Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Folks, this is still the Ways and Means Committee, and it is still Thursday, April 16. It is 10:45. We are continuing our work on an act relating to income tax brackets and investment income. Really happy to be joined today by Miles Trinidad from ITAP. And the floor is yours. Oh, you just oh, there you are. Okay.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Can you hear me?

[Bethany St. James (Office of Legislative Counsel)]: Yep. Perfect.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Great. Thank you so much for having me. I'm very excited to have opportunity to present to you all today. Let me just share my screen really quickly to do my presentation. Okay. It should be there. Let me just present. Oh, now I'm getting a pop up. There we go.

[Rep. Emilie Kornheiser (Chair)]: Perfect. Alright. Thank you.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Great. So, again, thank you for having me. I'm Miles Trinidad. I'm a state analyst at the Institute on Taxation Economic Policy. We're a tax research organization based in DC, and I'm here to discuss the ins and outs of the wealth proceeds tax as well as creating a new top marginal tax bracket for high income households. The bulk the bulk of this presentation is focusing on the wealth proceeds tax. My colleagues, Sarah Austin and Carl Davis, wrote a report on this policy explaining the reasoning behind it, the types of income subject to it, and a 50 state analysis of the revenue potential of the tax, and much of what I'm presenting today can be found within that report. And much of this presentation is focusing on the history of it, its potential to be administered at the state level, and the reasoning behind levying this tax and focusing on those who are owning wealth. And I'll also touch very briefly at the end on how this can boost equity tax equity in the state, especially within the context of the recent tax cuts for the multi we've seen in the federal tax bill that just became law. If you have any questions, feel free to interrupt me as I may not be able to see you. There will also be opportunity to ask questions at the end as well. So with that, let's get started. So a little bit about the background of this tax. The origin of this tax, which can also be called the net investment income tax and investment proceeds tax, started at the federal level and started at the passage of the Affordable Care Act in 2010. The bill included a major expansion in federal funding for health care, and the expansion expansion is funded in part with an additional payroll tax and wages called the additional Medicare tax and the sister tax called the net investment income tax or the net. The net tax is passive income not earned through work, which is the focus of this bill today. Including the net in the ACA ensured that workers would shoulder the cost of health care expansion on their own and that wealthy investors would also be contributing. And to be very clear, this is not a tax on wealth. Rather, it's an indirect tax on the proceeds derived from wealth. So these are like the dividends received from owning corporate stock or interest generated from bond holding. It should be considered an indirect way to get closer to taxing wealth instead of having to set up an administrative system that formally measures taxpayers' wealth, since it piggybacks on the existing federal tax. So getting into the nitty gritty of this tax, this net is a federal tax levied at a rate of 3.8. It's only on passive capital gains, dividends, interest, business income, and certain annuities. And because it's only focused on passive income, it excludes income of the types that are related to a business or a trade that the filer is currently working in. And on the federal level, it only applies to those earning over $200,000 for single filers and $250,000 for joint filers. And if a filer's income is below that threshold, they do not owe any of this tax period regardless if their income is from wealth or work. It's only for those who have that income above that threshold.

[Rep. Carolyn Branagan (Member)]: Last, do

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: you mind

[Rep. Emilie Kornheiser (Chair)]: speaking a little bit slower? There's, like, a little muffled on your voice.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Oh, okay. I'll try to be a bit slower.

