Vermont Legislature SmartTranscripts:

[John Gray (Legislative Counsel)]: Morning. Morning. Good morning. It is

[Bridget Burkhardt (Clerk)]: May 6.

[Emilie Kornheiser (Chair)]: I was actually just thinking so much. Appreciate that. It's Wednesday, May 6. Did you have a good Wednesday as well?

[John Gray (Legislative Counsel)]: I do.

[Emilie Kornheiser (Chair)]: It's 09:00? Rounding down, like we would with a penny. And we are going to work on H-nine 49, which is the yield bill, and take a straw poll on what's to be done after we talk about it some more. And John Gray, you're here, I'm not really sure what we were planning to talk to you

[Rebecca Holcombe (Member)]: about, because we've gone through the whole thing with you already.

[John Gray (Legislative Counsel)]: Yep, here.

[Rebecca Holcombe (Member)]: Okay, cool.

[John Gray (Legislative Counsel)]: You don't have anything prepared for today? To

[Emilie Kornheiser (Chair)]: Okay, great. Thank you. Julia, would you please join us?

[John Gray (Legislative Counsel)]: We have the pronouns. Oh, okay, cool.

[Rebecca Holcombe (Member)]: I wonder

[Emilie Kornheiser (Chair)]: if you could start us off by explaining how

[Julia Rutland (Joint Fiscal Office analyst)]: the excess spending threshold is calculated. Yes, absolutely. With or without slides. Or without slides. Whatever you prefer. Okay. I think it might be helpful for me to just quickly pull up some slides that I presented in this committee perhaps a month ago. And we can just go through them quickly as possible. Julia Rutland, JFO, as quickly as possible. Let me just find those. First, send the link to Sorcea so she can post it before I share my screen.

[Rebecca Holcombe (Member)]: Okay. So

[Julia Rutland (Joint Fiscal Office analyst)]: I'm going to go ahead and share my screen. These slides are from January. And so I'm just going to repost them. But because this is current law, nothing has changed. Nothing has changed. This is just briefly going through how the actual spending adjustment works and is calculated. So what is it? The excess spending adjustment is a provision in current law that increases a district's tax rate if it spends above the excess spending threshold. This is that piece where the amount spent above the excess spending threshold, the excess spending, that is double taxed. The threshold is calculated annually. And in FY27, the threshold is 16,470. So essentially, a district spends spending above the 16,470, the amount above the 16,470 after accounting for exclusions is then double taxed.

[Rebecca Holcombe (Member)]: So the question is, historically, how's the education? I'm curious about whether the education has weighed in about, considering its own goals for where we're trying to get, where they're trying to go with education, because we're the tax, and so they're the top three people in education. Have they ever, and are they now, giving us any indication of what they think should be considered excess spending?

[Julia Rutland (Joint Fiscal Office analyst)]: I don't know. That would be a question for

[Rebecca Holcombe (Member)]: how sad. Well, except for the exemption, we're just looking at numbers. So we're actually just making tax policy before it has been made in the past.

[Julia Rutland (Joint Fiscal Office analyst)]: So I think that that's a broader question that is not I don't think I'm the right person to answer that question. The excess spending adjustment and the excess spending threshold, yes, it is tax policy because it is impacting how tax rates are calculated, and it is based on district education spending. So who should be weighing into that conversation is beyond me.

[John Gray (Legislative Counsel)]: Julie, I have a question in regards to talk about district spend over that 16,470 threshold are double taxed, but

[Carol Ode (Member)]: that double tax doesn't pay for the whole amount, does it? Because again, it increases overall statewide education budget. So how does that work? What percentage does that double tax pay?

[Julia Rutland (Joint Fiscal Office analyst)]: Great question. It depends on the district. And the same is true under current tax rates under excess spending. Two districts that spend the same amount have the same tax rate, and if one district has a ton of property wealth and another district has very low property wealth, one district is going to be raising a whole lot more than the other district with the same tax rate. And so dependent on the districts that you're looking at, one district is going to be raising more or less. So your point is, or perhaps this is your point, the intuition is true that with the excess spending adjustment, with that double tax, that district that has excess spending will be raising more of that excess spending. And it will also be increasing the overall statewide education fund, which means that, by and large, all property tax rates are going to need to go up to in part cover it, all else equal. But it will depend on the district with the excess funding.

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

[Bridget Burkhardt (Clerk)]: But if it's a property wealthy district, then they're going to be contributing more to the overall education fund through that excess spending kind of thing

[John Gray (Legislative Counsel)]: back to

[James Masland (Member)]: the poor district. I

[Julia Rutland (Joint Fiscal Office analyst)]: would say I missed the last part.

[Bridget Burkhardt (Clerk)]: A property wealthy district with a large grant list that has a per pupil spending that's over the excess threshold is going to be contributing more just by math than as a district that is property poor.

[Julia Rutland (Joint Fiscal Office analyst)]: And the same is true with our property tax rates below the excess spending threshold, too.

[James Masland (Member)]: That

[Julia Rutland (Joint Fiscal Office analyst)]: intuition of a district with more property wealth contributing more of the same tax rate is true whether it's below the excess spending threshold or above it.

[Rebecca Holcombe (Member)]: It's just how much more are they contributing? Representative living. So then it's dark. So then abiding in less. I know. So I didn't hear it. So if you're giving, putting more into the ed fund, if you're excess spending, you have a large grant list, I don't see how that doesn't help the education fund.

