Vermont Legislature SmartTranscripts:

[Senator Ann Cummings, Chair, Senate Finance Committee]: We're live. Okay, we are live. Is a joint hearing between Senate Finance and Senate Education. We're going to be going over the H-nine 55, which is the education bill. We're doing this together, it will primarily be on the finance sections. Finance will be going over the education sections on our own, but other than knowing what's in the other section of the field, we will be focusing on our jurisdiction, so finance will be working on finance and education, we'll be working on the education policies. Chanda, so I think we have added, Emily and Peter, you're going to start us off just together. I can do it as much as I want to. That was so fun. I'll get the better chair, you can get the

[Representative Emilie Kornheiser, Chair, House Ways and Means]: more comfortable chair. Is that a good deal?

[Senator Ann Cummings, Chair, Senate Finance Committee]: That's a break. Too bad. But not the time yet.

[Representative Peter Conlon, Chair, House Education Committee]: No, I didn't have time.

[Senator Ann Cummings, Chair, Senate Finance Committee]: I should have dropped it. I didn't think so yet. So just to add a little further to we are at this point is the education committee has walked through its sections one through 29. We know what ahead we would have known. They're going to catch up on a different time of the week. That's what we're going to pick up today with second group. Neither committee has had an introduction from Iowa. So can

[Representative Peter Conlon, Chair, House Education Committee]: look to that. Because our work really stopped at twenty fifteen. So I am Peter Conlon from Cornwall, the chair of the House Education Committee. I'll talk to you a little bit about how we landed, where we landed in September in the first 20 or so sections, which are really about the formation of merger study committees and the formation of cooperative education service areas. This is really the result of weeks and weeks of debate within our committees, lots of discussion about where people were, lots of feedback from the public, as well as members' different experiences outside of the building leading up to the session, and particularly my own being on the Commission on the Future of Public Education with senator Cummings. And as senator Cummings knows, we met in every corner of the state, Massachusetts border, Canadian border, West Side, East Side, and all points in between, and really heard from a lot of people. As I say, there were either large groups had got a lot to say or small groups who also had a lot to say. And so much of that went into the thought behind this, and of course, of it came from both the House in general and the committee members in order to craft a bill that could draw enough support to make it out of the committee with some strong backing behind it. So nine fifty five essentially does two major things. The first is it creates cooperative educational service areas. They are mandated, they're not optional. Seven of them around the state. Broken up geographically, if you look on the, what we call the visual organizer, because we don't necessarily wanna say it's a map, it's firm. But anyway, the lines are there to really respect two things. First and foremost is our existing CISA, which is in the Southeast portion of the state. And then the other lines really sort of reflect a couple of things. One, recognizing supervisory union boundaries. So we didn't wanna split up supervisory unions within the CISAs. And essentially

[John Gray, Office of Legislative Counsel]: trying

[Representative Peter Conlon, Chair, House Education Committee]: to maintain areas where superintendents are already working together, because they're part of the superintendent's associations gathering areas. And we wanted to sort of make sure that those relationships were maintained as strong as possible. The plan to go forward with the CESAs really is focused particularly on the results of the work of the redistricting task force that came out very strongly in favor of CESAs as sort of a quickly implementable tool to start reducing costs around the state. Because what they're designed to do is to provide services that smaller districts have trouble providing economically on their own due to lack of scale. We see that very much in specialized services for students who need them. If you are a district and you only have one student with a very specific particular set of needs, you generally are sending that student out of your district to a private setting for a lot of money. But when you have a larger area and there may be more students, perhaps you can create a level of service that is more localized and funded at a much lower level. So the CSAs, again, were a major recommendation of the Registrant Task Force, and frankly, we have one in the state that is up and running. It is new, but it is already proving to save money in the district that it is serving, largely through the provision of specialized services. But again, they're just getting started and they're already working with their member districts to figure out where else is the low hanging fruit to save money. So the bill mandates seven CESAs. It provides funds to get organized and get going, and then sort of say, okay, now it is time for the member districts to take control of the CESAs and figure out where they can best serve their needs. And it doesn't mandate what those CESAs provide, but

[Senator Ann Cummings, Chair, Senate Finance Committee]: it

[Representative Peter Conlon, Chair, House Education Committee]: does make a number of suggestions, understanding that different parts of the state are gonna have different specialized needs. If you think of sort of the greater Burlington area, probably has a lot more need for special English as a second language services, more so than a more rural part of the state, just as one example. Other areas might be better off providing coordinated transportation, professional development. But there's a lot of opportunity here to provide not only enhanced services, but at a much lower cost than are being paid for right now. The other major part of the bill is talking about newer, larger school districts.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Peter, we have a question.

[Representative Peter Conlon, Chair, House Education Committee]: Oh, sure. Thanks. I just have

[Kirby Keenler, Office of Legislative Counsel]: a quick one. It was probably two years ago, maybe

[John Gray, Office of Legislative Counsel]: three years ago now when we passed the Bill. Yes. Sounds a lot like this. I'm curious.

[Representative Peter Conlon, Chair, House Education Committee]: It is the same, except that the VOSI's bill was enabling legislation that if you wanted to create a VOSI's, which we are now calling a CISA, you may. Much of the sections of our bill is simply changing the name. And the reason is because the term BOCES or Boards of Cooperative Educational Services means something pretty specific in some of our neighboring states. In New York, BOCES is tightly affiliated with CTE. In other states, it is tightly affiliated with sort of state provided special education services. So we decided to move off of that term to a less confusing term, which is CESA. So that's yes, we did a CESA bill several years ago. Okay. And this is This moves it from being voluntary to mandatory. Mandatory. Yes. Okay. So the other part is getting to newer, larger districts. After sort of lots of testimony, lots of debate within our committee, we came up with a process that is supported, but voluntary. So the basic idea here is the state is broken up into 20 suggested, I think it may be 21, suggested merger study committees, meaning that these are geographic areas where we want school boards to get together and to discuss whether it is advisable or non advisable to merge into a Unified Union School District serving all grades. Part of the reason we went this route, voluntary, because that's what we heard from Vermonters, thousands of Vermonters saying, We don't wanna be forced into a newer, larger district, but we still wanna give people the ability to do it. We hear frequently from districts, We are starting to talk informally with our neighbor about this. We would like to supercharge that with the help of a facilitator and funding so that the various legal needs and whatnot can be worked out. So the process is not dissimilar, it's very similar to what we went through with Act 46. A merger study committee is created. They are created using the map as guidance only, and with the help of a facilitator, it envisions seven facilitators within the state working with groups of districts. They have the ability to sort of maneuver those groups differently if on the ground information yields like, Oh, this school district is not part of this. We have been talking with them for the past year about working together. That's okay, adjustments can be made. The idea is to put the best groups of school districts together to talk. Merging is not mandatory, talking is. So these are creating merger study committees, and these merger study committees need to reach a point of deciding whether it is advisable or inadvisable to move forward with a merger. If they decide it is inadvisable, the process essentially stops other than issuing a report as to why they made that decision so that we can all learn what are the stumbling blocks. For example, a group of districts may get together to discuss merging, and they may discover that, oh my gosh, if we brought all of our different salary schedules together, it is going to cost millions of dollars in increased cost to the education fund. And they might say for that reason alone, we do not believe it's advisable to move forward. It also might be trying to bring together a larger geographic area and districts with different operating systems within them. That can be worked out, but perhaps it can't. And that may be a reason why it wouldn't happen. The idea here was to reflect what we heard, not only within the building and within our own committee, but outside of that, which is to respect local voice, and to make sure that communities are part of the conversation when it comes to newer, larger districts. So the idea here is that bringing together these groups of districts is mandatory, talking is mandatory, issuing a report if you are not going to say it's advisable to merge, the process essentially ends. However, I will just say, Chapter 11 of Title 16, there is a whole process for if they wanna come together in a different configuration, that process is still available. If they decide that it is advisable to merge, then that also falls to the process that is laid out in statute that exists today. We are not reinventing the wheel with this. And that process is is laid out in great detail in chapter 11 of title 16. It's very similar to what we saw with act 46. Ultimately, it will come down to the voters within the districts that are looking to merge as to whether they decide to move forward with it or not. The idea here is to say, listen, we've heard you, we've heard that being forced into newer, larger districts is not what Vermonters are saying that they're in favor of. However, we want those conversations to happen. We believe that they should happen as we move toward a foundation formula, because many districts are gonna need to have lots of tools in their toolbox to adjust to a new way of funding in our state. So that is essentially the House Eds portion of the bill in general terms. The specifics are all in here. You'll see many of the pages are changing the name from BOCES to CISA, and many of the pages are laying out member of school districts within the CISAs, and member school districts within the suggested merger study committees. That's it.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Charlotte?