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

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Thanks for letting me know. Okay. So the reason I'm telling you all this is because this federal policy offers a valuable framework for states looking to pat tax passive income on high income households. As you've seen this pie graph here on the right, in 2022, just 4% of Vermont households owed this federal tax on their passive income, And the federal net is built around an IRS audited definition of passive income that states can conform to to create their own tax and kind of piggyback on this federal tax. An example of that is Minnesota that did just that in 2023. At the time, Minnesota lawmakers were looking for a way to fund free school meals and chose this tax and passive income as one major part of that package. And rather than opening up a big messy debate on how to define passive income, lawmakers piggyback off the knits. It's generally quite sensible. They made some adjustments on the state level to the federal structure. In Minnesota, they increased the threshold to a million dollars and exempted certain agriculture property, and then just applied a rate of 1%. And we expect that this tax will bring in about 68,000,000 in revenue in Minnesota. Another lesson from Minnesota is how simple this tax is to administer. And just because they chose to conform to the federal tax, even with some departures from the federal structure, Minnesota's tax fits on a single page worksheet. And the fact that the IRS already issued guidance on the federal net and already audits and flags noncompliant returns, it makes this policy super simple to administer and easy to comply with. Looking a little bit closer at the proposal in Vermont, we're gonna look at how Vermont or this proposal Vermont piggybacks off the federal debt. So this bill today would create a 4% wealth proceeds tax on investment income. And like the federal tax, this tax would apply to individuals, the states, trusts with investment income over the federal threshold amounts. So that's about 200,000 for single filers, $2.50 for joint filers. In addition to the passive income tax at the federal level, this will also incorporate a few modifications that I will describe in a moment. The bill also guards against trusts to unfurly oh, I'm sorry. Guards against using trusts that unfairly avoid this tax. I took notice on the committee's mind after some of the testimony, you know, I think in the past, and I'll touch briefly on this topic later. And so, you know, a couple with $200,000 of income would be completely exempt, while a couple with $300,000 of income would see, you know, a vast vast majority of their income exempted by virtue of this threshold. So the most meaningful impacts of this tax are at those at the very top of the income and wealth scales. And so digging deeper into who is and who is not subject to the myths, on the left, you can see examples of filers who would not owe any tax. So someone with only investment income, which you see on the far left of the green, someone with investment and wage income that is below the threshold amounts, or on the the blue bar on the right, someone who has a very high salary but zero investment income. We estimate about 96% of all Vermonters fall into this camp who would not owe anything under this proposed tax. On the right, you can see examples of two types of filers. One with all investment income, and then the other with a high salary supplemented by some investment income at the top we see with the green at the top. Both of these filers would pay a tax only on a portion of their investment income that exceeds the threshold amounts, and we find that about 4% of our monitors would fall into this category. And to be clear, the tax is only owed on the green shaded part of the income that appears above the red line. So on the right half of the slide, both of these folks have similar overall incomes and both are paying the nits, but the person represented by the green shaded column is going to pay quite a bit more because they're more reliant on the passive income derived from wealth as opposed to wage income or active business income. That's important to understand why we think of this tax as a proxy for a wealth tax. Here, there's two people reporting similar incomes on their tax forms, but one of them is likely much wealthier than the other as evidenced by the kind of income that they receive. So they end up paying more tax under this proposal, which we think is an appropriate outcome if you're looking to diversify your tax base and be more cognizant on not just income, but wealth as well. So digging a bit more into what's included in the tax base of the wealth proceeds tax, the federal tax taxes capital gains from Song Topde also includes stocks, dividends, payouts of corporate profits to shareholders, royalty income, trust income, interests. But then this bill in Vermont, it makes some modifications to what was included in the federal bill. So it starts with excluding federal bond interest, which states cannot legally tax. And then the bill adds interest from both out of state bonds and capital gains to the extent they're excluded from the federal bill. That includes business sales, opportunity zones, qualified small business stock exclusions, and it's important to know that all of these capital gains are federally tax preferred, meaning that they are taxed at a lower rate than, you know, someone who has a w two or gets purely only their income from wage income. And the capital gains from opportunity zones and qualified small business stocks are often completely tax free at both the state and federal level. So, again, digging deeper into, you know, this kind of disparity in how these, you know, types of income are treated differently in the tax system, well, proceeds are very lightly taxed income at the federal level. Long term capital gains and qualified dividends, we estimate to make up over 80% of the base of this tax, and they face federal tax rates that top out at about 23.8%, which you can see on the right side of this slide. And then top federal rates on wages are 70% higher. They top out at about 40.8% when considering the income tax. And then also considering the next sister payroll tax called the additional Medicare tax. So you can see a lot of these taxes that are in this proposal are already very much tax advantaged at the federal level. And then digging deeper into this tax difference between the federal level with between wage and non wage income. About 83% of the tax pays tax base proposed in that both proceeds tax enjoys preferential federal income tax treatment. In addition, all of the income tax by this proposal is currently excluded from state unemployment insurance and federal FICA SECA payroll taxes. This table goes into further detail on the types of income at issue here and the federal tax treatment. And then moving on, another technical focus on the treatment of trusts and estates that would owe tax under certain circumstances. So trusts hold wealth that is often invested, and then those profits or those investments yield profits, income taxes owed only in the profits generated in a tax year and only if the trust doesn't pay out the profits to its beneficiaries. Tax planners often promote state tax avoidance through what we call ING trusts, or incomplete non grants for trusts, that shift income out of state. So this spell includes language modeled after New York to nullify the income shifting effects of these trusts, that bringing the income from these trusts back under the rightful jurisdiction of the Vermont tax code. So it's important to include in the wealth proceeds tax because passive income is super easy to move into trusts. So this is worth having on your radar more generally because it's recent to be believed and be concerned that some aggressive use of ING trusts might already be undercutting Vermont's personal income taxes revenue as well. And, ideally, some kind of language along these lines would be inserted more broadly into the tax code into both the personal income tax and this proposal for a wealth proceeds tax. And then so most of this presentation, I've been talking a lot about what the wealth proceeds tax is, but I also wanna be very clear on what it isn't. There's very much a few points of common confusion that we find when, you know, discussing this tax, and I want to be clear on the types of income identified that are strictly excluded from this tax. So firstly, have capital gains from selling our primary residence. This is not included up to about 250,000 in gains for single filers, 500,000 for married filers. And it's important to note that these are numbers related to the net profit from the home, so not the full sale price. And then while these multi facies tax do not include profits from passive business investments sorry. They do include the profits from passive investment, they do not include business profits from a business that a filer is, quote, materially participating in. So this is a test that's generally a requirement for a minimal number of hours, usually a series of hundred hours spent over a tax year. So most business income is not passive and is therefore exempt from this tax. We're only talking about a tax taxing a sliver of business income that multi folks collect passively from a business where they have an ownership stake, but they're not involved in running it. In a way, it's somewhat analogous to taxing the dividends that a corporate stockholder might receive from the ownership of their stock from a Fortune 500 company. So the tax is consistent in this way. And finally, to be clear, traditional retirement income is fully exempt from this tax. So that's Social Security, pensions, four zero one k's, four zero three b's, qualified annuities. This is a super crucial point. Just to be super clear, this bill does not tax retirement income. So we estimate that this proposal would raise about $75,000,000 in the state, and this would come at a particularly good time as the state navigates federal funding cuts for hunger and health care programs. In addition, this tax is very well designed to target income that is highly tax referred at the federal level and avoid further taxing families that are already struggling to make ends meet. So that was a big focus on the wealth proceeds tax, but I also wanna kind of briefly touch on the proposal as well to create a new marginal income tax bracket for individuals, you know, earning above I think it's about 480,000 or $580,000. Before you before Yes.