[Julia Rutland (Joint Fiscal Office analyst)]: So I guess I would say two things. One, and perhaps this is a semantics thing, I wouldn't necessarily say it's giving more to the education fund because it's a statewide education fund. So there's statewide property taxes going to the statewide education fund and then paying out the statewide education payment. I would say that it's a statewide But they're making here's a

[Rebecca Holcombe (Member)]: town that has very small grants, certain amount of new grant list and they both are spending over the threshold. The amount that this town is putting in is more. Would you say they're contributing more? Yes, I would say contributing. They're contributing more. Doesn't that kind of help everybody? Because then there's more, there are more funds in the edge. That's where I didn't understand what you said a minute ago because I would think that that would bring everybody's Yeah, so the more

[Julia Rutland (Joint Fiscal Office analyst)]: Lower. So the more Price is saved now. Property tax amount that is raised from one group of property taxpayers, the less needs to be raised from another group of property taxpayers. And so that's true when you're all contemplating the yield bill. The more that's raised from homestead, the less that needs to be raised from non homestead and vice versa. The same is true here, except for it's a statewide education fund and there's the equalization of property tax rates regardless of property wealth. And yes, the way that the excess spending adjustment works is if a district falls over the excess spending threshold, then more is being raised from that district for the excess funding.

[Rebecca Holcombe (Member)]: Then doesn't that end up with lower rates for everyone at the same rate that they all can use?

[Julia Rutland (Joint Fiscal Office analyst)]: It depends on the district's grant list value. So because education costs and property taxes are equalized across the state, the vast, vast majority of school districts, their homestead rate is not raising the entirety of their education payment, which means that it is also being raised by non property tax revenues in other school districts. So thinking about the basic math, you've got a school district. Say it has lower property wealth. It crosses the excess spending threshold. So there's an amount that's double taxed. Yes, for that amount that's double taxed, more property tax is going to be raised from that district. That doesn't mean that the more property tax that's raised is going to cover the entirety of the excess spending. Their spending, which then means there's still that portion that needs to be raised from somewhere. And if non property taxes aren't going up, property taxes across the state are going up.

[Rebecca Holcombe (Member)]: That last little bit is what I was getting confused about. But if they have a higher property wealth and they do the excess spending, can you just play that out for them?

[Julia Rutland (Joint Fiscal Office analyst)]: It really depends on the school district and their property wealth. And it also depends on the yield for that year. It depends on what rates are and what the policy choices have been made. So if you already have lower property tax rates, homesick property tax rates, a doubling of a homesick property tax rate is not going to raise as much than if the yield was much lower and property tax rates were higher. So it depends on too many factors for me to be able to say nine times out of 10, it works this way, or nine times out of 10, it works that way.

[Rebecca Holcombe (Member)]: We didn't follow the recommendations of AIR when implementing the current weights, and this is based on weighted pupil spending. What are some of the possible ways weighing the way we did might affect who is subject to the excess spending?

[Julia Rutland (Joint Fiscal Office analyst)]: So, I would say, big picture, I can't comment on if the weights should be applied in one way or another because that was a policy decision that was made by the general assembly in its current law. The way that weights are distributed will impact property tax rates, both pre excess spending and post both below the threshold and above the threshold. So if you have a school district with a higher weighted student count, their education spending can be higher before they cross that excess spending threshold, meaning that all else equal, your higher weighted districts can have a larger aggregate education spending before they cross the threshold. Another piece and we haven't gotten yet to how the excess spending threshold is calculated, but the excess spending threshold is calculated by taking the average weighted per pupil spending in FY '25, meaning increased by inflation and multiplied by 118%. We can talk about the whole formula. But the excess spending threshold is based off of a weighted pupil spending of FY '25. So the higher the waiting count, that's the state in FY '25, the lower that FY '25 spending would be, which means the threshold would be lower than if there were a lower weighted student count.

[Rebecca Holcombe (Member)]: What's in the NIPA inflator?

[Julia Rutland (Joint Fiscal Office analyst)]: Yes. The NIPA inflator is the national income products account of government expenditures and gross investment. It's basically how much does it cost to purchase things at the state and local level. It's a chain weighted deflator, meaning that when you have an inflation index, essentially what it does is it looks at a basket of goods, and it looks at how the price of that basket of goods has changed over time. You can have index or you can have a chain weighted index. Fixed index looks at the same basket of goods regardless of how purchasing patterns have changed, where the chain weighted index looks at how purchasing patterns have changed over time. NIFA is chain weighted, meaning that I know we have a late report, it's in the final stages. You've had a

[Emilie Kornheiser (Chair)]: lot to do, don't It's been a busy session.

[Julia Rutland (Joint Fiscal Office analyst)]: Chain weight So NIPA is chain weighted, meaning that the share of all of the different pieces that go into the calculation of NIPA changes over time. So the vast of the vast, with the majority of the inputs into NIFA are labor costs. And that's over 50%. And then there are other pieces related to services and fixed investments.

[Emilie Kornheiser (Chair)]: So when I look at this calculation, I see two different ways the calculation is inflated. There's by adding the inflation index, but it's also you're looking at the average per people spending, which changes.

[Julia Rutland (Joint Fiscal Office analyst)]: So this is one, and I don't know if this is your question, but I'm going to say this out loud anyways, because I think that this is sometimes a misunderstanding of how the threshold is calculated. It is always based off of FY25 per weighted people spending. So it's not based on the prior year. It's always based off of the FY25 per weighted people spending. And then it's increased by inflation. So I think Oh, I guess I don't have it in the slide deck. I have it somewhere else. But in FY twenty five, it was 13,168. We always use that as our starting amount. Then we increase it by inflation, really AOE does it. Then AOE increases it by inflation, and then it is multiplied by a percentage of 20% labor. Does SNIPA within either those labor costs or the other services costs that are included, does it take into account healthcare premiums?

[Rebecca Holcombe (Member)]: Yeah, that's included in the labor costs. It's overall compensation, so wages and benefits. So here's the problem that I see, unless it's changed in school districts, I heard you say the vast majority of your labor costs greater than 50%. Labor costs when I left the school board were 80%. I'm not challenging you, I'm just saying that does not compute. Had, by the time we paid for labor, it was probably more than 80% now, and running buildings, who have like 1% left to buy a book. I'm not telling you anything's wrong with you, I'm just saying, did not invent the NEPA,

[Emilie Kornheiser (Chair)]: so I

[Rebecca Holcombe (Member)]: can't imagine

[James Masland (Member)]: she was

[Rebecca Holcombe (Member)]: saying that. It's not here. For our schools. They, this is net just to apply to schools or to apply to? NEPA is for state and local government. For state and local government.

