Vermont Legislature SmartTranscripts:

[Emilie Kornheiser (Chair)]: Good morning. What's that movie with Vietnam?

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Is that what the movie's called?

[Emilie Kornheiser (Chair)]: Good morning. Today is May 13. We're at

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: the Ways and Means Committee. Hello.

[Emilie Kornheiser (Chair)]: Hi. Good morning. Good morning. It's May 13 at 9AM, and we're the Weighs and Means Committee, and we are going to be taking some testimony about 09:49. Our first media conference on 09:49 is Friday morning. And so wanted to dive a little bit into some issues while we are preparing for that. When last we were scuffing this, Representative Burkhardt, you said, why is the excess spending threshold at this arbitrary point? And some the suggestions from the Superintendent's Association talked more about using it as a ramp and easing into things. And in talking to Julia and John about it, I asked them to put together some language and slides about using the excess bending threshold as a path to the foundation formula. So they're going to share that with us now.

[Unidentified Committee Member]: The thing to discuss, starting with

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: That's what I was thinking, but it's so

[Emilie Kornheiser (Chair)]: I guess that's how we usually do it. I want you to. Thanks so much.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Good morning.

[Bridget Burkhardt (Clerk)]: Morning. I

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: believe there's two slide decks posted on the committee page under my name. Her and the chair's framing, I think we're going to start off with the one Let me just pull up and see how it's titled.

[Woodman Page (Member)]: Me or people having trouble? No.

[John Gray (Office of Legislative Counsel)]: What

[Woodman Page (Member)]: are you online with? Can't get on.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: The website's happening. And I'll just share my screen. How does that work?

[John Gray (Office of Legislative Counsel)]: It's very slow.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: That works so well. Okay.

[Woodman Page (Member)]: Oh, wait. It just came up. So

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: it's the one titled excess spending investment.

[Unidentified Committee Member]: Oh, great. You're here?

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Okay. So We're nonpartisan. So I put together some slides, a brief review of the excess spending adjustment under current law. This is the same as what we spoke about the last time I was in here talking about just how the excess spending works. And then talking to the chair's point about if the excess spending threshold were to be aligned with the base amount in Act 73, what would that look like? So what are your policy levers of achieving that and how could it be adjusted over time? So we'll go through these pretty quickly, unless someone wants to go deeper into a review. Under current law, we have the excess spending adjustment. District's tax rate is increased if the district spends above the threshold. It's double taxed on the amount above the threshold. The threshold is set annually. It's calculated by taking the FY '25 per weighted pupil spending. So that average statewide spending in FY twenty five increased by inflation and then multiplied by 118%. So that's how it's calculated under current law. When we're talking about the excess spending threshold under current law, it's been calculated using this equation. And this FY27 is the second year of the excess spending threshold being calculated using this equation. 2026, it was '15 926. Six school districts exceeded the excess spending threshold. We know it's increased in FY27. And there are more school districts estimated to go over the excess spending threshold. And the amount of school districts exceed the excess spending threshold varies. So quite a range in the per pupil amount above the threshold. So that's a really quick review of how it works. And so now moving into aligning the excess spending threshold with the Act 73 base amount. The chair asked me to put together these slides.

[Rebecca Holcombe (Member)]: Asking questions as we go, or Rachel? Sure.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Is that on

[Unidentified Committee Member]: page five, I think it is? How did we

[Rebecca Holcombe (Member)]: get there? Vermont excess spending adjustment increases a district's Okay. So how can we even come up with this idea of increasing a district's tax

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: I have no idea where it came from, the policy idea. This was a policy that existed And we can pull up the other slide deck. It's a historic policy that has existed, I think, at least going back until 2012. Prior to this current formula that I just talked about, how this is only the second year, it's only the second year using that specific base amount for calculating the threshold. So prior to Act 01/2027, the excess spending adjustment existed. It was paused during the COVID-nineteen pandemic. But it was calculated based on the average per pupil spending in FY 2015. And that average per pupil spending was using a different weighting methodology. So it was paused during the COVID-nineteen pandemic, or suspended, and then Act 127 further suspended it and said, Before we reinstate it, we're gonna need to amend it because the waiting scheme has changed. So it's the same policy in the sense of there's a threshold, and if you spend above the threshold, it's double taxed. It's been changed recently because calculation of the threshold has changed. And there used to be a lot of exclusions, and now there's just one

[Unidentified Committee Member]: exclusion. I remember something

[Rebecca Holcombe (Member)]: like this in Act 68

[Unidentified Committee Member]: So years

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: you're thinking is that it came from there. I have no idea.

