Burkhardt (Clerk)]: Yeah, that was usually my concern, because good financial management, as you said, would cheat that you would only take out bonds for things that had a longer life. My concern is if we put in a tight excess funding threshold, and then that lasts for a few years because it takes us a while to get the foundation formula implemented or the scenario that you would see more pressure on districts to try to take out bonds for things that they probably shouldn't be taking bonds out for. But if taxpayers it are choosing between a big tax increase or bonding for things that maybe wouldn't normally bond for, I would worry that we're creating some kind of incentive for folks to take out bonds for things they'd probably do.

[John Gray, Office of Legislative Counsel]: While I am certainly not the sponsor of the bill, would guess that that would not be the incentive effects of the bill and that folks would want to address. You certainly wouldn't want to push districts to manage in even worse ways. They're funny. Yeah. Strange problem. Okay. On page two, we're jumping to kind of 32 where the actual excess spending threshold is set. And as you know, in existing law, excess spending means the per pupil spending amount of districts had spending plus those amounts required to be added from a capital construction reserve fund that are in excess of 118% of what? Of the statewide average district per people spending increased by inflation. This is your FY '25 statewide average per people spending increased by inflation. So current law is excess spending threshold of 118% of that. And the proposal here is to change that, to move it downward to 112%. But before you react to that, it is useful to see subdivision C starting on line 18, which is the set of essentially exclusions from excess spending. This deems a school district's excess spending to be zero if any of the following conditions is met. This is basically a carve out front, the excess spending. And the way that it works is kind of a hold harmless. If the district's ed spending, so its aggregate spending isn't greater than its ed spending for the preceding school year, their excess spending would be zero. They would not be subjected to the excess spending.

[Julia Richter, Joint Fiscal Office]: So if a

[Rep. Emilie Kornheiser (Chair)]: district was spending at 140, and then the next year they spent at 139, they would be exempt from the excess spending threshold the next year?

[John Gray, Office of Legislative Counsel]: That's right. That's actually in two, because one is about aggregate spending. And so you can think of one as trying to get at, let's say that you had declining student counts, your per pupil costs would go up if you spent the same budget, and so your per pupil expenses would increase, and therefore you could be hit by the excess spending threshold, which is a measure of per pupil spending. And what one is saying is even if you've had a decline in student accounts, if you hold flat the ed spending that you had the preceding year, still have that same amount, you would be protected. If district's ed spending is not greater than the preceding school year, your excess spending would be zero. Two is speaking to the concern with shared address. The district's per pupil spending is not greater than the district's per pupil spending for the preceding school year. This is the typical way we think about excess spending, which is, again, a measure of per pupil spending. And so if you were at 140% per pupil spending, which is wildly in excess of the excess spending threshold, But the subsequent year you held lap at that, or you decreased, you went down to 139, which is still far in excess of the excess spending threshold. Because your per pupil spending was not greater than your per pupil spending for the preceding school year, your excess spending would be zero. The other way to think about, and I should back up and say, is not sometimes when we think about allowable growth or those other kinds of concepts, we think in second law provisions that apply to particular years. It's a permanent update to the statute with the caveat that this concept would no longer exist at the point that the foundation funding is rolled out. But if nothing happens, this is something that would be permanently in effect, which would mean also that you could vacillate year to year. If you went 01/1940 to 01/1939, you wouldn't be hit by the excess spending threshold, but you could in a subsequent year and then you go back, you could have some variability basically across time.

[Rep. Rebecca Holcombe (Member)]: Do you think that this would help us get the people trying to get to the foundation formula amount?

[John Gray, Office of Legislative Counsel]: I frankly have no idea that it would do that. And I don't say that in a blase way, I just mean that it's I don't know how this would aid in that path.

[Julia Richter, Joint Fiscal Office]: Thank

[Rep. William Canfield (Vice Chair)]: you. Did the Senate take any testimony on what, if enacted, the effect would be on the Ed Fund?

[John Gray, Office of Legislative Counsel]: I think you'll get to hear some of how the

[Rep. Emilie Kornheiser (Chair)]: Julia has much testimony for us.

[Rep. William Canfield (Vice Chair)]: Very good, thank you.

[John Gray, Office of Legislative Counsel]: The first Sorry, sorry.

[Julia Richter, Joint Fiscal Office]: The thing

[Rep. Rebecca Holcombe (Member)]: is, I read ahead a little in III, but it's bursary, wrong number. Can we

[Rep. Emilie Kornheiser (Chair)]: wait for John to explain, think, for you to comment on that?

[Rep. Rebecca Holcombe (Member)]: It's looking like we're not actually helping incentivize a school that's losing population to make a different choice because they're not hitting excess spending.