[Julia Rutland (Joint Fiscal Office analyst)]: NEPA actually is sort of an umbrella term for a number of inflation indices. We've shortened it to NIFA here, but really we're talking about within that umbrella of NIFA indices, the state and local government. I think it's I forget, expenditures and gross investment or something like that.

[Rebecca Holcombe (Member)]: Well, I don't understand. And I don't think it's nice to have some kind of inflator there, but that's not the only old story, so that's not

[Emilie Kornheiser (Chair)]: So we used the NEEP index for a very long time. We changed to NIFA not as a policy decision, but because NEEP stopped existing. Can

[Julia Rutland (Joint Fiscal Office analyst)]: you explain this again? Sure. There are places throughout statute that still reference inflator that no longer exists, the New England Economic Project. This was I don't recall all of the details off of the top of my head. And when I first started, I was trying to figure out where on earth meat was calculated. And they just said that I don't think it's existed since 2013 or something like that. But meat really used the same NIFA index that we've been talking about and used that as the base and then inflated it forward. When NEET no longer existed, when they disbanded, the legislature and administration, economist, Tom Cabot and Jeff Clark, took over the forecasting process. So it's essentially the same thing, but it was called NEET for a number of years, and then starting in 2013, it's now NEPA, but there are still some outstanding incorrect references in statute.

[Emilie Kornheiser (Chair)]: And yesterday, I was very presumptuous about my reelection prospects, and I put in a drafting request for next biennium with John Gray. Now I'm gonna tell everyone about this very exciting drafting request that I got way ahead, which is for him to start his inflator index chapter of statute for us. So that's pretty fun.

[John Gray (Legislative Counsel)]: Also thought John Gray

[Emilie Kornheiser (Chair)]: asked- I don't know if I'm even allowed to put in a drafting request this front event, but whatever.

[John Gray (Legislative Counsel)]: Just thinking about this particular problem, which is the no longer published index, another thing you can do is create callback mechanisms that provide what you do in the event that something is no longer So there's tool that kind of get in touch.

[Julia Rutland (Joint Fiscal Office analyst)]: It's gonna be great.

[Rebecca Holcombe (Member)]: Question about

[Emilie Kornheiser (Chair)]: that. I think someone else had a question before he did with this representative Branagan.

[Carolyn Branagan (Member)]: Yes, well, wanted just this is ages ago now, I wanted to add to what representative Ode was saying. I also was on the school board for a long time before I came here and I remember a similar thing only we had more than 1%. And also it seemed that we had the least amount of money to buy books with in the years that we negotiated. And so could this be a combination of a Burlington issue or a Georgia issue where we land on negotiations also?

[Emilie Kornheiser (Chair)]: I mean, of our Julie's not the keeper of the inflation index. And so she defined it for us, which was helpful. And she's writing a report about them. But I don't know if we all need to argue with her about what the right inflator is or whether or not the inflator works.

[Julia Rutland (Joint Fiscal Office analyst)]: We might be arguing No, I don't

[Rebecca Holcombe (Member)]: think you're arguing it. Yeah. Was that a statement? Yes. Was that being made

[James Masland (Member)]: by the way?

[Julia Rutland (Joint Fiscal Office analyst)]: You were not. No, you were not. Did not interpret the rule.

[John Gray (Legislative Counsel)]: No, pretty much general statement because

[Julia Rutland (Joint Fiscal Office analyst)]: we've been going down this path for quite a few.

[Carol Ode (Member)]: I think we ought to just change it to the consumer price That seems a lot more understandable.

[Rebecca Holcombe (Member)]: No. Just kidding.

[Julia Rutland (Joint Fiscal Office analyst)]: Well, actually, number of states use the CCI within their education funding formula. I'm not saying you should or There's you just sort of three or four different ways that states adjust for information in the education space, CPM is one gen, HIPAA is another.

[Emilie Kornheiser (Chair)]: Representative Ode, back to

[Rebecca Holcombe (Member)]: you. Is that used for social security? I don't know. But if you've got this drafting request, and then I would like to add this, if the NIFA is about with greater than 50%, then is it possible for our GFO to look at what's really happening with schools and put in enough of an inflator for what our real percentages, our employee costs are in our schools? Maybe April. We can just

[Emilie Kornheiser (Chair)]: slowly work it up. Probably not.

[Rebecca Holcombe (Member)]: Just say that so that it isn't forgotten. I know you won't forget it. Brilliant.

[Charles Kimbell (Ranking Member)]: So $13,168 with $25 per year spending, Adjusted by inflation each year, one year does it go back to $13,001.68? Or does it go by what you adjusted it to?

[Julia Rutland (Joint Fiscal Office analyst)]: Every year it's based off of the 13,168. And then the inflation index looks at what was the inflation from FY '25 through the year in which it's being calculated. So for instance, to calculate the FY '27 excess spending threshold of 16,170 AOE, DFO, tax, or comma, together, we say, Okay, dollars 13,168 is FY $25 per pupil spend. What is the estimated NIFA inflation from FY 'twenty five to FY 'twenty seven, and then we increase that 13.68.

[James Masland (Member)]: You.

[Emilie Kornheiser (Chair)]: Representative Holcombe and Burkhardt, and then we're going to move back into the yellow bill.

[Rebecca Holcombe (Member)]: For next year, when that study or whatever it is comes forward, I think the question that representative Ode is getting at is what's the right inflator for the education sector? We know that staff intense sectors have higher inflation rates. There is a BLS CPI index just for the education sector. And they did that precisely because it is going to have higher inflation rates than things that are both not good. So I just feel like there is an issue there. It will never be perfect. But even just seeing or preparing might help people understand design, it is not perfect. Perfect. So I have two thoughts. One is, we're using 118% as another multiplier, which is somewhat arbitrary, unless you tell me different, that there was some logic that was behind the 118%.