[Rep. Emilie Kornheiser (Chair)]: Miles, before you do that, can you go back to the that trust loophole that you were talking about and just spend another moment on that?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Yeah. Do you have a specific question on this?

[Rep. Emilie Kornheiser (Chair)]: Can you just explain it again?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Yeah. This is, like, super super technical. I'd be happy to also, like, send something after this as well. That would be great.

[Rep. Emilie Kornheiser (Chair)]: Thank you.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Yeah. So just to go over it, it's like trusts are a super easy way to kinda, like, shift income passive income out of states that should be rightfully under the jurisdiction of Vermont. So this bill contains, you know, I think, technical language to avoid that. And and on top of that, it's also also important consideration in any tax legislation. So it should always just be in consideration. Thanks. Yep. And then going back to this slide. Yeah. So a reform on creating this new tax bracket is also a very effective way in bringing about a very generally progressive tax system. Progressive in the terms that, you know, those who earn more should pay, you know, a larger share of their income based on their ability to pay across the full income scale in Vermont. Looking at ITEF's analysis of the distribution of the state's tax system by income level, you can see that it's already a very generally progressive pattern overall, but that pattern falls apart at the top 5% of the income level where affluent families are paying a lower effective tax rate as a share of their income compared to, you know, those earning less. In addition, when looking at the combined impact of the recent federal windfalls for the wealthy from the recent federal tax cut, this would even further reduce the progressive pattern in the state. And not only did the federal tax bill extend the windfalls from the 2017 TCJA, it expanded it. So if you look at the this table on the right here, not only is it ex extending it, but this is what they're getting on top of what we saw in 2017. So you can see the richest 1% receiving about $57,000 on average in tax cuts. Meanwhile, those in the bottom of 20% seeing about a $110. So, you know, peanuts compared to what the top line percent are receiving. So expanding on that idea, setting a rate a higher rate on passive income rather than earned income is a good idea in principle, as mentioned before, as the total rate on these income is quite low. And, again, our expectation is that this bill today is likely to result in a state tax system that is truly progressive. And I'm not quite sure if you've heard from doctor Crystal Ball Young yet, but I'm also wanna talk okay. I think he'll talk on this a bit more. We have

[Rep. Emilie Kornheiser (Chair)]: not heard from him we have not heard from him yet, and that'll probably need to be next week. So

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Oh, okay.