[Representative Emilie Kornheiser, Chair, House Ways and Means]: I'm Luke Kornheiser from Brattleboro Chair of Ways and Means. So we purposely did instances of amendments rather than a strike all in Ways and Means in order to make it easier for you all to be dividing up your work. It was so confusing last time around. We would love for this. We would love to eventually go home, I think, is really the goal. So we did in some amendment. It makes the bill and makes our amendments a little bit harder to read, particularly the effective dates are incredibly confusing because they have so many contingencies. I only brought one timeline with me, but I hope that you all can put it up on your committee page and look at it. It makes everything a little bit clearer. Not everything's on it, but it's helpful. We had one last time too, but we changed a lot of dates. So the work we were doing in Ways and Means took a few tacks. One was that from the start of the conversation around education transformation, we knew that education governance changes need to happen before the foundation formula can really do the good work that it's intended to do. And so a lot of our work was around making the necessary adjustments to timelines and to all of the pieces of funding that wrap around foundation formula to make sure it'll work, take next steps on that. I'll explain those. And then to make sure that the contingency is lined up with the new with the shift to CSUZ and a more community driven process. So we shifted timelines and contingencies. We did next steps on a lot of the pieces of financing that were laid out in Act 73 that are separate from the foundation formula. And then we took next steps on the property tax changes that were laid out in Act 73 that had reports due this last fall, and that required next steps from us. The foundation formula really works best to deliver the opportunities around the state that we all really were moving forward with when we passed Act 73. But they only really work well if we are also addressing the cost drivers, right? And I just want to give take a brief moment to talk about how we have to some degree in this body, these bodies already addressed the cost drivers, because I think it has kind of gotten lost in some of the white noise of all the work we've been doing, and then what we have in this bill that's come to you to address cost drivers. So health care. Many, many years ago, I think it was just three years ago when this all became the hot issue that it was, we took a great deal of testimony about what the cost drivers were on the real spike in spending. And some of that was federal money going away. But the things that money was being spent on were just really five things. And it was everyone has their favorite cost driver that they talk about regularly. I'm sure you each have one that you talk to your constituents about. Every school board has their favorite cost driver that they blame things on. In the analysis that we took, both in committee and in summer committees, they were really divided up almost equally across five things. So health care. The average premium increases in FY '27 teacher health care insurance rates were 7.3%. This is the first single digit increase since fiscal year 'twenty three. And I know it's still an increase, but it's way less than the increase that we are seeing even in state employees' healthcare, right, in the budget that you all are gonna be passing soon. It's largely the result of a combination of pricing cost control actions by the legislature and by the regulators, the Care Board and BIHI, Vermont Education Health Initiative. So with the passage of reference based pricing last year, we're really gonna see big differences there. And Act 55, which was the pharmaceutical some pharmaceutical language. Costs to the education fund were reduced by at least $20,000,000 for this upcoming year and are expected it's expected to reduce costs almost $100,000,000 over the next five years as reference based pricing is implemented. So that's a big deal, and that's a necessary part of having this foundation formula work. Mental health. I think we all know there was a massive increase in the need for mental health support in schools after the pandemic, times when they are, etcetera. The move to CESAs all over the state is going to enable much better scale for mental health support and much better coordination with our designated mental health agencies that are already funded through the general fund. Right? So we're gonna have areas of jurisdiction that match each other better at a scale where people are better able to coordinate between those two groups. That we also have language that was in the budget as passed by the House that I believe is still in your budget that modernized Medicaid billing at school districts and moved it from the Agency of Education to the Agency of Human Services that should also enable us to draw down a lot more Medicaid dollars and reduce administrative costs. So between the CESAs and that language in the budget, we're really drawing down more Medicaid dollars and reducing costs, increasing services for kids and families all at once. When students receive mental health support through a designated agency, it means the families receive mental health support too. That referral system is much tighter. Big difference for kids and families and lower costs. Similarly, special education. Peter described a lot of how CSES will improve the delivery of special education. It will also significantly reduce costs for special education because districts will not be contracting out those services at the same scale, and our extraordinary special education reimbursements from the education fund should go down significantly. So we've now hit three major cost drivers. We also have class size minimums, which we passed in Act 73 last year that are going forward. Great work there. There's still, I think, some rulemaking with the Board of Ed, but we're moving forward with that. Again, big cost savings there. And then school facilities. Many of our districts, as you all know, are maintaining unbelievably decrepit school facilities. Maintaining crumbling infrastructure is very expensive. Anyone who lives in an old house knows that, and anyone who's visited one of our schools knows that. And you don't just maintaining rather than really improving means that you are not seeing the kind of improved experiences for youth that you might see. So in this bill, we set up really taking the next step after three fairly thorough study committees on school construction. We set up the outlines of a pretty comprehensive school construction program. And it has many different components. John Gray will get into the depths of that with the finance committee. But it is covering districts' existing debt service with a categorical grant. So districts aren't prevented from merging by fear of other districts' debt. That's a huge win. Support from the agency of education to scope, plan, prioritize, and improve construction projects around the state. So we were doing it strategically. New state bonding, general obligation bonds to cover a portion of existing projects. A new state grant program to cover new district debt that's part of an approved project. And then new supplemental district spending rules that are slightly different from the supplemental district spending rules that we passed in Act 73 in order to cover payment on bonds on new approved projects. So it's really through multiple funding streams, directed and with the strategy of full state resources, creates a pretty solid capital stat for new school construction projects. So we are not just, you know, putting duct tape and bailing twine on our kids' facilities. So in addition to the cost savings, we put in place a bunch of components to ensure that district budgets can meet student needs while the foundation formula is in effect. Those include some of the more contingencies in the foundation formula to make sure that districts that are feeling really concerned about the implementation of the foundation formula know that all of the costs that are necessary are gonna be accounted for. That includes school construction, special education provision, transportation provision, and a few others. And that's all sort of a very comprehensive set of contingencies that we added to the contingencies that were already in Act 73, to say, we need to make sure the legislature is fully doing its work, analyzing benefits, and moving forward with the full package, not just sort of leaving this half done and implementing the work. Reserve guidance so that we have consistent reserves district to district throughout the state, that we are fully funding pre K in a way that actually matches our policy goals, that special education is fully funded to meet federal requirements, that we finish rulemaking for small and sparse schools to make sure that those grants are delivered properly, that we have figured out how transportation will work, because transportation equity is a really important piece of any governance changes in our schools. And right now, our existing transportation grants are not appropriate or equitable from district to district. So all of that is contained in the bill, sort of what the next steps will look like so we can make final dollar decisions on that in our next legislative session when we also get a comprehensive report from the Joint Fiscal Office's contractor on the foundation formula. Because in Act 73, if you remember, we asked for the foundation formula to have sort of a final updated analysis with current numbers added to it. And so all of those other pieces will get added as categorical grants attached to the foundational formula next year. And then, so foundational formula, all the grants that wrap around it, figure it out, cost drivers, it out, contingencies, it out, you don't have to do anything. And then the last part is the next steps and what is sort of straight tax policy. And that includes next steps and tax classifications. We have a homestead rate, we have a non homestead rate right now. We decided in Act 73 that we would break up the non homestead rate to create a category for second homes. We had an incredible report from the Department of Taxes. I really maybe one of the best It might be the best legislative report I've ever received. Jake Feldman and his whole team did it at the Department of Taxes. It's really comprehensive, and it gets very into the weeds about how much we would need to raise with the second home tax in order for it to do what we need to do to rate, to lower homestead rates, the lowest rate in the state. And then the essential questions we need to answer to make sure that the second home category works. And so we do things like defining what a dwelling unit is, deciding what mixed use properties need to look, how they need to be treated. We make sure that camps are excluded, that summer houses that aren't weatherized are excluded, that farms are excluded. We do that work. We have some flashcards in our committee room if the finance committee wants to borrow them to go through just every possible scenario, because everyone has a far out scenario that they want to test. And we tested all we came up with, and we think the categories work in the language. This is a pretty long, careful timeline that we're on for the second home tax. This year, we're really setting the rules. Next year, they will be developing full guidance and rules attached to it, forms, delivering those forms and adjusting brand lists with communities so that we actually know where second homes are and how many there are, so that we know the base, so that in the following year before the foundation formula is implemented, we can set the rate in order to make sure that all of our homestead taxes go down at that time. It was really important in doing this work to align those timelines with the foundation formula, the change in the property tax credit and the second home tax. Because if we do it in different years, taxpayers will really experience significant whiplash year over year. And so we made sure to align all of those timelines. And then the last piece of the work that we did was the next step in the Regional Assessment District. So we're in Act 73. They did not get that much attention. But we have really very infamous most states, but Vermont very particularly has very inconsistent appraisals town over town, while we have a statewide grand list. By moving to a six year appraisal cycle and having appraisals happen at a much wider scale, we can have the statistical significance we need to know that we're doing it right. And we can do it regularly enough that the CLA could maybe even be eliminated someday or just be a minor piece of our work. And so that's some really great work that we did in partnership with the tax department. It's a multi year process, but we took the next step to move to those regional assessment districts so that municipalities can really focus on their work. The Department of Property Evaluation and Review can focus on theirs, and we can make sure that we have consistent appraisals town to town so that if we all have the same tax rate, we will all have fair tax bills throughout the state. So the last thing I would say is just continuing to acknowledge that this legislation here that's in your hands is probably step three in a six step multi year process, and we need to all give ourselves some grace with that. We are doing careful work because we are changing our entire education and property tax system throughout the state right now. And year over year work is going to be necessary. We need to build the trust with our communities and with our stakeholders to get it right. And we need to make sure that each step is really working as we do it. And I'm really grateful that we've been able to get as far as we have. So thank you all. Have fun with it.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Thank you very much for this, chair Pohrneisser. It's very exciting, and I look forward to spending time with this, all of it. I did wanna ask I'm hearing from some of my eager fever constituents who are saying they want the second home tax yesterday. Like, not today, yesterday. So why do we have to wait so long? And I and you gave a good explanation of being thoughtful and timely and, you know, a reasoned approach. But is there can you sort of give me a pitch?