[Julia Rutland (Joint Fiscal Office analyst)]: It was a policy decision. So essentially, we're sort

[Rebecca Holcombe (Member)]: of saying, we're assuming it grows by some amount and we're setting this January for the proposal, I think now is 112% as a way of reining in or creating a penalty for excess spending. So, the conversation about inflators is great, but I don't think it's going to make or break what we're doing in this specific instance. My question for you is really a reminder question. The denominator for school districts, is that based on a single year weighted pupil count or is that some kind of average?

[Julia Rutland (Joint Fiscal Office analyst)]: When you say denominator, do you mean the education spending divided by weighted pupils? For the district that's being compared to the excess spending. Their long term weighted average daily membership. So that's a two year average Two year average. Of their weighted student count. Okay. And that's the same weighted student count that's used for the purpose of calculating tax rates and per capita.

[Emilie Kornheiser (Chair)]: That was really great bringing us back. Thank you. Because the 118% is really one of the big questions we're gonna need to wrestle with here.

[John Gray (Legislative Counsel)]: Oh yeah.

[James Masland (Member)]: Go back to Rep Holcombe's suggestion, or query, I guess, a few minutes ago, is which standard are we gonna use and for what reasons?

[Emilie Kornheiser (Chair)]: And

[James Masland (Member)]: from my vantage point, it is I'm not as intimately involved in the calculation as some of you have been on various school boards and stuff, but I agree that somehow we need to settle on something, and I am not sure with great confidence that NEPA or NEPA is, whatever, is necessarily gonna be the right one. It's about my pay grade to hone in on exactly, except to go back to what Rep. Branagan was saying a number of minutes in the back that it seems to imply that an inflator that was used a number of years ago might have been based on, if I heard you correctly, something going on in Franklin Hood County, you know, as a jumping off point. I don't know if that's what you were saying or not. Well, me just add a sentence, and then you, which is to say, to repeat, I'm not close enough to the negotiation to have the right answer. Hopefully, we get something that's close enough to what we're all going agree with and it's going to be accurate from most school districts most of the time, assuming as we do, that we change things after a few years, and they find out it doesn't quite work. And I don't know if this comment is helpful except to say, basically we're trying to pick something that is less arbitrary than anything else that we say, or at least as accurate if we can make it and go with it. And I'm not sure, as I said, if this is a helpful comment or not, but this is what I'm hearing around the discussion.

[Emilie Kornheiser (Chair)]: I want to bring us back to what Representative Burkhardt said, thank you, about the particular choice of 118 is really the bulk of where the capacity sits, and what it would look like to make it maybe even less of an arbitrary percentage of what that would mean for us going forward. Especially in the context of a transition to what is laid out in September or '73. We're looking at a fairly short term tool that we have here. And so I think that's an important part of this conversation. Juliet, you have a whole presentation for us. Let's go back to it.

[Julia Rutland (Joint Fiscal Office analyst)]: Do want to keep walking through how the excess spending threshold is calculated?

[Rebecca Holcombe (Member)]: Think we should move

[Emilie Kornheiser (Chair)]: on to something. I think everyone understands how the excess spending threshold is embedded.

[Julia Rutland (Joint Fiscal Office analyst)]: Okay. So the rest of the presentation is talking about the exemptions under current law and history. Is that helpful? Or do want So under current law, there's one exemption to the excess spending adjustment. This is principal and interest payments for any voter approved bonds that were approved prior to 07/01/2024. So there's that temporal condition. If that debt service was approved prior to 07/01/2024, it's exempt from the calculation of excess spending. If that bond happened after 07/01/2024, it's not exempt and it is included in excess spending. So how does it work? We've talked about this, but this is, if you think in formulas, this is sort of what that formula looks like. So each district has its per weighted pupil education spending, And then we look at how much excess spending there is per weighted pupil, and we add that back on top. So that's how that excess spending is double counted. And then together, that sum is then divided by the yield, and that gives you the equalized homestead rate. This is an example in case a little table or numbers are helpful. Made up districts, made up numbers, made up yields. Everything is made up, but the intuition is not made up. This is how it works. So if you had two districts and you assumed we're going to try to make everything nice round numbers, so we're assuming that the excess spending threshold is $16,000 per pupil. So you've got two districts, one that spends $15,000 per weighted pupil. So that's that ed spending divided by their long term weighted average daily membership. And one district, District B, that spends $17,000 per pupil. We've got the excess spending threshold of $16,000 made up. And so then in row three or step two, we look at how much is over the threshold. So District A is below that threshold, so they have no excess spending. And District B is above that threshold by 1,000 per weighted pupil. We're assuming that District B doesn't have any exemption applied to it. So then we need to say, Okay, we've got their per weighted pupil spending. We have to add back in if they have any excess spending so that it's double counted. District A, they didn't have any excess spending, So it's 15,000 plus zero. So they're still at 15,000. District B did have excess spending. They had that excess spending of 1,000. So that would be their regional per weighted pupil of 17,000 plus their excess spending of 1,000. So we have this now, adjusted education excess spending, whatever you want to call it, of 18,000. And then we calculate the tax rate. So we use this, what we calculated in step three, row four, as the numerator in the tax rate calculation. So this would be that 15,000 divided by a made up yield of 9,000. So they would have an equalized rate of $1.67 District B, because we're double counting that 1,000, it would be that 18,000 divided by the made up yield of 9,000. So they would have a rate of $2

[Rebecca Holcombe (Member)]: Row six, perhaps it's a

[Julia Rutland (Joint Fiscal Office analyst)]: little too simplified. It assumes that the yield doesn't change. If there were no excess spending adjustment, we know probably the yield would change. But let's say that the yield didn't change. District A would still have the same tax rate if there was no excess spending adjustment because nothing would change. So it would still be 15,000 divided by 9,000. District B would no longer have that 1,000 being double counted, So without the excess spending adjustment, because that $1,000 is not being double counted, it would have a rate of $1.89 rather than the $2 in which the $1,000 would be double counted. So that's just the general mechanics of how it would be applied at the school district level.