[Rep. Emilie Kornheiser (Chair)]: Please do share.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Okay. Well, I'll probably just give you a very, you know, surface level of it. He'll he's, like, very much the expert on this topic. But, you know, one of the most discussed issues in tax policy is, of course, you know, the con the concern of millionaire tax flight or that millionaires are fleeing states with high income tax rates in significant numbers for those with lower rates. And there's no doubt that people occasionally move because of taxes. I do think that's very clear. But it's equally clear that the scale of these moves is smaller than commonly thought. Now the bottom line is there's very little evidence to support the myth of large scale, you know, max exodus of millionaire tax migration. So why is that the case? It's because, like most people, they're economically and socially tied to where they are currently living. They like to have a family, kids, you know, the area, have community connections. They're also more likely to be working rich where moving could actually set them back in their career and productivity. And there's a reason why they moved to these places in the first place, you know, and it's whether it's career opportunities, education, public services, or quality of life. By the time they make enough to think about moving to save under taxes, they're already deeply embedded in their communities and live comfortably enough that the tax savings from moving, but not fundamentally change their quality of life even if they would receive, you know, a tax and fall in another state. On the other hand, young college graduates or low income people seeking higher pay or better quality of life are much more mobile groups. And state income taxes are just not a main consideration for their decisions on where to move just because under most income tax systems, like graduated income taxes like that in Vermont, the effective income tax rates, you know, don't tend to be very high for people with smaller incomes. So in, you know, when considering this bill, if economic growth and population growth are concerns, instead of worrying about billionaire tax flight in the long run, what will make Vermont attractive to attract and retain top earners are robust investments in public infrastructure and, you know, providing good good schools, health care, quality jobs that attract these people and, you know, leave them to stay. And frankly, you know, failing to provide these things risks harming the Vermont economy in a way that a tax hike on millionaires never could. So on that note, that's the end of my presentation. Thank you again for the opportunity to present today, and I welcome any questions you may have.

[Rep. Charles Kimbell (Ranking Member)]: Hi, Miles. Just a question on a previous slide when you were talking about total taxes as a percentage of income. Yeah. What are all of the taxes you're including in that calculation?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: A good question. So there's more of this in our who pays report. But overall, this includes, like, almost every, you know, tax in the state and local level in Vermont. So these are property taxes, sales and excise taxes, personal income taxes. I think I need to look back at our report, but I think we cover about 99% of all taxes on the state. So this is looking at, you know, every single tax that people are paying in the state and, you know, looking at how that compares as a share of their income.

[Rep. Charles Kimbell (Ranking Member)]: And interesting. Where is that data actually coming from? I don't know the answer

[Rep. William Canfield (Vice Chair)]: to that question.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Oh, okay. So that's like a huge methodology question. But we get this the data from IRS tables, ACE American community surveys, state statistics of income reports. So we, you know, we gather data from, you know, a variety of official government sources, and then we put it in our microsimulation data. Not to bore you with a lot of the details and methodology of it all, but in short we kind of get this data from, know, state tax statistics.

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

[Rep. William Canfield (Vice Chair)]: Could you go to your last slide?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Sorry, last slide. Oh, now I'm at the beginning. Sorry. Alright.

[Rep. William Canfield (Vice Chair)]: This was last bullet point talking about to invest in public services. What what guarantee is there that that money would go to public services? I mean, putting it in the general fund, that isn't that isn't a guarantee that it goes to public services.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Mhmm. That's a that's a good question. That's definitely a political consideration. But, you know, thinking of an example, well, if you're you're funding this general funds, you know, if you do not have a robust tax system, sometimes though, you know, maybe you may not be able to weather an economic downturn, you would ultimately have to do, you know, tax cuts or service cuts or not tax cuts. Sorry. Tax increases or service cuts. So if you don't have a robust enough tax system, you end up, you know, ending up having to cut these services that would attract people in the first place. So ultimately, where this money goes is a political consideration. You know, today, I was mainly focused on presenting on, you know, the taxes being debated today, But the way the revenue is used is ultimately, you know, a book a political consideration.