[Representative Emilie Kornheiser, Chair, House Ways and Means]: Yeah. So this year, it was really important that we actually figure out what a second home is. You can say it. You can say you know it when you see it. But in fact, for attacks to be implemented, they need very clear lines. Right? And so that was the work of this year. We can't levy a tax unless we know what the base of that tax to be applied to, right? That's how we do our work, particularly though in the education fund, where we're aiming towards it's sort of the opposite from the general fund or any of our other taxes. Property taxes, we set a rate to accomplish a yield rather than setting a rate because we know we're just hoping for something, right? And so we really need to know the base and the yield in order to set the rate because we need two variables in order to sort of adjust the third. And I don't

[Senator Ann Cummings, Chair, Senate Finance Committee]: know if that would

[Representative Emilie Kornheiser, Chair, House Ways and Means]: be an interesting thing to tell your constituents. It might be a little mathy. But just to say, we actually don't know the scope of where we'd be levying the tax, and that's a really important part of good tax policy. So over the next two years, the tax department can do the work to frankly adjust every grand list within the state to make sure we know where the dwelling units are. Once we have sort of those dwelling units identified, then we can take that next step of understanding which of those dwelling units are second homes, which are homesteads, and which are rental properties. And then from there, we'll know the base and have the information that our staff would need to calculate a rate.

[Senator Ann Cummings, Chair, Senate Finance Committee]: And this timeline is what the tax department wants?

[Representative Emilie Kornheiser, Chair, House Ways and Means]: It's what we really sort of all worked through and was logical for all of us.

[Senator Kesha Ram Hinsdale]: I have a question for each of you, if I may. One, Mr. Chair, I was a little devastated once again to see that career technical education is kind of a, is almost silent on that. And I just worry that it's become such an afterthought in the conversation that we're not going to solve the problem for probably half of our kids that need greater access to career technical education.

[Representative Peter Conlon, Chair, House Education Committee]: So the way I would answer that is to say, first of all, the CTE portion of this is being taken care of in a second bill. The Senate bill that you all passed over that had the intent language in it. So our Commerce Committee has been working to figure out how to move forward on making CTE part of this whole system. Their work is wrapping up. That bill's gonna move over to our committee for more review. CTE is a challenging sort of facet to weave into all of this because it is funded in different ways, and we have three or four different governing structures of our CTEs. There's a federal weave in with the Perkins money. So it is all intentioned to be part of this and part of the funding system. It's just a little more complicated and needs a sort of a different path for right now. In terms of students having more access, that tends to be a challenge of geography seats, time in bus seats. And I would say that one of the goals of moving to newer, larger districts is to have better coordination with CTEs. But again, you know, we have the CTEs that we have. They're located where they are, the distances between them, and their sort of sending areas.

[Senator Ann Cummings, Chair, Senate Finance Committee]: They're just not at the

[Representative Emilie Kornheiser, Chair, House Ways and Means]: table at all. I guess what I would, if I could jump in and apologize for not mentioning it when I was walking through it, because it is mentioned quite regularly throughout the bill. So the transportation study includes significant study of CTE. School Was this in

[Senator Kesha Ram Hinsdale]: the original bill because we walked through that. No, it's

[Representative Emilie Kornheiser, Chair, House Ways and Means]: in the pieces that we added. So the transportation language includes CTE. The contingencies include CTE and the school construction includes CTE. All as very important elements of next steps in those three pieces. Okay. And then we're just, we were excited that you sent a bill on it. And so we were gonna work on that. Great.

[Senator Kesha Ram Hinsdale]: They're not in that whole process of the CSA system.

[Representative Peter Conlon, Chair, House Education Committee]: They have very much been at the table with the bill that you all sent over, as has the AOE with their proposal. And I think that the Commerce Committee really listened, especially to the CTE directors in terms of coming up with next steps going forward.

[Senator Ann Cummings, Chair, Senate Finance Committee]: And then if I

[Senator Kesha Ram Hinsdale]: may, raise and means, I'm getting more and

[Senator David Weeks, Vice Chair, Senate Finance Committee]: more

[Senator Kesha Ram Hinsdale]: my constituents, but also alums of the legislature, who, as we get closer to what the new income sensitivity rollout will look like, worry that it kind of spells the end of income sensitivity for if your home value is above 6 and 50,700 thousand dollars that's become a pretty low bar. Is that correct, that there would no longer

[Representative Emilie Kornheiser, Chair, House Ways and Means]: be income sensitivity for higher home values? No, it's actually the reverse. So in our existing income sensitivity system, I think we've had calls regularly, can't you just adjust this one threshold? Can you adjust the income threshold? Can you adjust the property threshold? And whenever we try to answer that call and go in and do that, it just Julia phrased it as sort of squeezing the balloon. And we wind up increasing taxes. If we tried to do that, we would increase taxes on absolutely the wrong population. This move to the property tax credit system removes all the clips. So no matter the value of your home, you are still eligible for the property tax credit. It's just that the credit would not be applied to the full value of your home. And home values and income both have inflators added to them. So year over year, as property values go up, as incomes go up, we don't have to constantly be going in and failing to tinker with it. It will actually just adjust as growth adjusts. Do you have some scenarios? Yeah, there's a very lovely green red coded graph. I think the most recent one was the one we looked at in the Committee of Conference as we made some final adjustments on '73. That part of the legislative language was actually basically completed in Act 73, and we didn't make any adjustments to it in this. The next adjustment that's anticipated to those, that credit system, is when we get a report from the Department of Taxes on adding income thresholds over one ten, I think. I don't remember the exact number, but adding sort of a new group of income brackets to it. But I would say much more expansive than current law.

[Senator Ann Cummings, Chair, Senate Finance Committee]: I've got one more question, then I'm going to get to the actual people walking us through the bill. There are actual people here. Know you are,

[Representative Emilie Kornheiser, Chair, House Ways and Means]: but not No, I know.

[Senator Ann Cummings, Chair, Senate Finance Committee]: We're happy to leave. That's fine. You're just teasing. Okay.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: Thank you, ma'am. So this is for Madam Chair. The cost of education, I thought we were addressing directly with the foundation formula to try to cap costs and control costs and what have you. At least that's been how we've been spinning it. I'm curious if the second home tax rate is increasing property tax rate on second homes is really a necessary mechanism to raise. You equated it to addressing the cost of education increases. I'm wondering why you made that parallel between the two as opposed to using foundation formula to contain education costs. And this whole second home tax rate increase for additional revenue is completely different topic. And I'm wondering how you conflate the two.

[Representative Emilie Kornheiser, Chair, House Ways and Means]: Oh, so the foundation formula will stabilize spending, and that's really important. The foundation formula also is going to allow some districts in the state, say, Barrie or Slate Valley, have been really significantly underspending to be able to fund their kids' schools at a level that will meet their needs and meet educational standards. And so when we do that, we want to make sure that we're not increasing taxes on those communities that year over year have said, No, we don't want that. And so when we passed Act 73, we really set an explicit bargain in there that the second home tax would be used to lower every homestead tax in the state to the lowest homestead tax rate in the state.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Okay. Thank you.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: Just wanted to know your logic.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Okay. I have curvy next. Thank you all very much. Is awful. I'm gonna go talk about rounding. So exciting. Okay. As far as Section 30 Kirby Heffernan thinks there'd be a better order. I'm gonna leave that to you.

[Kirby Keenler, Office of Legislative Counsel]: Sure. No. No. It's this works. Kirby Keenler, City Council. Betsy James has gone first. I understand. And so numerically going through the bill after her sections are mine. So it makes sense for me to to go.