[John Gray, Office of Legislative Counsel]: I don't know. I think one way to look at the bill is on the one hand, the excess spending threshold is lowered and therefore more districts are likely to hit it, but then on the other hand, excludes a number of things from the excess spending threshold to take away some of those who might then hit the new bullet threshold. Roman at three, which you were just speaking to, is the last piece of this. The first two you can think of as a kind of hold harmless if you've held aggregate Fed spending or your Perfocable spend flat or you've declined since the preceding school year, you wouldn't have excess spending. Seven three is, and I would just note that if there's, depending on the traction that this has, I would draft this differently. This was a simple way of framing it. This is including a substantive provision in a definition, which is something I don't generally like to do. So if there's appetite to keep this kind of concept, I might propose creating a standalone section that actually addresses how active funding works. But for now, it's in the definition section, and the last thing that would set your excess spending at zero is secretary of education, with the advice of three business managers and three superintendents elected by the secretary, determines that the increase in per people spending above the threshold was for a good cause or beyond the district's control, such as due to emergency capital expenditures or substantial loss of people for offsetting revenues. So this is kind of a review process. It doesn't spell out the measures by which someone would achieve this. It just says that if you have received this determination, which presumes that you would have submitted your district spending to the secretary for that review, essentially it's saying if the secretary determined that your increase was for good cause and beyond your control, your excess financier would also be zero. And the senate gave some examples of the sorts of things that would count. I will just note that the words good cause beyond the district's control grant a lot of discretion to the secretary to make this determination. The list that you see does give some indication of the sorts of things that the legislature thinks should belong, but it doesn't necessarily have to limit the way that the secretary makes that determination. The other piece I would note about the language good cause or beyond the district's control, that is language that is drawn from previous there's language like this in Act 46, previous allowable growth concept. So this isn't the first time that the advice of three business managers, three superintendents for good cause would be on the district control has been used. Those are familiar concepts within that space, but I don't know how cabining they are. Lastly, effective July 1 coming from the sixth, which is something that I think would need to be touched based on talking with folks. That is the bill.

[Rep. Emilie Kornheiser (Chair)]: As Representative Ode said, think there's an interesting position of an effort to keep spending down while simultaneously creating carve outs that have policy decisions adapted to them. There's a question about, are those incentivizing? So let's hear from Julia about how some of this plays. Just one last question on the language.

[Rep. Edward "Teddy" Waszazak (Member)]: It's four. Either that you maintain your education spend, or your peer pupil spending is not any higher than it was in the previous year or the secretary, so there's no hands in there.

[John Gray, Office of Legislative Counsel]: There's a bunch of options first. Getting access from the FZRUs.

[Julia Richter, Joint Fiscal Office]: Morning. Good morning. Morning. Chair Rutland, your joint fiscal office. There should be two documents posted on the committee page under my name. One is the fiscal note as S-two 20 as passed by the Senate. And the other is a district by district printout of the analysis that the Senate considered for looking at S-two 20. Is there a preference with where you'd like me to start?

[Rep. James Masland (Member)]: It's on this call note. Sure.

[Rep. Bridget Burkhardt (Clerk)]: Let's see if it's more linear.

[Julia Richter, Joint Fiscal Office]: Okay. So as John just walked through, essentially this would be making changes to the excess spending threshold under current law. And as is often the case when we're looking forward into the education fund under our current financing formula, the fiscal impact is unclear because we don't know how school districts will respond to this change. That said, the bill would lower the excess spending threshold from being 118% of the inflation adjusted average FY '25 per pupil spend to 112%. And then create a number of exemptions and exclusions from the excess spending threshold. So the question is, if there is that change to the excess spending threshold by lowering it before considering those new exemptions and exclusions, how would school districts respond? Would they adjust their budgets so that they would try to sit below the excess spending threshold? Or would they not be able to adjust their budgets and thus that amount above the excess spending threshold would be double taxed? I think probably fair to assume it would fall somewhere in the middle. I don't know where that would be because it would really depend on those local decisions. I think it's also helpful to remember that because we're talking about the excess spending threshold, we're really talking about shifting who's paying taxes and how tax rates are calculated. All else equal, if with the excess spending threshold, the excess spending threshold is shifting how property taxes and tax rates are calculated so that some districts would see a higher rate and be responsible for covering more into the education fund and other districts then would not need to raise as much. Our preliminary estimate is that Or taking one more step before talking about the preliminary estimates is I

[Rep. Emilie Kornheiser (Chair)]: was thinking about what you said before. I think that's a really interesting piece of the excess spending threshold is I think sometimes we treat it as if it's a hard cap. But in fact, it does just increase property taxes for the folks in that district and create more revenue into the Ed Fund for folks who are not in that district, taxpayers not in that district. And so I have a standing question about whether taxpayers in a district that goes over the excess spending threshold actually understands why or why not their taxes are going up. And I think it really depends on the district and how involved those taxpayers are in that district. But I think it's an interesting piece of the puzzle because we think of it as this very clear signal, and it's who is it signaling to and how do taxpayers experience that or not. That said, it's one of the only tools we have in the toolbox, so I'm not It's all very complex. Back to you, Julia.