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

[Rep. Carolyn Branagan (Member)]: was just gonna ask on the previous slide what the date of the data on the left was. There's a date on the right or date on the left.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Oh, yes. So this was published so this data is based on 2024 incomes. We published this in 2024. And we generally publish our this is like our marquee publication. I think we publish it around every four, five years or so. So this is the most recent iteration of this data.

[Rep. Carolyn Branagan (Member)]: So this would presumably be before the payroll tax?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: I think we may have included that. I need to double check because we have an appendix where we saw future tax changes happening, we tried to account for that. But I can follow-up on that with more information.

[Rep. Carolyn Branagan (Member)]: That would be helpful. Thank you.

[Rep. Charles Kimbell (Ranking Member)]: I'm sorry. Does it include property tax? I can't remember if you said that.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Oh, yes. It includes property taxes as well.

[Rep. Emilie Kornheiser (Chair)]: Any further questions? Yeah, Reps over Kurt.

[Rep. Bridget Burkhardt (Clerk)]: Well, I'm confused about the chart on the right. We've heard at least two different explanations of what that chart is telling We've heard from our tax department that that $57,000 tax cut is really the tax cut that came with the Tax Cuts and Jobs Act back in 2017. And that is basically maintaining a tax cut that was already in place. And then we've heard other advocates tell us that that is a new tax cut on top of what was there already. I'm confused. Can you just explain since it's your chart what that chart means?

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Yeah. Great. Great question. It is very confusing. But to be clear, this is showing the effects of expanding on top of the TCJA. So, like, you know, treating that as a baseline, this is what people are getting on top of it. So it's yeah. So we're not including, you know, any tax cuts and then adding on top of it. It's very much, you know, what people are getting on top of that tax bill or with this recent tax bill. Does that make you

[Rep. James Masland (Member)]: clear? No.

[Rep. Bridget Burkhardt (Clerk)]: It doesn't. So you've had the exact opposite testimony that it was really showing the extension. So the removal of the sunset, if you will, of the Tax Cuts and Jobs Act. So we've had exactly opposite testimony that the 57,000 is not on top of the TCGA tax cuts, but it's rather just showing what folks have already had as a tax cut that they've already factored in to their budgets for the last eight years.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Okay. So this analysis shows that it was assuming that the TCJA would have been extended. And then with that using that as a baseline, how would the, you know, the recent federal tax bill be on top of it? So, you know, it's kind of assuming TCJA is the zero. And then how the well, o b three, the federal tax bill would be on top of it. So it's not taking into a or it's not adding any of the tax cuts from the TCJA or, like, anything in that like in that amounts that you've seen that average tax cut.

[Rep. Carolyn Branagan (Member)]: Okay. Thank you. Anyone else?

[Rep. Emilie Kornheiser (Chair)]: Thank you so much for joining us and for the continued great work of your organization, particularly the WHO Pays report.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Great. Thank you so much for having me.

[Rep. Emilie Kornheiser (Chair)]: Thank you, Miles.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Okay. Bye.

[Rep. Emilie Kornheiser (Chair)]: Okay, so we're going to put aside this bill. Really encourage folks to please let me know if there are other witnesses you want to hear from next week. I have staff team to talk about TCJA. That's a hard one to say. The Merit futures project and the CPAs. But let me know if there's any more. Thanks. So we are going to move to an amendment that representative Kimbell and I are putting forward to our amendment to nine fifty five. And I'm gonna pull it up. I'm doing lots of mental transitioning while talking simultaneously. It might be a little too much for my brain today. So whichever

[Rep. Carolyn Branagan (Member)]: one of you.

[Bethany St. James (Office of Legislative Counsel)]: Both of us.

[Rep. Emilie Kornheiser (Chair)]: Okay. Can you some combination, please? Thank you. These are not major amendments teams. One of them, the first one, is the addition of and calling it a widget on the tax department's website. And the amendment's posted. The addition of a widget on the tax department's website. I don't know if you remember, but we had a conversation about all the great modeling work that JFO is going be doing next year and the different changes we will make next year in additions and work and how the study committees can get access to that information. And so rather than having them sort of track our work in real time the way, say, superintendents do, the tax department is going to create a website widget with thank yous to the tax department for that. And then the second is a technical change. And the third is to add just a to little more extra the CDAC report that the treasurer is doing. So that was at the request of the corrections and institutions committee. And now our very lovely staff team will talk us through them.

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

[John Gray (Legislative Counsel)]: I'm John

[John Gray (Legislative Counsel)]: Gray, the elected minister of counsel.