[Representative Peter Conlon, Chair, House Education Committee]: Okay,

[Kirby Keenler, Office of Legislative Counsel]: so for the next few minutes at least, we're going to talk first about regional assessment districts. Then we are going to talk about tax classification system changes under the bill here and mixed in is just a few one off pieces that relate to property valuation for the most part. So section 30 of H nine fifty five as passed by the house, I'm starting on page 67, is the beginning of the creation of regional assessment districts. As a refresher, regional assessment districts from tax specifications were parts of Act 73. Generally speaking, what Act 73 was going to do is being repealed by this language and being replaced by a more fleshed out version of those things. The work that's been done in the session so far has relied heavily on reports from Department of Taxes on how to take what was an act 73, which was a skeleton and make that more of a workable system in each case. So acts or section 30 creates a system of regional assessment districts for purposes of conducting mass reappraisals of property on a six year schedule as chair Kornheiser mentioned. The idea here is that there'll be some number of regional assessment districts and about one sixth of them would be doing a Mass reappraisal every year. And the idea also with Regional Assessment Districts is that through assistance with PVR, the municipalities within those districts will work together to contract probably in most cases with a third party that specializes in this work. And one of the general ideas is that by banding together the municipalities could save money and also in some cases be able in the first place to even attract an assessing firm to do the work for them, because that is a problem that some municipalities face right now, is they're just too small and don't have enough parcels to make it worth the while of these businesses to do this. So that's the idea. So the municipalities within the district would jointly contract and to have reappraisals conducted and the appeals of those reappraisals would be heard by these new regional assessment district appeals boards. Currently, we have something called the BCA that's at the municipal level that handles these appeals that would continue to exist except for those master reappraisals every six years, there would be an appeals board specifically designed to handle the appeals coming out of those master reappraisals. Part of the reason for that is that most of the appeals of property value that take place are going to happen the year after a reappraisal, because that's when people get the sticker shock of you're saying my property is worth what now? Because it's been six years under current law that could, it could have been fifteen years, right? And people are really shocked. So there tends to be more appraisal or appeals of appraisals after these mastery appraisals. So there's going to be an accompanying system for that. As I mentioned before, the Department of Taxes would oversee the system and provide guidance and technical assistance and would also be the SC that sets the schedules for the boards. Section 31 removes some current law provisions relating to reappraisals because those provisions are being replaced under the RAD system. In fact, this bill repeals an entire chapter on appeals and then replaces it with the RAD system appeals. Section 32. Sorry, I'm not moving my cursor along with me here. So you can see the section 30 is quite long. A lot of it has to do with appeals, which is really just moving current law and changing some language. 32 starts on page 80. In section 32, it clarifies that for the purposes of the equalization study municipalities within a regional assessment district will be treated as a single entity. And that makes sense because they'll be doing their mastery of prisons together. Section 33 boosts the statute on PVR evaluations of public utilities to a new section. I mentioned an entire chapter is being repealed. There was this, you could say strange placement of the statute where PVR does the valuations for public utilities. It was located in that appeals chapter for some reason. So we're just going to move that to a more appropriate place. The language there is copied concurrent law. Section 34 repeals the sections of Act 72 related to RADS and the transition to RADS because those sections are being modified and replaced here. So for sub A, Act 73, section sixty two and sixty three, you'll find in this bill at sections thirty and fifty three. And then sub B here repeals the statutory chapter on property valuation appeals, which I've already mentioned a couple times now, and that's replaced in section 30 here. Effective dates are a little different. The sub a repeals will happen right away, 07/01/2026. And the other changes are or the other repeal is 01/01/2031. Out of all the parts of this bill, it's the regional assessment stuff that has pushed the farthest out. It's 2031. That's because transitioning from municipalities doing it one way to the new way, and then having that new way set up on a six year schedule is quite the transition. So the feedback from the Department of Taxes is they've preferred for 2031 to be the target date for that transition. By 2031, the idea is that the RADS are set up, the boundaries for the RADS are set up, and the work starts with the new appeals boards and all of that in 2031. That brings us to section 35.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: Perfect. Good question. Yes. So from the non finance guy in the group or side of the table, I'm just curious. Typically, we change over programs. One day when something's not working, we tweak them. It just seems like it's a bit of a replacement for assessments. What's not working that requires us?

[Kirby Keenler, Office of Legislative Counsel]: Sure. Well, there've been tweaks for a while now. And there's been the problem that Representative Kornheiser mentioned has been a known problem for, you know, I've worked in the tax area in Vermont for over ten years and it's been around since I've been around that it's known that over time for a lot of our municipalities, the values on the grand list have not caught up with the market. And a lot of time has taken place in between mastery appraisals where you try to catch up the entire town to the current market. So I don't know the exact numbers, but I know that there are municipalities that are very far behind.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: So what's what's what mechanism is different here? Is it just the speed, the turnover?

[Kirby Keenler, Office of Legislative Counsel]: It is, we already have under current law, six year schedules mandatory, but the municipalities aren't doing it. They're not able to, they can't get firms to work for them or they can't afford.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: How does this address slide?

[Kirby Keenler, Office of Legislative Counsel]: This makes them all grouped together. The municipalities within the Regional Assessment District, they have to work together. DVR is kind of there helping and watching. And then they have to stick to those schedules. And there is a provision here where certain funding that goes to municipalities would be withheld if they don't keep up. I think one incentive will be that instead of municipality being completely on their own, being part of that group will help them stay on schedule. That sounds one thing. Some of the thing is the appraisal companies you need to hire can't really commit to really small towns. So the regional aspect will allow for an economy economically sized contract. There's been testimony from those firms stating that to make it worth it, it needs to be a lot of parcels. One of the targets under all of this is having regional assessments districts with at least 10,000 parcels. And that's been recognized through the reports from the Department of Taxes and all of the research and work that they've done as a good sweet spot to attract firms and to make it an economy of scale.

[Senator Ruth Hardy, Chair, Senate Education Committee]: I would just add, if I may, Senator Weeks. Rep. Kornheiser said, there's an excellent report on this. And I'd be happy to talk to you about the history of this because we've been working on this for a number of years. Started as a bill in Inc. Of Ops, laying the groundwork because there's not only the economies of scale, the timing, but there's also equity issues with how properties are reappraised in different towns. And so this would make it much more standardized across the state as well, which would be helpful, especially when we're looking at a statewide education funding system.

[Senator David Weeks, Vice Chair, Senate Finance Committee]: That was helpful. Thank you. I just There's a couple

[Kirby Keenler, Office of Legislative Counsel]: of good reports because I think the one Senator Hardy is referencing is from a couple years back. Yeah. And then there was an Act 73 report on this topic also.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Exactly. Both of them. And I I'm reading.

[Senator Kesha Ram Hinsdale]: Did we already pass over the section about an inspection required on page 71?

[Kirby Keenler, Office of Legislative Counsel]: Yeah, we're way past that.

[Senator Kesha Ram Hinsdale]: I'm sorry, was reading slowly.

[Kirby Keenler, Office of Legislative Counsel]: It sounds like it's related to property valuation, which requires inspections.

[Senator Kesha Ram Hinsdale]: Property valuation requires?

[Kirby Keenler, Office of Legislative Counsel]: You're valuing a property, you, in theory, would inspect it to place a value on it.

[Senator Kesha Ram Hinsdale]: Well, isn't that a huge departure from what we have now? People don't enter homes

[Senator Ann Cummings, Chair, Senate Finance Committee]: to do these inspections. I

[Kirby Keenler, Office of Legislative Counsel]: want to actually reframe this really well. I think you were looking at the appeal sections. And in this case, is a person who says you thought my value wrong. And during that appeal,

[Senator David Weeks, Vice Chair, Senate Finance Committee]: it

[Kirby Keenler, Office of Legislative Counsel]: could be an inspection to learn more about whether the value is right.

[Senator Kesha Ram Hinsdale]: Okay, well it says shall be inspected.

[Kirby Keenler, Office of Legislative Counsel]: That is a requirement, that's current law.

[Senator Kesha Ram Hinsdale]: That's current law.

[Kirby Keenler, Office of Legislative Counsel]: That there is repeals. The appeal, if you appeal the value, then you have to let an assessor, or in some cases it's a hearing officer. If you're at that part of the appeals process, go in and

[Senator Ann Cummings, Chair, Senate Finance Committee]: find out what's going

[Senator David Weeks, Vice Chair, Senate Finance Committee]: in

[Senator Ann Cummings, Chair, Senate Finance Committee]: the house.

[Representative Peter Conlon, Chair, House Education Committee]: You don't look

[Senator Ann Cummings, Chair, Senate Finance Committee]: at the board.

[Kirby Keenler, Office of Legislative Counsel]: With the regional assessment districts, would it still be BCAs within each municipality that would do these inspections? The way the appeals boards are set up is that a municipality would be able to appoint representatives for the appeals board. So it would not, it could be someone from BCA, it could not be. And the number of seats for the municipalities is at least one. And then from there, one per thousand parcels. So there is some, you have a very large municipality next to a small one, that's accounted for representation. At the end of it, the way that it's currently written, would just, just to let you know, like a broad view of it is these potentially these boards could potentially have a lot of members, but each appeal would be heard by three at a time. And so it's not like you have a massive room full of people as judges or anything like that. And the large number is really about just having flexibility. Because of people, this is volunteer stuff. People have certain schedules, just making sure that they're available to hear the appeals on time, and they have three people at a time doing it. So I think we were at section 35. On page. This creates a new way to compensate municipalities for the cost of mass property reappraisals. Again, want to remind you that this wouldn't start in 2031.

[John Gray, Office of Legislative Counsel]: Currently,

[Kirby Keenler, Office of Legislative Counsel]: there's something called and you have the language right here in front of you. Under current law here, there's the $8.50 per parcel fee that's paid to municipalities each year. That's paid out of the general fund to compensate municipalities or partially compensate them for the mastery appraisal work that they have to do periodically and also for maintaining the grant list from year to year. This change would keep that $8.50 fee, but that would be just to compensate for the year to year work that's done. And as we said before, a lot of municipalities are way behind and haven't done a necessary appraisal, and they're using these funds right now just for their just to maintain and to keep going. So this keeps that in place, but it creates a new source of funds for municipalities when it comes to the mastery appraisals that are done under the RAD system. The way this is proposed to work is that the commissioner of taxes through the tax department budget will compensate municipalities for either two thirds of the estimated of cost of their share for the mastery appraisal is being done or the $66 per parcel. And it's the lesser of those two. So there's no cost to this at the moment, but when this starts becoming effective in 2031, that would affect the state budget and specifically the tax department budget. Section 36 was deleted. This was the creation of a tax hearing officer, a permanent tax hearing officer that would handle just RAD appeals folks have appealed beyond the local level and want to appeal to the state. It's something that's expected to still be needed once the system's in place. But since it's so far out, the decision was made just leave that for now. Sections 37 through 52 are conforming changes. This has to do with moving the property valuation appeals chapter to the new RAD sub chapter, which means that informing changes for citations and references have to be changed. So you can see those changes throughout here. Section 54 is some session law that deals with the question. It's not just school district boundaries that we have to figure out right now. It's rad boundaries. Much quaintier question or less charged maybe. But the way that this deals with establishing the RAD boundaries, there's been discussion of that maybe it's appropriate to try to tailor those to the school district boundaries for logical purposes. But what this does is it has the tax commissioner identify and submit proposed boundaries. By the way, this would be 12/15/2029, presumably after school district boundaries are known if there