[Emilie Kornheiser (Chair)]: I would defer to just my understanding.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Yeah. It's actually to see. They

[Rebecca Holcombe (Member)]: were frantic back then to try and get something that was easier to understand and gave schools

[Woodman Page (Member)]: more werewildered.

[Emilie Kornheiser (Chair)]: Do you

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: know that

[Emilie Kornheiser (Chair)]: Catherine Bemham, who's head of JFO now, was the Julia through Act 60?

[Rebecca Holcombe (Member)]: Yeah, I remember. So far. Yeah,

[Emilie Kornheiser (Chair)]: maybe we could just have like a day at front door. Okay,

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: So that's current law. We're all on board with current law excess spending adjustment. And if more questions come up, of course, we can address them. So that's current law. And then the chair asked, What would it look like if the excess spending threshold, rather than being the FY '25 average per pupil spend, increased by inflation, multiplied by 118%? What would it look like if instead of using that equation, it equals the base amount in Act 73, increased by inflation? So that's what we're talking about there. Does that basic idea make sense to people?

[Unidentified Committee Member]: Okay,

[Rebecca Holcombe (Member)]: we'll keep in mind. So

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: as a review, Act 73 continually created the foundation formula and included that base amount of 15,033 per weighted pupil in FY 'twenty five, and then that base amount would be increased annually by inflation. So using NIFA, the base amount would be $15,936 in FY 27. So that's literally just taking the 15,033, increasing in translation. So if the policy goal were to be to replace the excess spending threshold with this base amount, that could be Or with the number equaling that base amount, that could mathematically be achieved in two ways. One, the percentage used in that threshold calculation could be changed so that we would get to the base amount by maintaining the current formula and just adjusting the percentage to reach the base amount. Or the overall calculation of the excess spending threshold could just be replaced with the base amount, increased by inflation. So you have two ways to get to the same and approximately the same end result. One, adjusting the formula to get there. And two, just getting rid of the formula and putting the amount you want into statute. So, two different ways of doing it. And then, the resulting threshold from either methodology would approximately equal the inflated base amount. I'm saying approximately because of rounding the percentage. I'm assuming you're not gonna want a percentage in the excess spending threshold to be 14, 20 decimal points. So that's why it's a correction. And I think it's important to just keep in our minds that Act 73 contingently repeals the excess spending adjustment. So we're talking about current law untilif the foundation formula comes into effect and all of the funding schemes associated with it. So I'm gonna go through each of these and how they would work, these two different methodologies, and then we'll look at them next to each other. So first, what if the excess spending threshold were to be calculated by just changing the percentage to reach the base amount? So we could back into that. We know that in FY27, the average per weighted pupil spending increased by inflation is 13,958. So that's that FY25 average per pupil spent increased by inflation. We know that in FY27, the ACT 73 base amount would be 15,936. So then we would just need to solve this equation for what percentage would get you from the 13,958 to the 15,936. And that would be approximately 14.2%. That 14.2% is rounded. So if you were trying to maintain sort of the same formula of increasing the FY25 per weighted people spend by a percentage, you could use 14.2%. You would land at the actual minimum of the total amount. It would approximately equal the base amount under FY20.

[Charles Kimbell (Ranking Member)]: And 13,958 is $20.25 adjusted twice for two years to get to

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: the Exactly. So this is our current law excess spending threshold is 13,958 times 118% to get you to the 16,470. So that's one way to do it.

[John Gray (Office of Legislative Counsel)]: If there ever be a cap on how much it could go up based upon inflation.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: You mean capping Limit. This? Yes.

[John Gray (Office of Legislative Counsel)]: Mean, it's I don't know what the percentage was for the increase, but

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Oh, like capping the inflation adjustment? Yes. You certainly could do that. That would be a policy decision. That doesn't exist in current law. But that would just be also amending this formula. Representative

[Emilie Kornheiser (Chair)]: Pietro, you ask who, as a fail safe, if legislation gets really out of control.

[Unidentified Committee Member]: Yes, yeah.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Representative Bloom?

[Rebecca Holcombe (Member)]: Could you just confirm again for us, when you're talking about average per weighted people spending, are

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: you talking about district level weighted spending or individual student level weighted spending? I'm talking about the It's calculated by taking the total education spending in the state of Vermont in FY '25 divided by the total weighted pupil count. So it's student level. Okay, let's try the next slide. Okay. So, that's the intuition. That's how we could get there. This is what it would look like. This is just showing the numbers of that methodology existing from if it were to have been the case in 2026 through 2030. So here we see how that inflation adjusted FY25 average per pupil spending is increasing each year. Here we see what is the excess spending threshold using 118%. Of course, I estimated the '28 through 2030 because that hasn't been set yet. That's calculated by the Agency of Education.