[Rep. Edward "Teddy" Waszazak (Member)]: In some districts, it's

[John Gray, Office of Legislative Counsel]: very clearly known. Yes.

[Rep. Rebecca Holcombe (Member)]: Know that they don't know.

[Rep. Edward "Teddy" Waszazak (Member)]: Very clearly known about the impact of the excess spending threshold on future decisions. Yes.

[Julia Richter, Joint Fiscal Office]: And I will say, from having been on

[Rep. Bridget Burkhardt (Clerk)]: a board, at least our board treated it as a hard stop. We did everything we possibly could not to go over that threshold because it makes it really hard to sell to voters that you should vote for a budget if you have something called an excess spending threshold and you've gone over it and your fees and everything over it.

[Rep. Rebecca Holcombe (Member)]: Back to you, Giulio. So

[Julia Richter, Joint Fiscal Office]: that's really the excess spending threshold. We can talk about it in more detail if that's helpful. The other piece that I want to note is there is the inclusion of this hold harmless test, that's how they were referring to it in the Senate, of essentially if a district's education spend, and John spoke about this, but if a district's education spending does not increase compared to the prior year and or their per weighted pupil spending doesn't increase compared to the prior year, then they are not subject to the excess spending penalty. So that creates a situation where you would have districts that would have tripped across the excess spending threshold would have had to pay a penalty for that amount. However, because they are holding the line on their education spending or their per weighted post spending, they're they're not going to be subject to the penalty. So taking that into account,

[Rep. Rebecca Holcombe (Member)]: we don't know well. What you just said, so they try to hold the line. So if I knew if I know about that this excess spending threshold and I know that if I don't go up that I'll be safe, but I could cut $100,000 from my budget, I'm not going

[Rep. Mark Higley (Member)]: to do that, I'm going

[Rep. Rebecca Holcombe (Member)]: to leave that, I'm going to spend up to that $100,000 I'm going to spend the money because otherwise I could be penalized when two years from now I have to add a classroom teacher and it doesn't really bump my per pupil expenditure down or whatever. I mean, think it could incentivize not making a cut.

[Julia Richter, Joint Fiscal Office]: Yeah, thank you.

[Rep. William Canfield (Vice Chair)]: Rebecca, your point gets to the 5% that we did several years ago, which incentivized Yeah. Ill gotten behavior, I guess you could say. Nevertheless, for schools that are gonna see a whopping increase. I'm sympathetic and we'll have to talk more as we work our way through this, you know. Does that make sense?

[Rep. Mark Higley (Member)]: Do we know how many schools currently are over that threshold?

[Rep. Emilie Kornheiser (Chair)]: We are, when we finish the fiscal minute, we're going to see a whole pile of spreadsheets from Julia.

[Rep. Mark Higley (Member)]: Okay, thanks.

[Julia Richter, Joint Fiscal Office]: We do. Keep going through this fiscal note? Yes, please. Okay, so we've talked about the hold harmless provision. We've talked about the change of the excess spending threshold. We've talked about the fact that we don't know what school districts are are going to do in fiscal year twenty twenty eight. So really, the only way that we can start to analyze this is looking at fiscal year twenty twenty seven data and say, if this had been in effect for FY27, which is not the proposal, but if it had been in effect for FY27, how would it relate to the school district budget data that we have? And what we see is that approximately $21,000,000 would have exceeded this new excess spending threshold had it been in effect for FY27. Is an approximate We're here in the second paragraph. That represents an approximate increase of excess spending of $16,000,000 compared to the estimated $4,700,000 in FY27 under current law. That's based on preliminary school budget information. And I really do want to note, we don't know, I can't say if that reflects 16,000,000 that would have been cut from school district budgets so that those school districts would sit below the excess spending threshold, or if that $16,000,000 would have been double taxed. I also want to note that that $16,000,000 does not take into effect this new exclusion for all school construction bonding. And that's because we don't have good enough data to exclude that from the estimate. So the Vermont Bond Bank has provided preliminary information related to this school construction bonding, but it's not collected in the same way that the Agency of Education collects data for the exclusions from excess spending. It's not included in the estimate. Said, down here at the bottom, this bill also would exclude, and I know you were just talking about this, all bond payments for the purpose of calculating excess spending. We know, according to the bond bank, that there are bonds that have been taken out by, I think, 11 school districts per the Vermont Bond Bank since that timeline condition that if that district were to go over the excess spending threshold, those bond payments would not be excluded under current law. They would be excluded under this proposal. Also don't know Restoring Fit School doesn't know how school districts and voters have been making the decision to bond or not bond because there is currently not this exclusion in current law. So to the extent that school districts and voters have been holding off on pursuing a bond because it would be counted in excess funding, then that could have an upward impact on overall across the education fund moving forward. I'm not actually thinking

[Rep. Rebecca Holcombe (Member)]: what needs to be done.