[John Gray, Office of Legislative Counsel]: are new

[Kirby Keenler, Office of Legislative Counsel]: ones. So the department will propose some RAD boundaries that are aligned with school district boundaries and have a minimum of 10,000 parcels as I mentioned before. There's a little bit of leeway in sub B there for judgment calls to be made because there's going to be differences in parcel sizes between school districts and things like that. So the department will have to figure out what makes the most sense. But the idea is that within a school district, it would have a pretty similar grant list that the municipalities within it would have similar grant list to one another and be on a similar appraisal schedule. But there's more work to be done on that and there'll be a department report and that's section 54. Section 55 creates a process to allow municipalities to be reimbursed for abated education property taxes in very specific cases when there's a clear error or mistake made in the evaluation process. So this is not related to all of the bigger stuff. This is just a one off section that's in here that's related to property valuation. Basically, you would have the state reimburse municipalities because currently, if a municipality chooses to abate taxes, there's a list of things they can abate for, but the municipality has to eat that cost. They still owe the state what they owe them for education tax. So this would be one limited case where the state could reimburse the municipality. And again, it's when say someone notices that in their property valuation, there was a belief that they had two buildings and turns out one of those buildings was actually demolished a while ago. And they say, you made a mistake because you valued a building that doesn't exist and included that in my property taxes. And the municipality agrees and says, yes, that was a mistake. We will abate your taxes. The state in that case would reimburse the municipality. And then section 56 is the last thing RAD related And this requires PBR to PBR is the Division of Property Valuation Review that it does property valuation for the department to issue guidance relating to the valuation of manufactured home parks and limited equity cooperatives. This is another one off. It's a policy issue that came up during the session and was included here as the most appropriate place that they could put it. So that's all of the assessment stuff. Now we can move on to the classification stuff. Section 57. Where we ought to we should start off kind of easy here. There's this is related to tax classifications and it is adding a column essentially on the grand list where the assessing officials will start recording the number of dwelling units for each parcel. This is where I'll just give you the overall conceptual description of how tax classification will work administratively. There's two basic places where the information will be gathered to try to put the tax classification system into place. One will be this, which is all that this language is asking assessing officials to do, which is just put on the ground list how many dwelling units. And there's a definition for dwelling unit that we can get into. The other piece is the Department of Taxes will have a form calling it called a dwelling use attestation where property owners very similar to homestead declarations. In certain cases, they would be required to fill this thing out and say, and describe how each of the dwelling units are used. So the department could look at, okay, Grand List says there's this number of dwelling units, dwelling use attestation says hopefully the same number. And then we'll use the information from the dwelling use attestation to determine how each unit's being used and how each unit should be classified. So that's the administration of it. Getting into the specifics of the classifications as Chaired Kornheiser rather said earlier, we currently have a non homestead classification and we have a homestead classification. This change tries very much and hopefully succeeds at doing nothing to alter how homesteads are treated or classified under current law. The classifications are built around what exists now for homesteads, and it takes the current classification of non homestead and breaks it up into two. There's a non homestead, non residential classification, which is similar to what exists now for non homestead, but then there's the non homestead residential classification, which is carved out of the current non homesteads with the goal of identifying second homes and short term rentals as being their own classification of non homestead residential. Also falling into that with the definitions would be if they're simply a dwelling unit on a property that's just not being utilized at all. Maybe it's not being used as a second home. Maybe it's just not being utilized. That would also fall in this category or classification, should say.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Kirby, what about accessory dwelling units?

[Kirby Keenler, Office of Legislative Counsel]: The way this has been fleshed out is it's based off of dwelling units and how they're used. So if you if you have a homestead, or are talking about a homestead? Like a homestead that has an accessory dwelling unit?

[Senator Ann Cummings, Chair, Senate Finance Committee]: Grandmother accessory dwelling unit So in the

[Kirby Keenler, Office of Legislative Counsel]: for one thing, if you have a homestead, we have a current process for if there's a business use of the homestead. So there's a few questions you would walk through with an accessory dwelling unit. Is it actually a dwelling unit? Because if it doesn't have separate ingress and egress, if it does not have kitchen, bathroom, living area, sleeping area, and if it's not fit for habitation year round, then it would not be a dwelling unit. And then the assessing officials should not put it on the brand list as dwelling unit, means those in not being a dwelling unit means that it would never be classified as non homestead residential. It would never get the second home classification and rate. Okay, so that's one question for that accessory dwelling unit. But let's say that it is a dwelling unit. Then you would look at how it's being used. Is it being used as a short term rental or a long term rental? If it's being used as a long term rental, it would be classified as non homestead, non residential, then not the second home rate. Long term rentals, which are defined as being rented out for thirty day periods for at least six months in the year total. Those are classified as non homestead, non residential, but treated like apartments. So that would be one question.

[Senator Ann Cummings, Chair, Senate Finance Committee]: If grandma's moving in and not paying rent, would that be strictly homestead residential?

[Kirby Keenler, Office of Legislative Counsel]: Grandma's part of the household?

[Senator Ann Cummings, Chair, Senate Finance Committee]: Yeah, I mean grandma or Yeah. You know, adult children and there's no money change.

[Kirby Keenler, Office of Legislative Counsel]: For simplicity sake, we're going to say that that's all one homestead. There might be two units, but they're all being used as part of the homestead and the entire parcel under the, because that is accounted for in the language to specify that just because you have two units doesn't mean that one of them is automatically not part of the homestead. If they're both being used effectively, it's the same homestead, then the entire parcels of homestead. And another key part is it can get complicated when it comes to mixed uses when one parcel is being used for a store, a short term rental, a long term rental, there's different units. So one thing that I want to make sure that you're aware of is we're following current law when it comes to homesteads. So if there's a homestead on the parcel, then we don't go to the mixed use analysis, which I will explain. It's that part that's being used as a business would be classified if it's being used as a business, let's say a knitting business, just randomly. It would be non homestead, non residential. The business part, that's current law. And I think people might be familiar with when you have a business use, that part gets classified slightly differently, but it doesn't affect the land and the other parts, those things stay homestead. Okay, and that's a crucial difference because when it comes to mixed use, let's say if you have a bakery and you have a short term rental over it, which is an instance that could happen, right? The way that this language handles that mixed use scenarios, it's not like homestead because you actually have to divide, decide how you're going to divide up the valuable land. With the homestead, we call the land homestead and we don't worry about it. But when it comes to those other mixed uses, the way that this language handles it is based on square footage. If you take the bakery square footage, the bakery would be non homestead non residential. You take the short term rentals units square footage which would be non homestead residential. And then the ratio of the square footage determines also how the land value is split up in that case. And there could be an area of confusion with people about the mixed use and how when that happens, how you divide the land And people could think that that applies to the homestead. It doesn't, homestead doesn't get divided up like that. So I mean, we're being clear, right? There's, this is a this is very complicated because the ways that different people can use their property is very complicated. And there are so many different possibilities. Working

[Senator David Weeks, Vice Chair, Senate Finance Committee]: with

[Kirby Keenler, Office of Legislative Counsel]: the department and who've been as Chittenden mentioned, have been very helpful with staff here and work out all the scenarios we could. This is the kind of thing that's going to come into effect in 2029 and 2030, and probably going to need further adjustments as things come up. We have tried to think ahead and handle these different situations that come up.

[Senator Kesha Ram Hinsdale]: I make sure I understand the end user experience for the taxpayer should still be relatively similar to what they do now. If you file your homestead declaration, if you're using TurboTax or have a tax preparer, you say, I'm using 10% of my house for a business, and that gets subtracted from your homestead declaration and put towards your nonresidential tax rate, someone year to year could change everything that they do. So my hope or my hope and the intent of this or how it's worded is that all they have to do is change their tax forms each year in order to be taxed properly and fairly. There is no permanent category that they're placed in.

[Kirby Keenler, Office of Legislative Counsel]: That's correct.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Okay.

[Kirby Keenler, Office of Legislative Counsel]: Yeah. End user experience. I'll just describe it. It has to do with that dwelling use attestation that I mentioned.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Right.

[Kirby Keenler, Office of Legislative Counsel]: The way this is written, if you know that your property is going to be taxed like a second home or short term rental, if you know that you're gonna be, that you are using it in a way where it's going to be classified as a non homestead residential, then you can file nothing. And the default will be that non homestead residential rate.

[Senator Ann Cummings, Chair, Senate Finance Committee]: If

[Kirby Keenler, Office of Legislative Counsel]: you file a homestead declaration and the entire parcel is being used as a homestead, even if it's not being used as homestead, even if you have a business use, that will all be handled just like current law within the homestead declaration.

[Senator Kesha Ram Hinsdale]: I guess I'm really curious about the non homestead residential because it changes landlord tenant law.

[Kirby Keenler, Office of Legislative Counsel]: So the dwelling use attestation, what that leaves is the dwelling use attestation will need to be filed And you have dwelling units that are not homesteads

[Representative Peter Conlon, Chair, House Education Committee]: and

[Kirby Keenler, Office of Legislative Counsel]: you need to let the department know how they're being used. It will be important for quality needs to identify these units are actually long term rentals. So the department will know to classify those units as non homestead, non residential.

[Senator Kesha Ram Hinsdale]: Well, the definition of long term rental is very complicated. This something like a sir.

[Kirby Keenler, Office of Legislative Counsel]: Businesses that, yeah, there will need to be This

[Senator Kesha Ram Hinsdale]: is a very new definition.