[Charles Kimbell (Ranking Member)]: Are you using for our slider there? HIPAA. But the twenty eighth, twenty ninth, 30, Estimated.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Estimated, yeah. So Tom and Jeff, the consensus economists, publish the inflation index every year in November. And so that's why For a few years out? For few years out. So it goes out to Their forecast goes back to 2030, which is why this thing will end at 2030. Also,

[Emilie Kornheiser (Chair)]: we'll be moving to the

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: And we'll be moving to the foundation formula. All of the contingencies are met. And so 'twenty eight, 'twenty nine, 2030, this will not be the excess spending threshold. This is just the estimate right now. So top line, we've got what we're adjusting by the percentage. This next line, we've got current law, excess spending threshold estimated. This next line, 114.2% would be needed each year to get to the base amount. And this last line is the F, 73 base amount. Yep.

[Bridget Burkhardt (Clerk)]: To me, this has done lovely work, but this to me still feels like an arbitrary setting of an excess spectrum threshold. Act 73 base amount is being adjusted by all the work that's being done by the consultant over the next year. Act 73 base amount also may have things like regional cost adjustments in it and all of that that can be taken into account by just setting an excess threshold. I'm not saying we shouldn't have an excess spending threshold, but I'm just struggling to understand why we would be trying to set it at an at 73 base amount inflated when likely there's going to be a different base amount in a few months that we're ramping to.

[Rebecca Holcombe (Member)]: There's a wonderful big charting story about the woman who puts salt in her coffee and then people spend the rest of the day trying to get the salt out of the coffee. When we also have errors in the current funding formula, we are putting a lot of effort into getting the salt out, but it's just to dramatically penalize people without understanding where and how some of our decisions may actually affect who is above this, particularly when you hear what's going on in Senate Finance, just seems super problematic to me. Question, Masland?

[Emilie Kornheiser (Chair)]: I'd love for us to hear the whole thing as we go.

[Unidentified Committee Member]: Depending on when we get to the point of making a choice of one method versus the other, I would prefer to see something that we can't mess with year after year. Legislature has a habit of adjusting things to fit our needs rather than something that school boards can see in advance and work towards. That's just how we get there, you know.

[Charles Kimbell (Ranking Member)]: In the absence of better information, how do we make a decision?

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Or how, yeah,

[Rebecca Holcombe (Member)]: I just keep going back to the testimony from Basbo, where when we are unstable, we actually create instability at the local level and they are now losing the confidence of the public. We can't afford to do that right now. We need stability. So

[Emilie Kornheiser (Chair)]: we have an excess spending threshold in current law. The Senate sent us a bill with a much lower excess spending threshold and a bunch of carve outs. We're going to conference, and we're going to need

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: to find a path through that discussion.

[Emilie Kornheiser (Chair)]: This idea strikes me as a more, not perfectly rational, not perfectly stable, but more rational, predictable and stable than what came over from the seventh. But let's keep on working through it, because I think there are big questions about carve outs as well.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: What happens on slide 13? Slide 13 is Essentially just saying So that's a review. I thought there would be questions of what we just walked through. And so then kind of taking us back

[Rebecca Holcombe (Member)]: to a higher level, what

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: I was talking about. If a policy choice to SEI were to be made to move to a base amount, there are two ways to do it, reaching approximately the same results. So this is how those two different methods would look like. And I've included this here because while they reach the same approximate results, the results would be different. And that's because we're rounding to 114.2. So if it were, and this is also looking at if it were to be a transition, right? So if the idea to transition from the current law excess spending threshold, which is multiplied by that 118%, to the base amount in FY 2029, so a two year transition. How could that be achieved

[Rebecca Holcombe (Member)]: Under the

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: current law methodology of moving from 118% down to 114.2%, that would be achieved by a step down of 1.9% over two years. So that's what you're seeing here, '27 to '28, a step down of 1.9%, and then another step down of 1.9 percentage points to 2029. And that's where we would get to approximately the base amount.

[Rebecca Holcombe (Member)]: The other Sorry. Yeah. I'm going startling off a little bit because we're only focused on per pupil spending, and we have a current funding formula and a prospective funding formula where we're seeing the way it incentivizes people, certainly in my current statement, I think also in the South, is it incentivizes you to close your school tuition instead. And one of the challenges about per pupil spending is your per pupil spending can stay the same, but you can actually increase total spending. This is what we see in Indiana and Iowa, they play very similar things. And so, how are we going to cope with that if we, expanding tuition leads to very significant increases in total spending?

[Charles Kimbell (Ranking Member)]: Julie, on that slide is our 2020 and 2029 also adjusted for inflation before applying the 01/2020 budget?