[Rep. Bridget Burkhardt (Clerk)]: Think that's great. But there might

[Rep. Rebecca Holcombe (Member)]: be work that starts to happen in a school that hasn't even had a CESA study committee yet, and then we're saying, you know, have at it. And today with work that you're going to do on the building, you know, and then it's easier to decide, well, we're not going to merge, taking care of what we'll need to take care of.

[Rep. Emilie Kornheiser (Chair)]: The other exclusions, are those on the next page? Can I ask a question up on that?

[Julia Richter, Joint Fiscal Office]: So the next page is going into detail about them. Are you able to look at how the other exclusions would have played themselves out? The hold harmless? Yes. And that's included in this $21,000,000 $60,000,000 estimate. In the spreadsheet, that's the other document on the committee page, we can see which school districts would trip that hold timeless provision and so would not be subject to the excess spending threshold. As for the secretary's determination, if a school district shouldn't fit into the excess spending penalty, You can't predict that as well.

[Rep. Rebecca Holcombe (Member)]: I at once don't like and like that, because we just don't know. We cannot possibly. And then it's not so good because if

[Rep. Emilie Kornheiser (Chair)]: we're

[Rep. Rebecca Holcombe (Member)]: trying to accomplish something and people have an out, we're not all really moving in the same direction.

[Julia Richter, Joint Fiscal Office]: It's the opposite side. It's helpful.

[Rep. Emilie Kornheiser (Chair)]: Onwards, Julia. Okay. Do you want me

[Julia Richter, Joint Fiscal Office]: to walk through the further details? Okay.

[Rep. Emilie Kornheiser (Chair)]: Don't we want the further details?

[John Gray, Office of Legislative Counsel]: Okay.

[Julia Richter, Joint Fiscal Office]: We like further details. Okay. So this is just more details about what we already spoke about. Section one. What does section one do? This is the adjustment for the bonding exemption changes. So of course, under current law, we have the fact that bonds approved prior to 07/01/2024 are excluded from education spending solely for the purpose of calculating excess spending. So they're still included in the calculation of education spending. The exemption only applies to excess. Section one appeals the deadline condition. So it's all bonds are exempt from calculating excess spending. We've talked about this, how the excess spending adjustment is a tax mechanism that impacts the amount raised from certain homestead property taxpayers, but does not impact the total amount to be raised, assuming it doesn't impact the total amount that school districts are putting to their voters. So what that means is all else equal, by including an exemption, you're shifting an increase in homes and property taxes to those who are not receiving an exemption. It's the same amount in theory. We're just talking about the way that the mechanism works. The same amount needs to be raised. If you're raising more from this community because it's fitting into excess spending and it's being double taxed, it means you need to raise less from these communities. If it's being exempted from excess spending, so it's not being double taxed with one community, it means you're raising less from that community and need to raise more from all of the other communities.

[Rep. Edward "Teddy" Waszazak (Member)]: You said on the previous page, it's about $4,700,000 currently, The amount of excess spending right now.

[Rep. Rebecca Holcombe (Member)]: Correct.

[Julia Richter, Joint Fiscal Office]: That's the estimate for FY27 as of a couple weeks ago.

[Rep. Edward "Teddy" Waszazak (Member)]: So then that amount, not subject to it. Can you figure out what the resulting tax rate is from that?

[Julia Richter, Joint Fiscal Office]: No, and the challenge is because this is impacting homestead property taxes. Dependent on the community and the size of the grand list in the community and the size of the exemption, if it's a community with a very small grand list, putting a double tax in that community while felt by the community is not going to be felt at the same level throughout the rest of the state because not as much money is going to be raised. Whereas if you have a tax increase in a community with a really large grant list, will it be felt within the community. But it will also be raising a lot more money to go into the education fund and thus not need to be raised by everybody else.

[Rep. Bridget Burkhardt (Clerk)]: And then that's also a buy down in a given year. And so say that one of the large districts that was over the excess spending threshold, then the next year doesn't hit the excess spending threshold. They're on that edge that John was talking about where going back and forth, then suddenly everyone else's property taxes are going up the next year, even though that district has kind of brought themselves below Subsidizing the other districts.

[Rep. Rebecca Holcombe (Member)]: What a

[Rep. Emilie Kornheiser (Chair)]: wild system you have.

[Rep. Mark Higley (Member)]: Burkhardt? When you're saying a doubling of the tax, is that actually a doubling of the tax rate? If the tax rate was 1.63 would be double that?