[Kirby Keenler, Office of Legislative Counsel]: There will need to be, yes. These are new definitions that are tailored toward this system only. And there's been a, we've done the effort we can to not make people think we're changing other areas of law, including the homestead definitions, because the reason why dwelling unit is the term we're using and not dwelling is because homestead uses dwelling. Classifications uses dwelling unit because there's actually at least one major difference. And that's a dwelling unit is not a domicile where that's not fit for habitation year round. Your homestead could be technically not fit for a habitation year round, but if you declare it as your homestead, it's your homestead. So those are not the same definitions. So yes, these definitions are for the purposes of this sub chapter And that's how it's meant to be applied. So hopefully that answers that question for you. I do want to return to the end user thing and finish my explanation of that, where if you have a business that has no dwelling units, you would not need to file anything because there will be no question of whether you're going to fall into the non homestead residential classification. And like I said before, if it's a second home then you'd file nothing because it's just going to be automatically labeled as non homestead residential.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Sure.

[Kirby Keenler, Office of Legislative Counsel]: It's going to be the mixed use parcels are going to need to file a dwelling use asset station to identify what's long term, what's short term, what's business use compared with short term rental or whatever. And the long term rental properties that have dwelling units, but they should not be taxed as short term rentals because they're actually long term rentals. Those will be the taxpayers affected by having a new requirement to file.

[Senator Kesha Ram Hinsdale]: Right, so I mean, maybe one of the things I'm getting at is, I think the housing committee needs to look at what it means to have a bona fide landlord tenant relationship. That's a new definition. And that's a landlord tenant law definition. So that come from the housing committee in the house?

[Kirby Keenler, Office of Legislative Counsel]: That came as a recommendation from the Department of Taxes, because they'll be the ones having to show on the front end, just like with the homestead, most taxpayers are gonna say, this is my toilet use attestation. This is how I'm using it. And I think that based on my experience with this stuff in this state, that's not gonna be questioned very much. But in the event that it is questioned, the department does decide to look into these. That's a provision allowing the department to make a determination on its interpretation of that provision of what a bonafide landlord tenant relationship is. For instance, you if you can think of different ways to try to find loopholes for things that happens in tax sometimes. You have a second home that you set up some LLC or something for the ownership there, have it rent it to yourself and say, not so my second home, I'm a renter. That's the kind of situation where the department would want the ability to go in and say, no, this is not a bona fide landlord tenant relationship. This is you renting it to yourself. And we're not gonna allow you to classify it the way you want. That's the intent of that language.

[Senator Kesha Ram Hinsdale]: I guess that whole section I'm wondering why there isn't an or because this is three very complicated layers of rewriting labor kind of.

[Kirby Keenler, Office of Legislative Counsel]: It's intended to require all three things. I said before, until periods of at least thirty days plus

[Senator Kesha Ram Hinsdale]: That's existing.

[Kirby Keenler, Office of Legislative Counsel]: Plus, that's existing but different. Again, this is not

[Senator Kesha Ram Hinsdale]: That's the only

[Kirby Keenler, Office of Legislative Counsel]: written to affect landlord tenant law.

[Senator Ruth Hardy, Chair, Senate Education Committee]: Okay, this is just tax law.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Yeah. Is not

[Kirby Keenler, Office of Legislative Counsel]: I can't see I can't see where you're coming from though. Tax

[Senator Ann Cummings, Chair, Senate Finance Committee]: law.

[John Gray, Office of Legislative Counsel]: I can

[Kirby Keenler, Office of Legislative Counsel]: see where you're coming from because certification. Because if if for tax classifications, we're saying you need to run your, do your leases a certain way in order for tax specifications, that's going to impact the landlord tenant side of it because the idea of having a two week lease is not going to be a great idea anymore because you want to make sure that you're meeting this. That you're, that's there is some overlap, but it doesn't directly like if landlord tenant law comes into question, no one's going to be relying on this for that. But I do see how you mean what you mean that there's a bleed over there. So yes, this could affect how leases are done because because people want their properties classified a certain way. They'll need to do a pay period for thirty days and it will need to be a total of six calendar months. And there will need to be a bona fide landlord tenant relationship, which again, not meant to affect on the tenant law. That's going to be applied by the Department of Taxes for the purposes here. That's an interesting question to hone in on by the way. I mean, it crossed my mind also. Yep. You're through this. Okay. So have we talked enough about the different iterations of these things?

[Senator Ann Cummings, Chair, Senate Finance Committee]: And I think we could think of different iterations, but it is after four. I don't know if education is used to going to six, like buying our food, but I'd like to get your idea by five and we have three or four more digits. Oh, you said perfect.

[Kirby Keenler, Office of Legislative Counsel]: I'm kidding. I'm gonna jump to section 59, which is the dwelling use attestation. I think I've covered that. I think you get the picture of how that will work. It's being added in with homestead declarations. It follows a lot of the same logic, except that there's not a filing requirement in those cases that I've said a few times now. We've taken out any penalties for non filers because that's not needed because if you're a non filer of the dwelling use attestation, you just get classified appropriately. If there's errors though, there is a penalty for that. There's transition language on section 60. Since replacing language that was in Act 73, you've seen it for calendar year 2029, the tax department is going to issue forms, start collecting information and starts to get data necessary to have this implemented in 2030. There were some questions before about why is some of this takes so long. The data collection and the setup does take some time. In this case, the data collection will be done in 2025. Section 61 repeals the parts of x 73 that are being redone here. Section 62 is some language out of Act 73 that has the state's legislative intent that the tax rate multipliers associated with the classifications will be reconsidered and reevaluated as we work on this classification system. I would say ways and means has done that. But out of note here is that this language does not set those rate multipliers. It has not been decided by the general assembly. How exactly differently are you going to tax these properties that are classified differently? That decision has not been done. Section 63 perspective repeal in order ensure a successful implementation. There's a contingency here that in the absence of legislative action, it creates new tax rate multipliers by 07/01/2030 that the both of the tax classification sections will be repealed. So there's a timer on you eventually deciding how are we going to tax these things differently. And section 64 is mostly conforming changes, making sure that the homestead language and the classifications language are written in ways that work together and can't be interpreted to contradict one. So that's mostly what you see in section 64. And again, classifications are scheduled to start 07/01/2030. That's it.

[Senator Kesha Ram Hinsdale]: Can I understand this last sentence here?

[Senator Ann Cummings, Chair, Senate Finance Committee]: I don't know where we are, but

[Senator Kesha Ram Hinsdale]: you can try that. But a homestead also includes any dwelling that is used as a homestead without regard for whether it is fit for year round habitation.

[Kirby Keenler, Office of Legislative Counsel]: That's one of the clarifying provisions I mentioned where that's true for homesteads now. We're stating it here just in case anyone's ever attempted to think that the dwelling unit definition would affect homesteads. So this is a provision making it very clear that it does not.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Living in a homestead.

[Kirby Keenler, Office of Legislative Counsel]: If you want to

[Senator Ann Cummings, Chair, Senate Finance Committee]: I've seen that though have septic systems

[Kirby Keenler, Office of Legislative Counsel]: You can still declare as your home still.

[Senator Kesha Ram Hinsdale]: Living in

[Kirby Keenler, Office of Legislative Counsel]: it Yep. Year

[Senator Ann Cummings, Chair, Senate Finance Committee]: Even though if you went by a technical standard, it's not fit for human habitation year round, maybe ever. People do live in that.

[Kirby Keenler, Office of Legislative Counsel]: Yep. And so that's current law, and it's not changing, and that's the purpose of that provision.

[Senator Kesha Ram Hinsdale]: But is this taking away the deer camp exemption from what's considered a residential non homestead?

[Kirby Keenler, Office of Legislative Counsel]: No. So we're looking at homestead definitions. And this is to say that if you want to make your deer camp that doesn't have insulation or heating or cooling system your homestead, you can do it.

[Senator Ann Cummings, Chair, Senate Finance Committee]: If you're living in it.

[Kirby Keenler, Office of Legislative Counsel]: We also have language in the tax classifications that says that we're never going to call that same deer camp a dwelling unit and tax it like a second. That will never happen under this language.

[Senator Kesha Ram Hinsdale]: So they'll still have their own category?

[Kirby Keenler, Office of Legislative Counsel]: If it's not a homestead, this property we're talking about would be classified as non homestead, non residential, just like it would under current law.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Okay. But if you live in it year round, more or less

[Kirby Keenler, Office of Legislative Counsel]: You can declare it as your homestead.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Declare it as your homestead, then it's still the Deer Camp is still exempt from being a second home. But if it's your homestead, it's exempt from being

[Senator Kesha Ram Hinsdale]: a second home. Can I ask one more question? If it's not fit for year round habitation, but someone is living in it who does not claim it, that's a Is there a landlord?

[Kirby Keenler, Office of Legislative Counsel]: Current law, if Under current law, if there's no homestead declaration filed, then it ends up automatically being classified as as non homestead.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Okay.

[Kirby Keenler, Office of Legislative Counsel]: And there's actually but it's actually like technically there's a penalty though. Like like the law is that you are required to declare a homestead as a homestead. But we know anecdotally this to some people in Vermont aren't aware of that and they miss their opportunity. Most commonly with people who don't file income taxes because they don't earn enough to have to, that's when most people have the opportunity to file a homestead declaration. And so people sometimes don't file a homestead declaration when they could, which also affects them financially because they don't get a property tax credit. And that's a known problem that we have.

[Representative Peter Conlon, Chair, House Education Committee]: Yeah.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Thanks, Ruby. Yes. Need by teacher construction.