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Yes. So, this table is shrunk down. Essentially, what's going into this number of threshold is the FY25 average per pupil cost or spending increased by inflation. And then in FY27, multiplied by 118. In FY28, the average FY25 per pupil spend increased by inflation to FY28, and then multiplied by 116.1%, which would get you to this threshold. And then in 2029, point two five average per pupil spend, increased by inflation to FY '29, multiplied by 114.2%, Now we get you to this threshold. So it's essentially showing if there were to be the policy goal to move in this direction and to transition it evenly over two years, how could it be done? And this is one way it could be done. If the policy goal were to be to transition from the current law excess spending threshold using that formula to the base amount, then it could be to amend the excess spending threshold to be the base amount increased by inflation. And then in FY twenty eight, the threshold would be a certain percentage above the base amount. So it'd be increasing the base amount and then sloping into the base amount. So this too would be over two years. So this would be in FY27, the base amount increased by inflation multiplied by 103.4% would get you to the current law excess spending threshold in FY27. In FY28, the FY28 base amount increased by inflation to FY28 multiplied by 101%. 101.7% would get you to this threshold. And you can see, under either way, they're the same. I did that on purpose, solving these. So you could see that it would be either methodology would get you to the same place. That's a policy choice. None of this is me saying a policy choice should or shouldn't be done. And then you see when you get to FY 2029, the methodology gets you to approximately the same place, but because we're rounding, it's not the exact Okay. Just having a quick question, the one hundred

[Woodman Page (Member)]: and fourteen point five and one hundred and fourteen point two, is that looking also like that?

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: No, so what came over from the Senate was 112%. What we're looking at here is, I was asked to analyze what it would look like if the excess spending threshold, rather than being 118 or 112%, what if the excess spending threshold equaled the act 73 base amount? And to get to the ACT 73 base amount, you can either just say, The threshold is the base amount increased by inflation, full stop. Or you could say, We wanna keep the current formula and just adjust the percentage. Instead of it being 118% or 112%, we're gonna make it the percentage that gets us to the base amount. And that percentage would be 114.2. You good?

[Rebecca Holcombe (Member)]: And

[Woodman Page (Member)]: it looks like Chewy was going to go into describing the excess spending adjustment because that's where I don't understand quite the link between what we're just talking about and not having a penalty for excess spending. My understanding is what came over from the Senate, you know, to deducing them about from 118 to 112 and then exempting any double payment for over that threshold of spend. For school instruction. Just a couple of examples.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: The other thing. The

[Charles Kimbell (Ranking Member)]: three off ramps, yeah.

[Woodman Page (Member)]: I still don't understand, I thought this was in an attempt to slow the spending for the next three years, and I don't see how that's going to happen if schools are still allowed to not have a penalty for spending over pressure.

[Emilie Kornheiser (Chair)]: This still would have the penalty for fending over the pressure. Does

[Woodman Page (Member)]: that go against what the Senate was considering?

[Rebecca Holcombe (Member)]: Yeah, well, do you want

[Emilie Kornheiser (Chair)]: Will you answer? Sorry.

[Bridget Burkhardt (Clerk)]: I think,

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: hearing your question, I think there's a couple of different pieces that came over from the Senate with respect to excess spending thresholds, which naturally all fit together, right? Because it's all the excess spending thresholds. But there are sort of individual buckets of policy choices within that. So one is, how is the excess spending threshold set? Under current law, it's 118%. Under the Senate proposal, it's 112%. And this presentation is saying, what if it was something else? What if it was equal to the base count? So that's sort of like question number Policy choices number one around the excess spending threshold as it came to you from the summit. Another bucket of policy questions, which is related, because it's all talking about how the excess spending adjustment works, is should there be exemptions to the excess spending adjustment? So you need to determine what the threshold will be, and then you need to decide, or you also need to decide, do you want to make it so that certain costs aren't calculated as part of excess spending? Or certain school districts are exempt from the excess spending penalty, depending on whatever you decide. And the Senate said, we're going to set the threshold at 112%, so we're going to lower it by six percentage points, and we're going to increase the exemptions to the excess spending adjustment. And the Senate said, We're proposing to exempt all school construction bonds, payments, principal and interest, debt service. And we're going to create three options for being held pointless. If a school district's education spending doesn't increase compared to the prior year, none of their excess spending is double taxed. If a school district's per weighted pupil spending doesn't increase compared to the prior year, none of their excess spending is taxed. Orand if a school district goes to the Secretary of Education and that review board and says, We should not have an excess spending penalty, and the board said, Yes, we agree, then none of their ex's spending is double taxed. It's like, what do you want to do with the threshold? What do you

[Unidentified Committee Member]: want to do with the exemptions?