[Rebecca Holcombe (Member)]: Do you have a question about this, representative? No. Okay. Want to say that it is just looking at numbers and then subjecting people to an excess spending threshold, they may be doing, they may not have, they may have classrooms that have 25 in each classroom, they may be a big consolidated district, they may be making, and then another district might have just five kids in each classroom.

[Emilie Kornheiser (Chair)]: And that district might be geographically isolated and not able to have more than five kids with that. Yes, this is an objective measure that is outside of some of the policy concepts Yes, that occurred

[Rebecca Holcombe (Member)]: in that the

[Emilie Kornheiser (Chair)]: is true. And we've had it in statutes off and on since Act 60 passed, I believe.

[Julia Rutland (Joint Fiscal Office analyst)]: Or did it start? I don't know. I do have at the end of the slide deck the history of it. Oh, so fun. Can't wait. So that's how we work with numbers. 2026, the threshold was 15926. There's also spreadsheets on the committee page under my name of the estimates for FY 'twenty seven. Got new budget data from AOE yesterday. So I've updated all of

[Rebecca Holcombe (Member)]: the modeling. In

[Julia Rutland (Joint Fiscal Office analyst)]: FY '26, six school districts exceeded the threshold and the amount that they exceeded their thresholds really varied. That per weighted pupil amount varied from four twenty nine to fifteen eighty two. So the history of the excess spending threshold, now we're moving away from current law and going back to what happened pre forget the bill number that reinstated the excess spending threshold. 01/2027. Okay, right. So 100 '27 froze the excess spending threshold from FY '25 through FY 2029. It had actually already been frozen prior to Act 127. It was first frozen during the pandemic. And then Act 127 continued that freeze.

[James Masland (Member)]: Sorry, when you say freeze.

[Julia Rutland (Joint Fiscal Office analyst)]: Meaning that it wasn't repealed from statute, but it didn't exist for the purpose of calculating anything. So it was suspended.

[Rebecca Holcombe (Member)]: Suspended, okay, anti swung rather than

[John Gray (Legislative Counsel)]: forensic. And

[Julia Rutland (Joint Fiscal Office analyst)]: then, yeah, that's my non technical language for suspended. So it was suspended during the pandemic, further suspended in Act 127, and then Act 183 in 2024, that was that big yield bill, unfroze or unsuspended the threshold and then amended its calculation and exemptions. I really want to draw a big exclamation mark next to the fact that it was amended in Act 183 of 2024. Prior to Act 127, the way that spending per pupil was calculated was different. It used equalized pupils rather than long term weighted ADM. So not only were the weights different, but prior to Act 127, there was also something called the equalization ratio. We don't need to talk about it in great detail unless that's helpful, other than I'll say, prior to Act 127, all of the weights were applied, so the weighted student count was more similar to what we see now in long term weighted ADM, but then there was an equalization ratio that was applied to it that brought the number of weighted pupils back down to the actual number of pupils in the state, which means that we can't look at per weighted pupil spending prior to Act 127 and per weighted pupil spending post 01/2027, because the methodology of the denominator of that weighted student count was so different. So we can look at what happened prior to ACT 127, we can look at what happened post 127 or post 183, but we really can't compare the two. So with that said, prior to 183, the excess spending threshold was calculated by taking the FY15 spending per equalized pupil, average spending per equalized pupil, increasing it by NIPA, so the same inflation index, and multiplying it by 121%. And there were also a number of exemptions. So Act 01/1983 struck all of those exemptions and replaced it only with the one single exemption of those bond payments prior to 07/01/2024. Beth put together an awesome slide deck, awesome slide, especially on the excess spending threshold. And I completely defer to Legis Council, but I'm going to just On all of

[Rebecca Holcombe (Member)]: this, I'm going just pull it

[Julia Rutland (Joint Fiscal Office analyst)]: up so you know it's available. On slide four, or I guess slide seven, methods and history of what were all of the exemptions or what were some of the exemptions prior to the strike. And these are the exemptions that existed in statute. So Act 01/1983 did away with those exemptions and just replaced it with the one. I think

[Rebecca Holcombe (Member)]: it's just worth noticing the last two. One was the impacts of dual enrollment in early college, which is a significant issue for very small rural districts, particularly in the age of virtual college. And then the last, because it can be highly variable year to year, and then the last one, we did exempt, but this was at the time that the Latin school types work, we did exempt that. We didn't do anything similar for PCBs that I'm aware of.

[Julia Rutland (Joint Fiscal Office analyst)]: AOE publishes on its website historical excess spending data. So I thought someone was going to ask how the threshold had changed over time. I asked, be ready with the slides, but no one asked. But here it is. Very different questions. Hi, Julia. So this is how the threshold looked over from 2032 to 2025. Here you see that it was suspended starting in 2022. And you can see how it's increased over time. So this is that FY15 equalized spending per pupil increased by inflation, always multiplied by 121%. Again, we can't compare these numbers to these dollar amounts to the current excess spending threshold because the underlying methodology is too far apart to make any meaningful comparison. And have we been doing it for enough years on this side of the pause to create a graph even? There would be three data points. There would be FY '20. No, there would be Would there be three or would there be two? There would be two, FY '26 and FY '27. Is

[Rebecca Holcombe (Member)]: FY '27 higher than FY '26?

[Julia Rutland (Joint Fiscal Office analyst)]: It is. I think that's the last thing. So we've got FY '27 is 16,470 and FY '26. So it went from 15,926 to 16,004 and 70.

[Bridget Burkhardt (Clerk)]: And it's important to note what you have on a couple of slides down, so it was at 01/2021,

[James Masland (Member)]: and we lowered it

[Bridget Burkhardt (Clerk)]: to 118.

[Julia Rutland (Joint Fiscal Office analyst)]: Yes, and those percentages are being applied against a different base.