[Julia Richter, Joint Fiscal Office]: Only for the piece that's above the excess spending threshold. So I think I would need to go looking for it. I have put together slides about how the excess spending threshold and adjustment works, so we can pull that up. But essentially, if you think about the way that homestead housing tax rates are calculated equalized, pre CLA, Right? It's a district's education spending divided by equated pupil count divided by the district's per pupil spend divided by the statewide yield. And that's the homestead property tax rate. The way that the excess spending threshold works is it says, Okay, we're going to look at the per people spend, that figure in the numerator, but we're going to compare it to the threshold. And if it's over the threshold, however much it's over the threshold, we're going to add that on top of the per pupil spend. So that essentially is creating It's double counting only the amount that's over the threshold. So say this, like Okay. Making up numbers, say that the threshold is 15,000 per pupil spending and a district has per pupil spending of 16,000, 1,000 more per pupil and no exemptions. The way that the double tax will be calculated is that it says, Okay, we've got the per pupil spend of 16,000. 16,000. And the district is over by 1,000. So we're going to do 16,000 plus the amount that it's over, plus the 1,000. So we'll have 17,000 per pupil spend. And that will become the district's per pupil spending for the purpose of capital intensive.

[Rep. Mark Higley (Member)]: Great. Thanks, Adams. Now,

[Julia Richter, Joint Fiscal Office]: have to say,

[Rep. Rebecca Holcombe (Member)]: This could be a targeted way to encourage change on what a local district decides to spend money on that would be targeted to what the education goals are of, for example, the education committee. So if they said, we think that the staff, not teacher, but staff student ratio is just too high, So many people in the building versus so many kids. We could target the excess spending actually to demonstrate at the local level that change might be something that is called for. You don't take away any local controls make a decision. The locals can still decide to spend money as they desire, but there is a cost. And maybe when everybody sees that cost, they'll say, well, this cost isn't worth it and I think that we really should talk about how we can get together with other schools to provide even maybe greater educational opportunity to get out, whatever. So, if it were targeted, that might get us to where transformation is trying to go. Think that's the- Where we get to a foundation for me.

[Rep. Emilie Kornheiser (Chair)]: I think that's a good point. I think to some degree, that's what the Senate was trying to do here with their exemptions. I think the danger is that you wind up in some ways incentivizing distortions. So incentivizing something going as a debt rather than a single year spending or incentivizing spending up so that you can show that you're spending down, or changing the way you are documenting line items in order to have your staff ratios different.

[Rep. Rebecca Holcombe (Member)]: But we have policies, yes. Because people see what the rules are, because people are not bad people.

[Rep. Bridget Burkhardt (Clerk)]: People just say, I have a lot to provide in my

[Rep. Emilie Kornheiser (Chair)]: No, people are just maximizing opportunities as they could. How will I do for the students in this community? And I think the trick is to be, if we are interested in going forward with some version of this, we're gonna have to be really, really careful about sort of how we're structuring it so we don't create those unintended consequences.

[Rep. Rebecca Holcombe (Member)]: And so maybe, the mind of our actual education transformation goals, the governor's behind, the educational transformation policy.

[Rep. Mark Higley (Member)]: Clarifying question, It's going to eliminate the deadline condition of 07/01/2024. We're talking active bonds only, right?

[Julia Richter, Joint Fiscal Office]: Let me try to respond and you can tell me if I answered your question. Under current law, it's bonds that were approved prior to that timeline at 07/01/2024 that are exempt from excess funding. With this amendment, it would exempt all bonds regardless of when they have been approved. Does that answer your question?

[Rep. Carolyn Branagan (Member)]: No. No. Are they still active bonds? Have they been retired yet?

[Julia Richter, Joint Fiscal Office]: Maybe I can phone a dawn friend.

[John Gray, Office of Legislative Counsel]: So I'm maybe not understanding, but maybe my answer will help demonstrate what I felt understands my question. If it's a retired bond, why would it contribute to any ongoing costs that need to be excluded?

[Rep. Mark Higley (Member)]: And my question is, would they be getting a rebate?

[John Gray, Office of Legislative Counsel]: Oh, no, no. So the only way in which something would be excluded from education spending would be that it constitutes net spending in the first instance. Far that it already been retired, would it be showing up in someone's education spending, could that be excluded from this particular calculation?

[Rep. Rebecca Holcombe (Member)]: Back to you, Giulio. Okay,

[Julia Richter, Joint Fiscal Office]: so last thing, we spoke about this on the previous page, but using data from the bond bank currently, there is estimated to be about $11,600,000 in additional debt service across 11 school districts that would be eligible for the exclusion. I want to flag this does not necessarily mean that that full 11.6 would be excluded. It would only be excluded if those 11 school districts, or one or two or however many, were to fall above the excess spending threshold, that's when this exemption would kick in. Section two of the bill, this is changing the excess spending threshold and creating the hold harmless provisions that we spoke about. So again, this changes the way that the excess spending threshold is calculated. So instead of it being the current law, the excess spending threshold is calculated by taking the FY25 average per weighted people spending amount, increasing it by inflation, and then multiplying it by 118%. That's current law. That's how the threshold is calculated. This bill would say we're still doing the FY '25 average for people spending. We're still increasing it by inflation, but instead of multiplying it by 118%, we're gonna multiply it by 112%, which of course will break the threshold down. This would, in FY27, correspond to these numbers here. So in I can't highlight for some reason that number, but in FY27, the excess spending threshold is $16,470 That's using the 118%. If to it have been calculated using the 01/2012, it would have

[Rep. Mark Higley (Member)]: been 15,632.