[Representative Peter Conlon, Chair, House Education Committee]: Hello?

[John Gray, Office of Legislative Counsel]: Got this intimidating mic here, but I am John Gray with Office of Letters and Council. We'll keep going. I'm at section 65, which we're gonna shift gears, come to the school construction. I know that the senate education committee earlier today did some things related to school construction for PCBs. So, hopefully, a lot of this will be top of mind. And we're gonna start with a

[Senator Ann Cummings, Chair, Senate Finance Committee]: One section where both committees have some, maybe, jurisdiction.

[John Gray, Office of Legislative Counsel]: Makes my life very pleasant.

[Representative Peter Conlon, Chair, House Education Committee]: So

[John Gray, Office of Legislative Counsel]: I would never do that. Findings and intent section. So a lot of times I kinda gloss over intent language, but I think in this case, it's especially helpful for orientation purposes in part because what you're gonna see in the language here contains vision is, I guess, the way to describe it. There's still this ongoing search for what the long term revenue source for school construction is gonna be. I do think for orientation purposes, it's helpful. And as we come to later in some of the statutory changes to the state aid program, you'll see that intent language matters too because rulemaking pulls in essentially the directives of the intent language. With that starting out, you begin with a set of findings in section 65. Sub A1 is basically saying a school facilities assessment was conducted years ago, estimated this incredibly large figure, 6,000,000,000 in needs over a twenty one year period, and that would be only to achieve replacement in kind. So average annual need of 300,000,000 just for replacement in kind. And then it goes on to note that these needs have only grown since then. The first point here is just that there's a massive need out there. The second point, and we're on page one thirteen, is that construction expenditures currently fall on the Ed Fund and apply pressure to property taxes. I think everyone in this room knows that, but construction spending obviously flows into a district's per people spend, which then translates into their locally varying homestead rate. So currently, school construction expenditures apply pressure to property taxes, and this is expected to continue to be the case. The final line here is noting on four, six. Property tax revenues make up the bulk of the ed fund and are expected to make up an even larger share as ed fund expenditures outpaced growth in non property tax revenues. Three is noting some of the unique structures of decision making in our state's education finance system. So school construction decision making is controlled at the local level, but the costs that decision making spread across all property tax payers in Vermont because we raise those funds statewide even if your district happens to bear, a higher tax rate as a direct consequence of that vote, the costs are shared statewide. Sub four is noting that school districts are asked to weigh operating against capital expenditures within the same budgetary constraints can lead to some strange incentives. And then five is just noting that act 73 of last year didn't provide funding for additional capital investment in school facilities. So all the findings are setting up that until an additional revenue source is utilized, new school construction projects will continue to be funded from the Ed Fund and continue to apply pressure property taxpayers across the globe. So what is the plan? It's the intent of the general assembly to create greater scale, increase efficiency of delivery of services, encourage efficient use of funds by prioritizing school construction projects that align with the creation of new school governance structures expressed in this app. So this is saying limited funds are gonna be available for state aid. Obviously, you can pursue school construction outside of state aid. I don't know if folks are especially doing that. Obviously, if you had it available, that would change your calculus. So this is just noting with limited funds, the state needs to prioritize for particular kinds of projects. And the vision here is school construction projects that align with the creation of new school governance structures expressed in this act. You're gonna see some more language related to this throughout. Two, address inequities in ed funding across the state and remove those distance centers to construction of necessary and educationally appropriate school facilities by offering state aid in the forms best suited to a school district's local context and needs. As noted in the findings, some school districts are just not able to pass measures to fund necessary educationally appropriate school facilities. Three, recognize the urgency and opportunity offered by the current situation, including act 73 of last year, and then most directly for the vision and the bill. In the short term, this is probably the biggest call out for what is coming in these sections and contains kind of the whole vision that you're gonna see in these sections. In the short term, catalyze the state aid for school construction program by providing state aid in the form of up to an additional $50,000,000 annually in state bonding capacity to support the construction and renovation of school facilities that support the consolidation of school governance structures and improve access to educational opportunities for public school students. That final clause supports the consolidation of school governance structures and improve access to ed opportunities for public school students. You're gonna see that exact clause a number of times. So I'm just gonna say that when we get to them. But this is most immediate solution offered here. In the short term, use additional bonding capacity potentially up to this 50,000,000 annually to support the construction or renovation of those school facilities. Okay, you may recall from Act 73, and this is just what's now going into five, that the state aid program that was stood up last year, but doesn't go effective until this summer, whether or not it's operational with funding and the like, but is in the books as of this summer, contemplated aid for school construction projects in the form of a debt service subsidy. So you'd get varying amounts. School districts would continue to bond locally for the full amounts of projects, and then you would receive state aid in a form where essentially applied against a particular percentage of your annual debt service cost. Five is saying, the short term plan does not disrupt the long term. In the long term, provide state aid in the form of a debt service subsidy to school districts pursuing school construction projects aligned with the program. And then throughout the transformation, Vermont's education transformation provides state aid through multiple funding streams until the burden on property taxpayers can be reduced. Additionally, you'll recall from last year as well, leverage the capacities of the Vermont Bond Bank to simplify issuances, increase opportunities, protect the state's credit rating, which has been part of the big problem to be solved in this area and also part of what is informing the appropriate amount of additional state bonding capacity used for these purposes should it be made available. So that's kind of the framing for all the sections you're gonna see under the school construction provisions of this bill. Section 66, simple to explain, creates four permanent positions within the AOE to fully staff the school construction division. That's the idea. So these were all noted. I can't recall the name of the report, but the end of last year, AOE, as you guys know, had to bring back a number of reports and they had requested staffing to build out that full school construction division. I will just say in that report, it was noted that potentially more than one design reviewer or educational facility planner would be required. But this section just sets up the minimal for all identified positions. It may be that more is still required. And then note under b, co funding is tied to this at this point. The secretary of education would include as part of the budgetary request for FY '28, a request to provide appropriate funding levels for these positions and any other that they deem necessary to fully staff that division. Section 67, you will recall that AOE under the existing program, which has been under a moratorium, the State Board of Education has held rulemaking authority for the school construction program. So there's a set of existing rules out there, guidebooks and the like, for school construction at least under the old program. One of the provisions of act 73 was to transfer rulemaking authority for school construction from the state board to AOE. With that transfer, AOE would also receive the full rule set that is already in existence, which could then be amended for purposes of this program, which does include many things that are already present in the existing program under moratorium. So I just wanna be clear that section 67 is not really a new independent grant of rulemaking authority. It is more clarity on what should be done with that existing rulemaking authority. So this imposes a deadline. It says on or before March 31. AOE in consultation with the advisory board that was stood up last year and is the only currently effective provision of the state aid program from act 73. AOE in consultation with that board shall adopt rules on school construction, including specific rules. So prioritization and bonus incentives, just to orient you guys, the state aid under the program can be set out in different increments. It's not a flat amount like the old 30% that you might receive under the old program. It can vary based on the kind of project that a school district has. And so projects will come in, they need to be prioritized and rise up a list. Essentially, is to determine who first receives fund. Prioritization is something built out in rule. And then bonus incentives are measures to supply additional aid beyond the base amount of state aid. And we'll come to those provisions later. But this is saying, build out the prioritization and bonus incentives, which are ways that the legislature can take a stand or a stance on the direction that school construction should go in the state. Adopt rules to address prioritization and bonus incentives that support, and the same call out, the construction or renovation of school facilities that support the consolidation of school governance structures and improve access to educational opportunities for public school students. Additionally, adopt rules on the treatment of school districts' outstanding capital indebtedness as of 12/31/2025. And we're gonna come to a provision later in the bill that also speaks to legacy debt as of this same particular date.

[Representative Peter Conlon, Chair, House Education Committee]: John, that number one there

[John Gray, Office of Legislative Counsel]: does meaning the of governance structures. That's the second step after CECL, right? It's not even if you're just in that collective, that's not a governance. I think that's fair. Would be the merger, right? I think that's fair. This is meant to be a broader call out to the aims of the act. So, just forming the seesaw and then having the study committees, if nothing is recommended, you wouldn't have something there to support in that instance. But it is to say that if the rules recommend prioritization and bonus incentives that are encouraging consolidation, let's say they give an additional percentage of aid to projects that result in the consolidation of school covenant structures, and you were part of an area that rejected any consolidation efforts, and you weren't proposing otherwise a school construction project aligned with those goals, you wouldn't then be receiving those priorities. But this isn't causing anything to happen on that front. It's just expressing a state vision as to how prioritization and bonus incentives should be used to direct the program's limited funds toward projects of this kind. Section 68 is kinda continuing along this line. So the advisory board, which I spoke about, this was stood up in acts of three of last year, essentially advises the AOE on implementation of the school construction program. This is tasking that advisory board, by the end of this year, so on or before December 1, with providing a written report to the general assembly that identifies opportunities for the construction or renovation of school facilities, same call. Support the consolidation of school governance structures, improve access to educational opportunities. So tasking this advisory board with coming back with particular opportunities for construction of new school facilities that essentially aligned with the goals of the bill. In sub two, saying that for each of these identified opportunities, provide a full citing study, which would include cost, location, other factors that the board would want the general assembly to know. Just thinking about if the legislature is gonna try to pursue any of these particular projects or encourage development of these projects. Lastly, you could imagine in identifying all of these opportunities, there can be limited funds available. It may not be that each identified opportunity is consistent with the others. Maybe only certain configurations would work as a whole, as a kind of statewide vision. And so that's what three speaks to. Says analyze the compatibility of each identified school construction project with the other projects and evaluate different statewide scenarios for pursuing opportunities for consolidation across Vermont. So across one two three, you're getting identified opportunities for school construction that align with the goals of the bill, a citing study for each one, and then a kind of statewide scenario analysis of different configurations of those opportunities. Under sub b, we'll see that in developing the board's report, the board is to specifically consider how to achieve appropriate scale, given research on school size and travel times, how to achieve regional comprehensive high schools. If you have questions on this piece, I would encourage you to talk with your house counterparts, particularly the regional comprehensive high schools, which I know is just a phrase that is being used in a lot of different ways. So that's the report coming back end of this year with the already existing advisory board. With section 69, we're jumping out of session law and actually amending the program that was set out in act 73 that goes effective July 1. And so the nonunderlined language, the existing law, expresses the intent of the chapter. And I'm not gonna read through it, but you can see the sort of thing that is prioritized under the program. What you're gonna see on page one eighteen is to build out, language that aligns with the intent that we previously spoke about. So it is further the intent of this chapter to prioritize school construction projects that align with the creation of new school governance structures under essentially this long language on line seven through nine means this bill. So it is further the intent of this chapter to prioritize school construction projects that align with the creation of new school governance structures under this bill. And key here, it is the intent of this chapter to leverage additional state bonding capacity to support the construction of these projects while the state identifies the total school construction need to be supported by state aid offered under this chapter. The thing that I mentioned earlier about how I often gloss over intent language, but that in some cases it means more, this is it. This intent language is part of law that is pulled into the directives for AOE in actually receiving its grant of rulemaking authority. So when the AOE is conducting rulemaking on this front, they are meant to factor in the intent of this section in building out those rules, including the prioritization and bonus incentives that we talked about before.