[Emilie Kornheiser (Chair)]: And there were so many carve outs. There are very few now. And I want to spend a little bit of time talking about both the Senate's what the Senate did in terms of the percentage change on the excess spending threshold, also Julia,

[Rebecca Holcombe (Member)]: Bless you. I don't know if

[Emilie Kornheiser (Chair)]: it makes sense to bring up your fiscal note or what, but in terms of what the impact of those exemptions look like.

[Julia Rutland (Joint Fiscal Office analyst)]: Up to you. I did put together AOE shared new data yesterday, the updated data, and then I did update all of the excess spending analysis. That'd great. So I could share that. That's posted on the committee page under my name. There's two spreadsheets on the committee page under my name. One is looking at a whole number of different percentages, what it would look like, and the other is looking at what it would look like with a whole tax provision. So I'll share my screen.

[James Masland (Member)]: No hold, you're doing right now? What would your preference be? I wondering which one up so I could pull

[John Gray (Legislative Counsel)]: the sample.

[Julia Rutland (Joint Fiscal Office analyst)]: Sure, that sounds great. Let's start with the no hold room list.

[Emilie Kornheiser (Chair)]: So that would be if the Senate had not included this funny carve out.

[Julia Rutland (Joint Fiscal Office analyst)]: Yes. So there's a lot of columns, and there's a lot of rows. I could have just done one hundred and eighteen percent and one hundred and twelve percent. But every time

[Emilie Kornheiser (Chair)]: you do that, someone asks you what 117% looks like? Exactly.

[Julia Rutland (Joint Fiscal Office analyst)]: So I included it at two percentage point intervals and gone down to 110%, just to try to provide some context for folks. So this was updated yesterday. We've looked at a similar spreadsheet before, but just to reorient you, again, I'm looking at the one, the spreadsheet that does not include any of the hold harmless provisions included by the Senate. We've got by county and school district, what the estimated FY27 ed spending is. This is that data that came from AOE yesterday. Column D is showing those excess spending exclusions. So that's if a district has a voter approved bond prior to 07/01/2024, the debt service that's excluded for the purpose of calculating excess spending. That's what we're seeing in column D. Column E is the long term weighted ADM. This reflects the updates to the errors that we heard about a month or two ago. Column F, this is that estimated FY27 spending per long term weighted ADM. Now we get into the excess spending analysis. So column G, this is current law. Or columns G and H, this is current law. So column G, this is telling you estimated excess spending per long term weighted ADM by district. And column H, this is telling you the total estimated excess spending per district. So column H is calculated by taking column G and multiplying it by column E. Included a few summary boxes here up at the top, we see what the excess spending threshold would be or is at that level. So at 01/2018, the threshold is 16,470. We see the total count of districts over the threshold under this percentage. So that's where you see those eight districts that AOE was referencing during their testimony last week. And next to it, you see the total excess spending over the threshold. So that's the sum of all amounts in column H. And then if intuition holds true for all of the other columns, next we look at if the I guess I should take one more step back. And all of this is saying, if the threshold were different in FY27, what would the estimated impact be? That's because cannot JFO cannot predict how school districts would respond or are going to be budgeting in FY twenty eight. It could be, looking at 01/2016, we see that there would be 12 districts over the threshold with an increased amount of $6,500,000 Those 12 districts, they may try to cut their spending, their education spending per pupil, so that they would fall below the excess spending threshold, in which case, if this existed in current law, perhaps it would be lower than $6,500,000 This is just if it were down, what would it look like? And there is no policy proposal that I am aware of to adjust the excess spending threshold in FY twenty seven. We're only looking at this because that is the data that we have available. Moving on to 114. Again, we see that it increases. That intuitively makes sense. As we bring the threshold lower and lower, we're gonna be pulling in more and more districts. Next is 112. This is what is included in nine forty nine as passed by the Senate. However, this does not take into account any of the hold harmless provisions included by the Senate. And then I made it down to 110%.

[James Masland (Member)]: Thank you. I asked for an amendment to be drafted when we were working through this. It seemed to have got lost in the shuffle, so I never saw the amendment. But I would like to describe what I had in mind, just so people have it, which is rather than working eventually, we we settle on a number, a percentage, whether it's 12 or 18 or whatever it is, percents. For those school districts, separate being one, are extreme suffering badly from the Essex, the excess spending threshold. I was proposing not a percentage necessarily once we settled on something, but a dollar amount. The excess spending penalty might be $600,000 in year one, let's say this is year one, 400,000 in the following year, and 200,000 in the year after that, so that the amount of penalty would ramp down over time, and a school district subject to those provisions would have time to figure it out. And I'm just putting that out as an idea, but it didn't go anywhere. Does that make sense?

[Emilie Kornheiser (Chair)]: I don't quite understand what problem you're trying to solve with that. Having it start low and go up the fine, if you will, makes more sense on baseline, that people have sort

[James Masland (Member)]: of time to Well, you're correct that I was trying to let schools adjust over time. But if, for example, the ex spending penalty this year would be a million dollars, just to pick. If it was only 600,000, the impact on local taxpayers would be significant, But then the penalty went to $400,000 and then it's $200,000 in subsequent years. A school district would have time to adjust to that penalty by adjusting school spending and teacher salaries or whatever, and that was what I was trying to do. And I'm putting that out as a concept, as a way of looking at a different perspective. What to do with excess spending threshold penalty would be on a school district, giving them time to adjust. If you're looking at it from the Ed Fin's perspective, it might be better to suggest your way because the impact on the education fund, if it's only $200,000 per school district this year, is one thing. Am I making sense or not?