[Julia Richter, Joint Fiscal Office]: And again, creating this whole timeless provision.

[Rep. Edward "Teddy" Waszazak (Member)]: 15,633 is after also applying the inflation from NEPA? Correct. Which we estimated to be about 4% right now, or is it

[Julia Richter, Joint Fiscal Office]: Don't remember off the top of my head. Would need to get back to you.

[Rep. Emilie Kornheiser (Chair)]: I want to spend just a few more minutes on this and try to go back into September. I don't know why that number is really not sticking in there by chem ish. So, let's go to the spreadsheets That are so little. Really don't all know the spreadsheet. Right. So

[Julia Richter, Joint Fiscal Office]: it's also posted on the committee page under my name. Think that I didn't know we were going to be doing this first thing, or else I probably would have coordinated with Source, so I could try to print this out ahead of time. And here we are. We all have Zooming capacity in our devices. So I want to flag a few things that the education So before we look at how to interpret the spreadsheet, this is using data that's not final provided by the agency of education, reflecting school budget data or best estimates as of 03/09/2026. So for some school districts that have not passed a budget or submitted budget information or either using the budget that they presented to voters that since failed, or were increasing their fiscal year 2026 spending by 4.2 because that's the statewide average. And this is looking, again, if this were to have happened in fiscal year twenty twenty seven, what the impact would have been. We know this is not for FY twenty seven. So with all of that, walking through just how to interpret the spreadsheet and then getting back to Rep Higley's question about the number of school districts. So first, we've got county, school districts organized alphabetically by county. Next, in columns C, D, and E, we've got the FY26 data. We need to look at this because of that whole timeless provision where we're comparing back to the prior year. So the FY26 ed spend, FY26 weighted pupil count, and FY26 per weighted pupil spend. In the next columns, we have the estimated FY27 Ed spend, the estimated total excess spending exclusions. These are those exclusions that exist under current law. So this is the current law bonding exclusions. We don't have the data to include the estimated exclusions if the time condition were to be removed for bonding. The FY27 long term weighted ADM. And then the estimated FY27 spending per weighted pupil. So this is just the data, what are we looking at? Next, column J, this is looking at, would a district fall into the school's harmless provision? So, this is a binary variable where if a school district has a one, it means that either their FY27 ed spend is estimated to be the same or less than their FY26 ed spend, and or their FY27 per pupil spend is going be the same or less than their FY26 per pupil spend. 26 districts fall into that. So this hold harmless provision, if it were to be in FY27 using our best available data, would mean 26 districts, regardless of what their FY27 per pupil spending would be, would be held harmless from the excess spending penalty because they had not increased either their ed spend or their weighted per pupil spend.

[Rep. James Masland (Member)]: For example, Holland is an elementary tuition district, five kids move out of town, so its tuition payments drop because five kids move out of town, even if it had, hypothetically, which it does it, the highest spending in the state because it lost five kids, it's now a lower spending district. It would be exempt. Correct. It would be what was the last time? It would be exempt, even if it was the highest spending district in the state because it lost five kids, but if gained five kids the following year, it would trigger.

[Julia Richter, Joint Fiscal Office]: Assuming that it would be above the excess spending threshold. Just hypothetically, in house spending, if it gave five kids, that would put

[Rep. James Masland (Member)]: it above. It wouldn't be protected by having lost five students anymore. Correct.

[Rep. Emilie Kornheiser (Chair)]: What I'm hoping we can do just until ten, that folks fully understand how Julia has prepared the analysis, and then we can look at it in their own time, and then we'll come

[Rep. Rebecca Holcombe (Member)]: back to the bill. Yes? I wonder if anybody has looked at Wait, can I Sorry,

[Rep. Emilie Kornheiser (Chair)]: I called in, but I wanna make sure that Julia explains the whole Have you explained every column?