[Emilie Kornheiser (Chair)]: So I'd love to talk about the threshold and then talk about the exemptions. Okay.

[Bridget Burkhardt (Clerk)]: So I have a question.

[Rebecca Holcombe (Member)]: That's maybe a dumb question, but I'm asking

[Bridget Burkhardt (Clerk)]: I'm trying to make sure that we're comparing apples to apples. So right now, when we're talking about what's getting compared to the excess spending threshold, current law, we're saying all of the ed spending in a district's budget divided by its long term rated people counts. When we're talking about the base payments in app 73, we're talking about the per pupil payment, but aren't there also then categorical grants that would be considered If we're comparing apples to apples, it would be our current total ad spending would be compared to our base amount plus the categorical grants if we were comparing apples to apples.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: Yes. And I would say also all of the outstanding policy decisions of if you want to include other funding provisions around the education opportunity payment.

[Bridget Burkhardt (Clerk)]: Because I guess my question is whether we're trying to ramp to the correct thing or whether we're ramping to something that is lower than the correct thing because we should be ramping to the base amount plus the categorical grants as opposed

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: to the base Good point. Representative Lamoille?

[Rebecca Holcombe (Member)]: I had that concern too, particularly because it's concerning when we look at this and we don't look at the ratio of economic disadvantage in either any of these districts, so we need to be aware of that. But the other issue is, could we, for the purpose of calculating the spending per pupil in districts, account for the additional tuition that is paid by parents in order to access local schools in some areas, and possibly even the additional fundraising, if it's all publicly available information. The only reason I'm saying that, and I understand you don't agree.

[Emilie Kornheiser (Chair)]: It's not that I don't agree, I don't

[Rebecca Holcombe (Member)]: know how to get that data. Oh, it's public information. I mean, they say on their websites what parents have to pay in order to enroll. So if we know that that's the additional payment over PACE, or over the Ed Spending voucher that we're providing in that region, we can estimate and calculate and we could actually require them to report. Because if you aren't accounting for that, my concern is that tax policy is incredibly powerful and we are creating an incredibly powerful perverse incentive here. And because it's hitting so fast and hard and districts cannot adjust in time, we may actually incentivize some behaviors that both distort the actual cost of education, but then also create some behaviors that are really adverse, both to total education spending, but also to some of the students who may be mostly our support. So

[Emilie Kornheiser (Chair)]: as you know, there are districts that pay the full tuition no matter what it is they vote to do that. There are districts, whether that's public or independent, there are districts that don't, and families pay that. Yesterday, I asked the Superintendent's Association and School Board Association if they had even just sort of what those ratios are, and they did not have that, but are gonna look into it. So districts, public schools cannot charge parents additional permission. They can't. Yeah, I understand that.

[Rebecca Holcombe (Member)]: Yeah. And that data, the best way to proxy that is to look at the agency records and they do have that data they provided, it's the task force, it says people pay per student and you could figure that out. But what we're trying to talk about is not that because those tuitions that are in the public sector will affect those people's standard. It's the private pay tuitions that distort and that weren't actually included in the initial waiting center that was deformed.

[Emilie Kornheiser (Chair)]: So I think it's also really important to understand the districts that are paying a lot more for schools they don't operate, whether it's public or independent. Because as we've discussed lots of times, Independence Association has brought to us a number of times. If they're operating in elementary school and then they're tuitioning for high school, there's a different ability to control excess spending. So that's something I wanna talk about when we get to the question of exemptions, because we have to manage that problem as well.

[Rebecca Holcombe (Member)]: 100%,

[Bridget Burkhardt (Clerk)]: I agree on that.

[Rebecca Holcombe (Member)]: And that's also where the regional study comes in. On the other hand, the fact that the second unit tuitions are excluded, and the elementary students are included, that also has the effect statewide of understating the total cost of educating each student, because those districts are compelled. That's a step you can look at that, and that has been true for years. Tuition districts spend less at the elementary level and more at the high school level than K-twelve operating districts, because they can't spread the cost across all grades. That's a choice as well. It's also a warning sign because it says where we go is we expand school choice, which is what we've seen to be tried to figure.

[Emilie Kornheiser (Chair)]: That sounds like 15.

[Rebecca Holcombe (Member)]: Questions? That was it. Those

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: were appendices. If people had questions, then

[Rebecca Holcombe (Member)]: we need to go a

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: little bit deeper into how the current law system works. So, thank you. Yeah, Gene. Relative to Rob Higley's comment,

[Unidentified Committee Member]: And then both threshold spending penalty clearly is going to be an incentive for school boards to keep their budgets down. If we're going to get charged a bunch more money, we're going to see what we can do to keep things down. Might be useful if the committee's interested in seeing some examples, one or two of one of these calculations against a typical school board, this district or something, and see what the increased taxes will be. And I don't know if that's helpful or not, but that's what, for instance, different school board or some other school board would say, how's this going to affect me? So I think that was your issue. So I'm just putting that out there.