[Rebecca Holcombe (Member)]: Not to me. You might be making sense

[Emilie Kornheiser (Chair)]: to other people. If the desire, which you described a desire to have districts have time to adjust. Correct. And so if I was designing something for districts to have time to adjust, I would have a lower penalty at the beginning and have that penalty ramp up. It sounds like you're doing the opposite of that. And so I'm not sure how your direction incentivizes behavior. But then let's move on. But yes, I

[James Masland (Member)]: was trying to have things ramp down over time, but if the impact on Tepper, for example, is a million dollars in the first year, it would be far better for Theftenburg taxpayers if the penalty was $600,000 as opposed to a million, and the school district has figured out a way to adjust things in the following year without changing the percentage that we settle on would be 400,000 and then 200,000. So the penalty locally ramps down over time and gives the school district time to adjust to that as opposed to the way you're suggesting, Rapture. And it makes perfect sense to a different school board, even if it doesn't make sense in the room, but that idea came up and I was thinking about it, and so I'm just putting it out there and it's something. Thanks. Thank you.

[Emilie Kornheiser (Chair)]: Can you show us what happened? So what came to us has all these exemptions in it. You show us? Sure.

[Julia Rutland (Joint Fiscal Office analyst)]: So this is the other spreadsheet that's posted on the equity page under my name. I think Sorcha titled it with whole formless. Intuition of the spreadsheet and all the underlying assumptions is the same as the prior one. The student 5.5 date, '26 data, if this were to take effect in FY27, and this is including the whole timeless provision. I do want to note, this does not include the the new exemption or expansion of the exemption included in September for all school district debt, regardless of when the bond was approved, because AOE doesn't have that data for exclusions. So this is only looking at the hold harmless provision. It does not include the expansion of the bonded debts.

[John Gray (Legislative Counsel)]: Like, hold shifts from seven?

[Julia Rutland (Joint Fiscal Office analyst)]: If a school district approved a bond prior to 07/01/2024, that would increase their education spending, so that would be captured in columns F and I. However, because that is not exempt from the excess spending calculation under current law, it is not collected by the AOE as an exclusion. So it's not included in column G.

[Rebecca Holcombe (Member)]: We don't have

[Julia Rutland (Joint Fiscal Office analyst)]: the prior. Oh, after. Sorry. Thank you. After. So we're talking about the Senate proposal gets rid of the temporal conditions. So any bond debt, regardless of when it was approved, would be exempt. We only have the data for the current exclusion, so that expansion is not included in this analysis. And the part that I find confusing about your analysis,

[Emilie Kornheiser (Chair)]: which is not your fault at all, is the fact that given the last set of analysis, we said we can't predict what next year's spending is going to be. The degree to which we can't predict what next year's spending or the year after is going to be is even more extreme in this context. So can you talk about that a little bit?

[Julia Rutland (Joint Fiscal Office analyst)]: Sure. So you'll recall that the yield bill, as it came to you from the Senate, has those three that hold harmless provision was sort of three different ways to be held harmless. One, if the school district's education spending does not increase compared to the prior year, they would be exempt from all excess spending, regardless of what their spending level is. Two, if their spending per weighted pupil does not increase compared to the prior year, they are exempt from all excess spending adjustment. Or three, they can go to the review board with the secretary and the business managers and folks to try to get an exemption from the excess spending. This is looking at We've calculated the whole harmless by looking at the relationship between FY26 and FY 'twenty seven. We don't know the impact, or we can't estimate the impact that these hold harmless provisions would or wouldn't have on school district budgeting decisions. A school district could make a cut to their education spending in one year, that lower the base against which the next year would be comparing against. So we don't know the behavioral effects of that at the ed spending level nor the spending per pupil level. The other piece of it, too, is we don't know what the board would decide. So, I'm not sure I don't know how the timing would work And just I genuinely don't know, and perhaps it's a legal question, but the board would need to decide if they were going to exempt a district from excess spending, and then that would impact the calculation of the rates and yields. So we wouldn't be able to finalize our yield calculation until the decisions had been made. If the decisions were not made If all of the decisions were not made before the legislative session adjourned, then we would need to make an estimate as to if school districts would or would not be exempt. And I don't know how we would. We haven't gotten to how we would try to make that. We would probably assume nobody was exempt. So the Ed Fund wouldn't run into deficit. But that could create a surplus if everyone was found to be exempt.

[Emilie Kornheiser (Chair)]: The administration said and I'm summarizing, so I'm sorry if I summarized incorrectly that this would likely have these exemptions could have an inflationary impact. How does that hypothesis shake out for you, Julia? I don't want

[Julia Rutland (Joint Fiscal Office analyst)]: to postulate how school districts would respond or the decisions they would make. I think there is a case where if someone is a business manager and they see that they can decrease spending in one year, but they know they're going to need to spend the same in two years, they might want to just keep the spending level at the same spending level so they don't drop the base they're being paired against, so they can stay exempt from the excess spending threshold.

[Rebecca Holcombe (Member)]: That makes sense to me. What I am wondering though is how now if you, where does a fund balance or reserve fit into calculating?

[Julia Rutland (Joint Fiscal Office analyst)]: Yeah, that's a great question. Education spending is calculated by taking a school district's total expenditures and subtracting its offsetting revenues. So fund balances that they may decide to pull from their reserves for state and local federal and state categorical aid. To the extent that you had revenues that you could use as offsetting revenues to lower education spending, there is then the question of if you would use them in a year to lower your education spending, which would then lower the amount that you would be compared against in the next year.

[Rebecca Holcombe (Member)]: You wouldn't want to do I'm thinking you're not going want to do that. Absolutely would. Some people do it already every year. I must be going down to the intruding drink. Representative Ode, can you finish your question? Didn't quite catch it before representative Holcombe. I guess I wouldn't want to let my spending from year to year go down, even if I could be spending less. So I'm wondering about, so that, you know, then the next year, if I really needed to increase spending, I would be subject to the excess spending threshold under the couple of these exemptions for putting out loans. So I'm just wondering if you could use, you could just raise, say, I still don't get how the, I'm thrown off by how your reserve would work. I know you just said it, but- So if you

[Emilie Kornheiser (Chair)]: And sorry, Representative Ode, I assumed you were asking about the Education Fund reserve, not district reserves. Oh, okay.

[Bridget Burkhardt (Clerk)]: District reserve.