[Julia Richter, Joint Fiscal Office]: We're at column J. So column J, this is that hold harmless provision, right? Is a school district held harmless? A one, yes, they are. The next two columns, K and L, are reflecting the estimate under current law. So this is using the 118 excess spending threshold. So up here, we see what that excess spending threshold is, that 16,470. And then this is sort of a summary. So there would be 10 districts estimated to be over that threshold. And the total excess spending over the threshold that would be subject to double taxation, you can see here about 4,700,000.0. Looking district by district, we see in column K, this is saying, if that district is above the excess spending threshold and is not held harmless, how much are they above per weighted pupil? So for instance, whoever this is here, because they have a one, even if they were to trip the excess spending, were to cross the excess spending threshold, of course, there would be zeros here because they're being held harmless. I'm just scrolling down. Okay, this example, whoever this is, would be $1 per weighted people over the excess funding threshold. Column L is Oh, I'm realizing that these columns are not titled Well, there shouldn't be a per long term weighted ABM right here. This is the total excess spending over So for instance, here, column K, this is $1 per weighted pupil and then a total of $2.72 over the excess spending threshold. That's the estimate under current law. Then these last two columns, same intuition, but now we're looking at if the excess spending threshold were to be calculated using 01/2012 rather than 01/2018. Again, we see this is what the excess spending threshold would be, 15,633. There would be 32 districts estimated to fall above it and corresponding with 20,500,000. And so that's where those numbers came from in the fiscal note. Looking here, we just see this is a good example, whoever this district is. They wouldn't have crossed the excess spending threshold at 118%, but they would cross it at 112%, of course, because it's being lowered. It's gonna be pulling more in. So that would be $5 per weighted pupil above the excess spending threshold for a total of 12,278.

[Rep. Emilie Kornheiser (Chair)]: Other districts that are exempt from the excess spending threshold under current law.

[Julia Richter, Joint Fiscal Office]: Per AOE, there are two districts that are fully exempt from the excess spending threshold, which are the Rivendell and

[Rep. Emilie Kornheiser (Chair)]: Norwich.

[Rep. James Masland (Member)]: It's the interstates because we can't impose tax cuts on New Hampshire.

[Rep. Bridget Burkhardt (Clerk)]: I'm just skimming through, and it seems like there's one school district where the amount that they are over the threshold at 118 is higher than the amount they're over at the 112. I'm trying to understand how that would work.

[Rep. Emilie Kornheiser (Chair)]: The school

[Julia Richter, Joint Fiscal Office]: district? The San Francisco

[Rep. Bridget Burkhardt (Clerk)]: Island is the very last school district on the first page. I'm just trying to understand if I'm not thinking about it correctly.

[Julia Richter, Joint Fiscal Office]: They would be Under current law, they'd be $3 over the excess spending threshold for a total of $2,109 under current law. But as we drop it, that would increase to being $8.41 per pupil for a total of 568,008 and 91. So intuitively, do you see those numbers? I'd say that

[Rep. Bridget Burkhardt (Clerk)]: they feel reversed to me. So it's 118%.

[Julia Richter, Joint Fiscal Office]: They would be less over the excess spending threshold.

[Rep. Bridget Burkhardt (Clerk)]: But it says it's 21.9.

[Julia Richter, Joint Fiscal Office]: So that's where I said the column titles, this should say total. So column K is the per pupil amount. Column L is the total amount. So under the $118 per pupil, they'd be $3 over for a total of $2,109 over.

[Rep. Rebecca Holcombe (Member)]: Three times the number of students.

[Julia Richter, Joint Fiscal Office]: Exactly, times the number of weighted students. I think I understand.

[Rep. Edward "Teddy" Waszazak (Member)]: Julie, just for comparison's sake, I think it was six or seven that were in over the excess spending threshold for FY '26. I'd use that comparison as 10 over the excess spending threshold for FY '27, right?

[Julia Richter, Joint Fiscal Office]: Yeah, it was less than 10 round shifts.

[Rep. Mark Higley (Member)]: I

[Julia Richter, Joint Fiscal Office]: will say, and I'm happy to come back or send the links along, in Senate Finance, we looked at just looking at FY '25 to FY '26, looking at an excess spending threshold of 110 through 01/2018. So I can send those links if that would be helpful. That'd be great. Thanks.

[Rep. Rebecca Holcombe (Member)]: If I were a school district that was really anywhere that I might have the excess spending, I wouldn't want to decrease my spending and then knowing that the foundation formula is not too far away and I'd have to go for supplemental district spending to get ready for that, I wouldn't want to put my spending down either because I want to be, I wouldn't want my spending to be above the 15,033 because I would not want to go for supplemental district spending. Right. Alright, I've got that confused. But I also can't, okay.

[Julia Richter, Joint Fiscal Office]: I think someone explained to us

[Rep. Emilie Kornheiser (Chair)]: any other questions anyone wants

[John Gray, Office of Legislative Counsel]: to ask? Julia? Yes.

[Rep. Rebecca Holcombe (Member)]: Did anyone analyze who's falling, I mean I went through this a little bit, but who is going to be subject to the excess spending and whether it makes, whether it looks like these are extremely tiny school districts or whether these are, what do they have in common? So, what kind of analysis has been done on what they have in common and what they don't have in common? Are we trying to get for an education transformation with this, supporting education transformation,

[Rep. Emilie Kornheiser (Chair)]: or

[Rep. Rebecca Holcombe (Member)]: are the people, who's being penalized and why? Did anybody analyze that?