[Emilie Kornheiser (Chair)]: So we looked at spreadsheets last week that Julia shared with us. It goes through where each district is. Right, I understand. Across those percentages. Is that what

[Rebecca Holcombe (Member)]: you were asking about, Representative Smith?

[Unidentified Committee Member]: Well, the change, for example, which one of your opposing appears that the threshold spending, the above bending threshold might be different under one of these calculations than what we currently have in front of us. And I'm not sure that I know that,

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: but that's what it appeared to me. So I guess I would say a few pieces. And I don't think that you meant to say these words, but I'm going to say it anyways. I am not proposing anything.

[Unidentified Committee Member]: Yeah, understood. You didn't mean to say that you were, we collectively, whoever.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: And with respect to those spreadsheets, I can resend them to source to post. And that is where it's like all of the different districts at the different thresholds. And so there is the 116 column, and there is the 114 column. So if you're, for instance, looking at what 114.2% would be, it would be very close to the onefourteen column. And I could go back and add that as a column, if that would be helpful. I would say that with respect to tax rates and how tax rates would change or a specific school district, that's challenging from the JFO perspective because we don't know how school districts would respond. If the threshold has been lowered, JFO has no way of knowing would a school district say, Yeah, we still to have a spending level and we are going to deal with a double tax or we're gonna cut it. Depending on how school districts respond to that threshold, that would impact the yield and then would impact all tax rates. So that we really can't estimate.

[Unidentified Committee Member]: My basic simple point is school boards are going to respond to a number. And in some instances, it looks like they're using different methods to get to the same number, and that's what the school boards will need to understand because it's the number that they want to see.

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: And so, those numbers are in that spreadsheet. Understood. Understood.

[Bridget Burkhardt (Clerk)]: Remember, Kurt? What would be helpful for me in that spreadsheet, and I don't know how much trouble it would be, would be to project out, and maybe this a different spreadsheet, project out what school district spending would be with the actual inflation that school districts typically face. So we know there's a snip up and that's how we We have to have some methodology pin our policy work on. But we also know that healthcare costs and employee costs are going up faster than NIPA's. And it would be helpful in my mind, to

[Emilie Kornheiser (Chair)]: be able to do this on

[Bridget Burkhardt (Clerk)]: my own, to look at that spreadsheet and project out over a few years by actual inflation that districts face, unless they start making cuts to the number of staff or whatever. They would just keep their programs intact and use the inflation that they actually faced, and how many district beds start hitting these various thresholds that we're talking about. Because right now we're sort of saying this is what a district would look like just increased by NIFA. But we know that that's not really the inflation that most districts face.

[Rebecca Holcombe (Member)]: Especially when your housing prices are going up 10%

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: to 15% a year. I also

[Rebecca Holcombe (Member)]: think we have to be mindful that this has economic development implications as well. I think we need to be mindful of what we haven't looked at is who's falling in the low spenders and who's falling in the high spenders. And Senator Beck sent her on a list of all the lowest spenders in the state. You didn't even make it. So I'm so sorry. But when you look at it, half of them are tuition towns that don't operate any public schools at all. So they're the ones that get those weights. Six of them, it looks like, are elementary only. And that feeds into your concern about low spending elementary districts. Some of them have high poverty, but not the lowest in the state. And they're also clustering in certain regions of the state. And so my concern is, if you look at the map with the modeling that JFO has done around, who gets double penalized and who is very, very low spending, we do need to protect the people in economically distressed parts of the state, but we need to be mindful of how we preserve schools in places that are the people we expect, frankly, to do the redistribution. Because I had someone come up to me this week and they said, you can tax me more to support healthcare, but if you kill my school, I'm done. And we have to be mindful of the implications of destroying schools, we just do. And I just don't know how some of these communities, given the cost structure they're stuck with, given the extraordinary housing costs, given the scarcity of housing, and the lack of ability to move quickly, are going to be able to accommodate on the timelines that we're talking about. And that will have real repercussions. And I'm hearing those conversations happen already, because they feel we have so stacked the deck in one direction that we are basically saying don't bother about a public school.

[Charles Kimbell (Ranking Member)]: We didn't get to this, but I guess the discussion too, in not only setting what these levels are in response, is do we allow the off ramps, the exceptions? And that's a big policy discussion we need to have, either now or sometime later.