[Julia Rutland (Joint Fiscal Office analyst)]: Okay. So I'm talking purely mechanics, not the decision that you should or shouldn't make. If not the intent is decrease your education spending, then if you want to hold your education spending constant, then somewhere between the calculation of your expenditures and your offsetting revenues, you want to reach the education spending. Which means if your offsetting revenues increase and you want to keep your education spending constant, you would need to increase your expenditures by the same level. If your expenditures are the same and you could have more offsetting revenues, but you don't want your education spending to change, then you wouldn't want to pull more into your offsetting revenues because that would Just the way that the subtraction works, it would result in a lower education spending if you were to pull more into your offsetting revenues. So if you were to wanna pull money from reserves and you didn't want to increase your education spending, then you would increase your expenditures.

[Emilie Kornheiser (Chair)]: So you could increase your expenditures next If this was in place, you could increase your expenditures next year in very big ways in order to create reserves so you could keep your spending low in future years. So that's what the inflationary It could, yes. Just creates Carve outs like this in my limited experience doing this can create perverse incentives for very weird behavior. And I mean perverse as a technical Okay, like a mathematical term.

[Rebecca Holcombe (Member)]: I always feel so weird using words. It's like a progressive taxidermy.

[Emilie Kornheiser (Chair)]: Julia, do you have anything else you wanted to share with us today? I feel like we've gotten close enough that we all see things we don't like in the Senate's version.

[Julia Rutland (Joint Fiscal Office analyst)]: And we can take

[Emilie Kornheiser (Chair)]: more testimony about this tomorrow and the next day and the next day and the next day.

[James Masland (Member)]: I just want to ask a question on this

[Bridget Burkhardt (Clerk)]: particular spreadsheet. You're assuming the people that are exempt, Are you comparing FY '26 to FY '27 to see what the behavior was in the school districts as to whether or not they would qualify for an exemption from excess spending to say they kept the spending the same as the previous year on an approval or overall?

[Julia Rutland (Joint Fiscal Office analyst)]: Yes, mostly. I would say that it's not necessarily a comparison to how it would fit within the Senate construct because this didn't exist. So we don't know if school districts would have responded differently if this were to exist. But what we're doing, what I did in column J is create a binary, zero being you're not health harmless, one being you are health harmless. And there are sort of two conditions here that could get you a one of being health harmless. First, if your education spending in FY27 was equal to or less than your education spending in FY26. And or if your FY27 per pupil spend was less or equal to your FY26 per pupil spend. So for instance, here, this first one, North Bennington ID, we see that both their FY27 overall education spending and their per weighted pupil spending is estimated to be less in FY27 than it is in FY26, which is why they have a one.

[Rebecca Holcombe (Member)]: And that's a fascinating example because that's a tuition district. And so they're not actually controlling what's driving up. That probably, I assume, is a function of kids choosing to enroll in different elementary schools. So how does it apply in that context? Or are you asking that question? I don't know. Think that what's going to increase or decrease somebody's spending is going to be relatively arbitrary across Western. Anything else for that? Thanks.

[Emilie Kornheiser (Chair)]: I'm going to ask folks for a straw poll to move the yield bill through a committee of conference. How does that sound?

[James Masland (Member)]: Received a real question, because the options are either to concur or to the committee of conference. And

[Emilie Kornheiser (Chair)]: I think there are a wide variety of reasons not to concur on the Yeah, yeah,

[John Gray (Legislative Counsel)]: I was just

[Rebecca Holcombe (Member)]: I assume that we need to make this decision, but we will continue to look at other aspects

[Emilie Kornheiser (Chair)]: of this. Yes, we're gonna take much more testimony on this, including, I think, I'm curious to look at a way to make the excess spending threshold not an arbitrary number and maybe a rational number. And so that's something I'm hoping to work

[Rebecca Holcombe (Member)]: on with the committee in the next week. And can we ask Jampa to do some presentation of impact of weights across districts relative to who's getting hit, who's not getting hit. I have serious concerns that the underlying weights are wrong. Yes, everyone knows you have that concern. Thank you for patronizing me. I'm saying we have never taken testimony on the impact of this, and it's been public knowledge for two years. And I would just encourage us to be thoughtful. I can think of plenty of things people can do. Everyone can behave like long trail and make parents pay $4,000 a kid, that would take it out of your ed spending and you'll never hit the excess spending penalty. I'm gonna go back to that word, which pays the full cost of every kid. You use the word perverse, that is really perverse. And I just think we need to be mindful of what we reward when we set up a system that does not follow the science, to use the term that Carol Ode said. Yes.

[Emilie Kornheiser (Chair)]: Anyone have any other questions before we move to a

[Rebecca Holcombe (Member)]: vote on Stravolt? Representative Page

[Emilie Kornheiser (Chair)]: I don't know. Teddy wasn't here yesterday, and everything worked out Okay.

[Rebecca Holcombe (Member)]: You

[Julia Rutland (Joint Fiscal Office analyst)]: just missed the Strouhalmisluckus Act. Okay. I'm sorry. It's yeah. It wasn't.

[Emilie Kornheiser (Chair)]: We missed you a lot during that very brief

[Rebecca Holcombe (Member)]: time. Five minutes.

[Julia Rutland (Joint Fiscal Office analyst)]: It was hard. So we can wait

[Emilie Kornheiser (Chair)]: for representative Page to come back in if we want. Okay. Those in favor of moving towards a committee of conference? All those opposed.

[Rebecca Holcombe (Member)]: So it's ten zero one

[James Masland (Member)]: to our committee of conference. Thank you. With

[Emilie Kornheiser (Chair)]: that, we're gonna take a five minute break, and then we're gonna pick up 03:28. And then we're gonna hear after that, we're gonna hear some amendments to three twenty five. Because when you exempt things from permits, you change fee revenue.

[Julia Rutland (Joint Fiscal Office analyst)]: So we're not going hear all of

[Emilie Kornheiser (Chair)]: them, just a couple.