[Bethany St. James (Office of Legislative Counsel)]: That's St. James Office of Legislative Counsel. Did you say this amendment is on your website? It's under committee. Oh, okay.

[Rep. James Masland (Member)]: You want me to share? Sure. Oh, okay.

[Rep. Bridget Burkhardt (Clerk)]: Just ask a quick number question. So the amendment is labeled draft number 4.1.

[Rep. Carolyn Branagan (Member)]: So it's 4.1 of that amendment because we voted out draft 4.2. Yeah, it's four point I believe it's 4.1. I'll second.

[Bethany St. James (Office of Legislative Counsel)]: It's draft 4.1 of this document, of this work Okay.

[Rep. Emilie Kornheiser (Chair)]: It was one instance of amendment, then became another instance of amendment, then it became a third instance of amendment, and then probably a word change The

[Bethany St. James (Office of Legislative Counsel)]: first instance of amendment adds one new section to the bill, section 18A, that requires tax to develop that widget, although we don't use that fun word in possession law. So on or before 10/01/2027, the Department of Taxes shall publish on its website an interactive education funding calculator, which we're just going to call the interactive calculator, that enables a school district or a union school district study committee to calculate an estimate of the total education funding from the state it received under Vermont's current education and finance system in fiscal year 'twenty seven and the estimated total education funding it would have received from the state under the new financing formula had it been in effect in fiscal year 'twenty seven. The interactive calculator shall reflect all education finance policy choices represented in the total appropriated state funds each school district receives under Vermont's existing education funding formula that are enacted through July, that would have an impact on funding levels. In developing the interactive calculator, the taxes shall consult with JFO, AOE, and the Department of Finance and Management. On or before August 1, the department is required to submit a preliminary plan for the calculator to JFO and AOE for feedback, and they're also required to submit a preliminary version of the interactive calculator to the Joint Fiscal Committee in September 2017.

[Rep. William Canfield (Vice Chair)]: Yeah, that's fair So Madam Chair, I guess I don't understand how that can happen. I mean, how can the DACA Department an interactive education funding calculator for school districts or union school districts that haven't been created yet?

[Rep. Emilie Kornheiser (Chair)]: Oh, so they would create a widget that had all the towns and then had the ability to smush towns, and then the person who was interacting this is very formal language I'm using here. And then whoever was going into it could sort of put the request in, and then the widget would do the smooshing.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: K.

[Rep. James Masland (Member)]: Good. Thank you. You're smart, widget.

[Rep. Emilie Kornheiser (Chair)]: I think actually people

[Rep. Carolyn Branagan (Member)]: do this already. Locally, what they're trying to do is create a tool that does it, that, I mean, districts are already modeling this. I think my question is, we know that there have been some pretty substantial errors. Is there a way to have Who's providing the review before this becomes the operative document? That's in there. But these are some of the same entities that have made the mistakes in the past. So my question is who's-

[Rep. Emilie Kornheiser (Chair)]: So they're submitting it to the Joint Fiscal Office for feedback. And in my experience, the Department of Texas does not make huge mistakes if they don't correct quickly. And then it's gonna go to the Joint Fiscal Committee as well to review.

[Bethany St. James (Office of Legislative Counsel)]: Second instance is a great catch by your Appropriations Committee, and that the rulemaking in Section 27D regarding the length of school day does not have any date certain for that rulemaking to occur. So we've added language to require the rulemaking to occur on or before March 3127, which is the same date you use for all the rulemaking in the bill.

[John Gray (Legislative Counsel)]: I will take a third of these. So the third instance of amendment is something that emerged out of discussions in the House Corrections and Institutions Committee. You will recall that the core provision of the state aid for school construction program, just for orientation purposes, has the application process, sets up the construction aid awards contemplating both of that death service subsidy and the additional state bonding capacity available. You recall the discussions that led to this the initial version of this language, which was substituting for the proposed 50,000,000 additional annual cap, a recommendation instead from the treasurer's office in consultation with CDAC to get what the appropriate state bonding capacity should be to support the program. The Treschensen Institutions Committee had a position on they wanted to have a say essentially in this matter. And so there's two things in this piece. Subdivision C, the treasurer in consultation with CDAC shall recommend to the House committees on education on rights and means and on corrections and institutions, setting committees on education on finance and on institutions, so addition of two new committees of jurisdiction, right, the annual total state bonding support available for the capital budget and this program, and the annual debt service subsidies to be awarded under this chapter. That sentence is the same as what you guys had, except that two new committees have been added to whom that recommendation is distributed. The real addition from that committee is they wanted to know how this affects the bonding capacity available for the general capital budget process. I would note that I think that's already going to happen because it necessarily is a holistic assessment. But you now have a very clear directive that that needs to be called out. So that's what you see on line 16 through 18. The recommendation shall include an analysis of how the use of state funding support for school construction of this program affects overall capital budget capacity. In other words, they kind of want to ensure that whatever is done doesn't supplant or leach into the capital budget.