[Emilie Kornheiser (Chair)]: So I would love to talk about the off ramps and exemptions. I don't know if you need to be in the chair for that, And then maybe we can have you come back up to talk about the other piece. Is it helpful for folks to go through the language version of this with JAWS, or is that more intuitive? I'm just going to say sort of frankly, the off ramps of the Senate are could just break the Ed Fund. And I think what they were trying to do I think they were trying to do a few things, and I think there's a few things that I've heard concerns from the field. One, if school construction is going be exempted to any level, I think it needs to be controlled much more substantively towards our policy goals. Allowing school construction whenever is so to everything else that we passed over the last few years. That seems more straightforward. The other two is that they seem to want to address the idea that a school might lose students very rapidly and not have time to adjust to it. The sort of old thing we used to do with that was phantom pupils. It was really confusing. It didn't work that well. And then there's this other question around how we apply these to districts that aren't operating for certain grades and what that looks like. I don't know if anyone has any ideas on that and what's to be done. Because if only apply the excess spending threshold to operating schools, then you could create even more of an incentive for tuitioning prices to go up even more, both at the public and the private. There are public schools that charge incredibly high tuitions as well.

[Rebecca Holcombe (Member)]: Yeah.

[Charles Kimbell (Ranking Member)]: Yeah, no, I was thinking on the part of the school construction, we had in statute prior to 07/01/2024, very detailed exemptions for school construction receiving preliminary to final approval from the Secretary of State, the Federal Secretary of the agency. So it seems like there were previous things that we could easily look at and say, eligible expenses as deemed by the secretary, those would not be subject to excess spending, not just everything that's exempt from excess spending. So you don't end up with somebody who's going to build a Taj Mahal in the middle of Glover. Nothing against Glover, but is unnecessary? We're just going to meet the needs. So anyways, that's a thought.

[Woodman Page (Member)]: Yeah, guess, you know, comment on that, I just remember Julia's report, the GFO report, talking about that if there isn't a penalty, then all the other school districts in the state have to pick that up. Again, that's a concern for me and I hear what you're saying, Representative Kimbell, I guess I'd have to look at it in order to, you know, the specifics of that particular construction bonding or whatever. Can't let it go willy nilly And again, you know, and I think maybe you mentioned it, I'm sure that, you know, the direction we've been headed in is consolidation at some point and if you put all kind of money into a particular school that may not end up being utilized, that's not fair either. I know it's a tough call for schools that are out there that need to do certain things, it can end. I just got a flyer from North Country and there's meetings now and they're looking at the shop.

[Rebecca Holcombe (Member)]: I really appreciate you saying that. And I think, and I look at places where people could consolidate really easily without making big significant capital investments, Robins County and Washington County come to mind. I look at Newport, and those are real issues, and we don't have, we still don't have any strategic leadership that's figuring out where the investment is needed and we've been kicking the can down the road for twenty years. We also have to have a conversation around the collapse of some of the state government systems. I've been getting emails from the Clara Martin Center, which has long played a very powerful role in supporting mental health needs in our region for young kids and staff when they are grossly underfunded, when they can't hire because they can't pay enough for people who live in a region and are coping with their housing scarcity, that cost falls back into school budgets. And the access to services is different in different parts of the state, depending on all kinds of things that are affected by a variety of different things. And what we don't have is a coherent way to count and discuss that. And rapid change without being aware of some of those impacts can hurt the people who most count on kids in schools for access to services. I'm just really conscious that we are having an academic conversation here with absolutely no understanding of how and why it's gonna affect people on the ground. And I take serious offense to the idea that school boards are out there just trying to spend as much as they can, because they stand behind voters, they're in front of voters, we don't. They stand behind voters defending their budgets every day. And so I think we should just, I hope practice and legislate with a little humility here. I don't think they pay the taxes too. They don't want to do it either. I've heard that from board members. So I just think we've got to approach this with a little humility that maybe we don't understand what's driving cost in some places. I agree it's inequitable. Really think we need leadership, and we don't have it. And I'm hoping we can stabilize the system long enough to get to a place where

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: we do.

[Emilie Kornheiser (Chair)]: So, Representative Holcombe, you've brought up a number of times the problem of districts are tuitioning part of their district and operating the other part of their district. Do you have any ideas on what to do about the excess spending threshold in that context?