[Julia Richter, Joint Fiscal Office]: I would say, if it's getting toward education transformation, I don't know. That's a question as to what education transformation goals are. With respect to what they have in common, that's a good question. I would say the only thing that I can say, and we can dig into it more, is spending levels. Spending for people. The higher the spender, the more you're going to be hit by the excess spending, Jesslyn. Okay. But

[Rep. Emilie Kornheiser (Chair)]: there might be an opportunity to look

[Julia Richter, Joint Fiscal Office]: at what

[Rep. Emilie Kornheiser (Chair)]: those trends are. I have a vague memory of some of what AOE shared with us about who was over and who was under.

[Rep. James Masland (Member)]: But I think there might be better ways to capture this. Interesting, in my area, some of the hardest hit districts are districts with 72.8% poverty, 58% poverty, 60% poverty. So it's not just high wealth districts, which is a thing. I wanted to ask you a question. Since this is based on long term weighted spending, to what extent is the accuracy or the targeting of the penalty dependent on the accuracy of the underlying weights?

[Julia Richter, Joint Fiscal Office]: Yeah, I would say that because it's the spending per weighted pupil, if a district were to have more weighted pupils,

[Rep. James Masland (Member)]: or if they were to be overweighted or underweighted, then that would impact both that district's impact and the district's impact on the entire city because it is a shift. So a follow-up. Professor Colby came in and said that we should not have, in the current formula, been weighting tuition students. What is the potential impact of the decision to weight tuition students on who is going to be subject to the excess funding penalty? What are the things that we ought to be thinking about?

[Julia Richter, Joint Fiscal Office]: I want to be

[Rep. James Masland (Member)]: You just say questions. You don't have to give answers.

[Julia Richter, Joint Fiscal Office]: Yeah, and I want to be careful. I don't want to speak to who should or shouldn't be weighted. I completely defer to Doctor. Colby and you all on that decision. I would say that in terms of impacts of overweighting or underweighting. Overweighting would mean that a school district's per pupil spending would be lower than it would have been if they were not to be overweighted, in which case they would fall below the excess spending threshold or not as high above the excess spending threshold, which in turn would mean less would be raised from that district, more would be raised from other districts. The converse would be true for underweighting. Given the fact that the excess spending threshold is calculated using the FY25 per weighted pupil spending, That is based off of the total education spending in the state divided by the total long term weighted ABM. So if that total long term weighted ABM count were to have been either too high, then that threshold would be lower than it would have been if it should have been a lower weighted people count. The converse would also be true.

[Rep. James Masland (Member)]: Those are a couple of preliminary thoughts. On Mountain, do you know if this happened in the Senate, right? Since then, the agency acknowledged an error in its calculation of weights for Blue Mountain and Oxbow, which is also being hit quite extensively? That is not captured there. That's reassuring information. So thank you very much for that. Can you help me understand how when you figure out the average weighted spending, is it based on districts or is it districts weighted per total population?

[Julia Richter, Joint Fiscal Office]: It is like if talking about the total, if we're looking at the average spending per weighted people across the state. Great question. There's a lot of ways to do it, as you know, and it's something that we've talked about a lot between JFO, tax, and AOE. And where we have landed generally is to look at the total education spending at the state divided by the total long term weighted ADM count of the state. That we're not If we were to just average across districts, then it would be unfairly Not unfair, but it would be distorting the average, right? Because it would be giving a small district a lot more weight than they

[Rep. William Canfield (Vice Chair)]: should have.

[Rep. Emilie Kornheiser (Chair)]: Any other questions for Julia? And you have more doc Oh, sorry.

[Rep. William Canfield (Vice Chair)]: Yeah, thank you. Similar to representative Holcombe's inquiry, this is sort of a picky look at this thing. Tuition students appreciate the discussion of tuition in or out students, you know, and the calculation. We're aware some of us that tuition students are paid for differently by different sending schools, meaning some some towns, some school districts end up paying all of tuition for a student and others, depending on how that town organizes its finances, end up paying part of the tuition. And parents pay the rest of it or individuals pay the rest And this is kinda down the down the list of the things that we need to figure out, but I'm just reflecting that following professor Colby's count await tuition students in or out, that there variations or deviances or whatever you want to call it within the school district on how tuition students end up in the school budget and where the money comes from. It's not statewide, but it does affect calculations when we work our way through this. So no answer now expected. It's kind of down there somewhere. Thank you.

[Rep. Emilie Kornheiser (Chair)]: Yeah. Okay. So we're gonna take a five minute break. Be back here at 10:13 and go back into the 09:55 language at that point. Encourage folks to

[Rep. Rebecca Holcombe (Member)]: look

[John Gray, Office of Legislative Counsel]: at all

[Rep. Rebecca Holcombe (Member)]: the

[Rep. Emilie Kornheiser (Chair)]: materials