[Rep. Emilie Kornheiser (Chair)]: Yeah, referencing what's that?

[John Gray (Legislative Counsel)]: Oh, good. Think I'm reading this the right way, but just not sure if there's other things that I So hear too is this like an annual thing, each year they will come back or is this a one? So I think the idea is you would regularly be recommended this annually. So this is the annual total state bonding effort, which could vary yearly, right? CDEC also regularly makes this recommendation each by any way to set out what the total state funding capacity is. And you'll recall that this is part of that award of construction aid section, which sets out the various measures for determining that 5095%. And then this is the measure that basically describes what funds would then be available for those purposes. So it's for the annual total state funding support. I

[Rep. Charles Kimbell (Ranking Member)]: just want to add, I attended a meeting with the corrections committee corrections institutions committee or other way around when John was presenting the bill, nine fifty five and our amendment to it did a great job. Thank you, John. That was a great explanation. And they have main concerns about if we were getting $50,000,000 from the total bonding capacity of the state, what was that going to do to any kind of future projects they had, whether it was for construction of large facilities or maintenance of existing facilities. So they really wanted to know how that was going to impact them. So that was the kind of genesis for this. So like, yeah, you got a point. And so even though CDAC and its review would show what the total bonding was, they really wanted to know the intersection between this program and their regular program.

[Rep. Emilie Kornheiser (Chair)]: Thanks. Any other questions for

[Rep. Carolyn Branagan (Member)]: Bethanyl? Actually,

[Rep. James Masland (Member)]: I'll save it for later.

[Miles Trinidad (Institute on Taxation and Economic Policy, State Analyst)]: Okay, thanks.

[Rep. James Masland (Member)]: Good. A name makes up.

[Rep. Emilie Kornheiser (Chair)]: Representative Branagan? Yes. Is there

[Rep. Carolyn Branagan (Member)]: a fiscal note for this? Does it cost any duty in this? Julia.

[Julia (Joint Fiscal Office analyst)]: Julia Rutland, there is not a fiscal note for this. We don't anticipate there to be any additional costs to develop.

[Rep. Carolyn Branagan (Member)]: Yeah, representative. Specific to the amendment, but we also did receive a letter from Rich Warner. What are we doing with that?

[Rep. Emilie Kornheiser (Chair)]: We are going to work on that in the Senate to catch ourselves up. The school construction program is not finished, not perfect, and I think it's stepped in the right direction and committed to figuring out that. No. Thank you very much. Anyone else for the staff team? Great, thank you. Representative Masland, do you want to say whatever you want to

[Rep. Carolyn Branagan (Member)]: say before you vote on the amendment?

[Rep. James Masland (Member)]: Can I get your name except with someone in the upper belly named John Craig? Oh. And I was confused with which email was going back and forth and apologized to anybody. There was no no bad words, I just this is John Craig. Oh, it's John Craig. No.

[Unidentified Committee Member]: I just wanna clarify that. There also

[John Gray (Legislative Counsel)]: many John Grays out there.

[Rep. James Masland (Member)]: I bet there are, and some of them are and some of them are. I could tell

[John Gray (Legislative Counsel)]: you some fun stories, but

[Rep. James Masland (Member)]: I don't think this time is for Another day, please. Thank you.

[Rep. Emilie Kornheiser (Chair)]: Great. Thanks, John.

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

[Rep. Emilie Kornheiser (Chair)]: we don't have custody of the bill. So this is a straw poll. All those in favor of finding this amendment favorable? All those opposed?

[Rep. Bridget Burkhardt (Clerk)]: Withdrawal is favorable, then one-zero.

[Rep. Emilie Kornheiser (Chair)]: Thank you. Thank you, everyone. We are done for the day, though please, there might be more amendments. Be attentive to all the things. And we are scheduled for 9AM tomorrow morning, but don't have anything scheduled also for amendment prep.