[Rebecca Holcombe (Member)]: I don't, I can't. I'm happy to still talk about this, but then so why not? Because I think we also have to understand that that's a choice. Like when people choose to do that, I've had people say to me, I want to have my small school, I want my small school subsidized, and I want complete school choice, and you have to pay for it. And that's not realistic, none of us are in that place right now. And I swore the designation language, which was taken out of Act seven zero three in part, because part of what we have to do is get kids into fewer buildings. There's no way to burn down for people cause if we can't start bringing more kids into fewer buildings at the high school level. We also can't justify investing in high schools if you don't have a vision for what regional, reasonable high schools look like. And so I don't think you can fix this by doing something to your left ankle without expecting it to affect your right ankle as well. And what I struggle with is the lack of coherence in the policy. We think we can do mix and match on the CAD design, and we're getting a wildebeest, and it doesn't work. Yeah, is that an issue?

[Woodman Page (Member)]: So just to follow-up, and again, this isn't something that I'm really familiar with, but we talked about bonding for school construction, but I know that some schools don't necessarily bond but they put an appropriation into capital fund. How is that considered? I mean if that was to bring them over that pending threshold, would that be allowed or how does that work? And I don't know how prevalent that is, I know

[Charles Kimbell (Ranking Member)]: that Is a state capital

[Woodman Page (Member)]: fund or Like a local

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: capital reserve?

[Woodman Page (Member)]: Yeah, a capital reserve or Can I

[Emilie Kornheiser (Chair)]: have John Gray answer that because there's a technical answer?

[John Gray (Office of Legislative Counsel)]: John Gray of substantive counsel, those would be subjected to the excess spending penalty because they're not debt service payments, but it is true that historically folks attempted to distinguish in this way and account for funds and capital reserves of the existing.

[Emilie Kornheiser (Chair)]: For the existing. For the existing, the way that

[John Gray (Office of Legislative Counsel)]: it works, the exemption is just outright. I don't pull up the exact language.

[Emilie Kornheiser (Chair)]: And then two twenty is it the same?

[John Gray (Office of Legislative Counsel)]: Correct. Doesn't distinguish from purposes of capital reserves.

[Emilie Kornheiser (Chair)]: Yeah,

[Julia Richter (Joint Fiscal Office, Fiscal Analyst)]: think the other thing that I would add too is that when thinking about the calculation of education spending, it's the total school district budget minus its offsetting revenues. So if a school district has something that they put in reserve for the prior year and they're putting that into their budget, they're pulling from those locally reserved funds, that would be considered offsetting revenue, which would then decrease their education spending.

[Bridget Burkhardt (Clerk)]: So that was just my clarification. So it would potentially hit the excess spending threshold calculation in the year that they decided to put money into the reserve. Because that would be part of the budget, right? So they would have their total budget that they vote on. And that would be additional money that they're sort of setting aside in that year. And the year that they decide to use that capital reserve, that's going to be looked at as offsetting revenue that's not coming from the Ed Fund. So they have their whole budget and they're going to need less from the Ed Fund because they're taking money out of that reserve. So it will hit the S. A spending threshold, just there's a timing difference. And that's, I think, one of

[Emilie Kornheiser (Chair)]: the reasons that we wanted reserve guidance because it can happen so differently in a different way.

[Bridget Burkhardt (Clerk)]: Well, any other thing is that for rebuilding a high school, there's not a single district in the state, I'm pretty confident, without having a data from There's not a single district in the state that has enough money sitting in a reserve to even come close to a major capital project like that. We're talking maybe you have enough capital reserve to do a roof or a boiler or something like that. You don't have enough capital reserve to really make a dent in a giant renovation or rebuild.

[Rebecca Holcombe (Member)]: But it also speaks to the timing because many districts, because we have not had construction for eons, are deliberately, slowly trying to accrue in order to do basic repairs or deep energy retrofits that will bring down costs long term. And so it's a timing issue when it hits, just like your contract is timing it. I would also like to respectfully encourage us to consider the demographics of districts when we look at who's being hit. And I'll just give, I'll give you one example. Danville High School is gonna trip that ex suspended penalty of 18% by the month back, and if it goes down to 112%, it's gonna have, what, a half $1,000,000 in penalty. This is a district where their local level of their percentage of students who are economically disadvantaged is something like 40%. I can look up the exact numbers. The students who tuition in are over 60% economically disadvantaged. The tuition is not weighted. And some of the schools that they have to compete with for students don't serve very many students who are economically disadvantaged, but get higher tuition. So again, when we're talking about spending, the whole point of driving more money to higher poverty systems, which tuition doesn't do, is to make sure that we're providing the additional services certain students need to be able to succeed in private schools. And if we're just penalizing schools that are coping with a higher cost structure because they serve a disproportionate number of regions disadvantaged kids, that just seems very perverse and contrary to the school we say they care about.

[Emilie Kornheiser (Chair)]: Okay, I think what makes sense at this point is to take a quick break, and then there's a separate policy area in the guild bill that