[Senator Ann Cummings, Chair, Senate Finance Committee]: How long

[Senator Kesha Ram Hinsdale]: did it was the discussion about consolidation of school governance structures as opposed to consolidation of facilities or saving money or Do want to say?

[John Gray, Office of Legislative Counsel]: So that specific language is intended to be a call out to the broader aims of the bill as a whole. So aligning with what's happening in the study committee section. So it's an intentionally generic framing that's meant to be expansive as to the approaches of the bill. Obviously, you have the opportunity to change what the goals of this are, but it's intentionally broad language to capture the whole of the bill is the idea. It is somewhat generic, obviously. Okay. Section 70. This is the section of law. Again, is all stuff going effective 07/01/2026. This is where the responsibilities for the AoE in implementing the program are set out. This is a relatively minor update that is a flow through conforming change that results from some pieces later in the bill, so it'll make more sense in a second. But one of the requirements at the top of page one nineteen, already an existing law of the district of the summer, is for AOE to include as part of its budget its annual school construction funding request. But then obviously flow through into the ability to fund it during the legislature as part of session. The new callout that you have is that annual school construction funding request should include any projects contemplated under the intent language we just discussed for funding through state bond roll, which makes sense. You need to know which projects would be funded in that particular way, And I'll have more to say about this in just a second. So, hopefully, it'll be clearer. Section 71, another relatively minor thing. This is amending the existing law for that advisory board, which does already exist, and it's clarifying that the board shall have the administrative technical and legal assistance of the AOE's school construction division and school construction program director. Again, you would need funding to build out those staff. Right? But they already have the the the assistance of the AOE, so this is just specifying that division. Then in subsection g, cleaning up a time limited provision that's already passed. You no longer need this because you probably received this report. On page one twenty, we're jumping to what I refer to as kind of the core of the state aid program. This is the section that sets out the application process, including preliminary application, final application, and the award of construction aid. You're gonna see a lot of non underlying text here just to provide the context for the application if you're so inclined, but I'm just gonna jump past it because that's law already. And I'm gonna jump to the new pieces.

[Kirby Keenler, Office of Legislative Counsel]: So

[John Gray, Office of Legislative Counsel]: let's go up a little bit just to give some context. The application process sets out a couple of different direct sets. There are conditions that the secretary of education should consider when evaluating applications, just considerations. And then there are outright eligibility conditions that must be met for an application to be approved or to continue down the pipeline. The eligibility conditions were set up here in sub b, and these were slightly modified last year. But one of the pieces that is a requirement in sub four, I'm at the bottom of page one twenty one, one twenty, that the applicant achieved the level of proficiency in the school district quality standards regarding facilities management adopted by rule. The new language that you see at the top of page one twenty two is not intended to be a substantive change to this eligibility condition. It is meant to address a sequencing issue, which is that if you had an immediately newly merged district trying to avail itself of state aid, maybe it hadn't yet met this standard, but would be going to, and you wouldn't wanna delay them in applying to the program. That's what this language is intended to address. Or if the applicant is a newly formed school district, the applicant will achieve the level of proficiency in the DQS regarding facilities management at its initial performance evaluation under those district quality standards. Lets you think this is sort of insane to just say that you will achieve it. I would note that the proficiency for district quality standards is a self evaluation. So presumably, the district is able to say whether it will or will not meet that standard. So that is the thinking there. Again, it's not intended to be a substantive change. It is just trying to recognize some of the sequencing issues and not pose an obstacle between a district that you would want to be getting in line for state aid and receiving that aid. So three, you'll recall that under the program, not only do you submit an application, but then the approved applications have to be prioritized to determine who first would access funds. And this struct language is speaking to a new sequencing issue, which I will talk about when we get to the a section, but under existing law and under the old program, project cannot be prioritized until you have received approval of your preliminary application and the district has voted funds or authorized a bond for the total estimated cost of a project. Because what's being contemplated here, and I will say this again, hopefully, more clearly when we get to the aid section itself, because what's being contemplated is that you might receive as a portion of your aid state bonding capacity, which would necessarily reduce the amount that you would bond locally. You're not bonding the full cost of a project and then taking out state bonding to pay the cost of debt service. You would be reducing the local bonded amount. Because of that issue, a school district can't know what to bond until it knows its aid under the program. You're not gonna know what to go out and do. And so this is removing that sequencing issue from the PCR. It could pose some other practical issues, which I'll hit as we go, but that's why this language is struggling. It's saying the fact that state aid is taking this new form, which may be in the form of a debt service subsidy, may be in the form of state funding capacity, maybe both to ensure that you're not creating an impossible situation where literally no one could access state aid, the sequencing provision is removed. Sub four, this is a pretty meaningful one. This is an update to the request for legislative appropriation. I noted before that in the AOE's responsibilities, they are required to submit an annual school construction funding request as part of their budgetary request. Here, we're seeing what was prefaced earlier that shall clearly identify those projects contemplated under the intent language for funding through state bonding. And then you can see the kind of route that this would take once it hits the legislature. So following submission of the budget and submission of the recommended capital budget, because of what's being proposed is support for school construction through state bonding, those would necessarily fall into the capital budget, which required to include by statute all measures to be supported by state law. So following commission submission of the recommended budget and submission of the capital budget, these are the committees of jurisdiction. So house committees on education and ways and means, and you guys shall recommend a total school construction appropriation for the next fiscal year to the general assembly for inclusion in the ed payment. You can ignore that final clause for now. I will talk about this later. This is a non substantive provision, but I'll talk about it when we get to the actual updates to section forty eleven. So that's kind of the route that the funding request would take, the request for legislative appropriation. In the final approval for construction aid section, you see the same struck language under two, the district's voted funds are authorized to bond. This is the same sequencing issue I noted. You need to know the form of your state aid before you can bond locally because you need to know the amount by which you would need to reduce local bonding for the project. Okay. On page one twenty five, we're getting to the award of construction aid. I'm gonna pause before explaining the new language and just say what the existing is. So pretend there is no underlying language and that there is no structure. Under the program in act 73, the base amount of award, this debt debt service subsidy, shall be 20% of the eligible debt service cost. So to determine the eligible debt service cost, we look to what is approved for a project, calculate what the lifetime cost of those principal and interest payments would be full life, and then we take a particular percentage of that total approved lifetime cost to determine the award that you would receive. Under the act 73 provisions, that's 20% of those costs. And then you could receive additional bonus incentives for up to an additional 20%. So it's a range of 20 to 40% all covered as debt service subsidy. What you have now here is changing the range from 50 to 95% total approved cost. And there's some technical reasons that the language would change to be total approved, and just to call out what that is, hopefully it's somewhat obvious, but because you're contemplating both state bonding and debt service, we can't call out eligible debt service because you would then be reducing or just calculating your percentage of aid for the state bonding based on what would be taken locally, which wouldn't reflect the full cost of the project. So you need to be determined and be awarded on the basis of the total approved cost. So 50 to 95%, and that would be based on what those bonus incentives that come back in rulemaking are. And under b, you'll see the complication to the structure, the form that the award takes. So construction a shall be awarded as a debt service subsidy. That's what you saw in act 73. As support through state bonding, that's what you've heard in the intent language and against here, or as a combination of both. So you could get a patch that includes both debt service subsidy and state funding. Amount shall be awarded annually, be subject to annual appropriation for purposes of the program. So if the legislature wasn't opting to do it, there is no aid available at that point. And then here's the sequencing pickup that you get from the previous provision. Shall be released only once the applicant has voted funds or authorized a bond for the estimated cost of the project to be covered by the applicant. I did wanna flag just some of the sequencing issues, some of the eligibility conditions for final application. For instance, call out that to receive final application approval, the applicant needs to have identified, for instance, construction management, financing for a particular period. I don't know how readily available those determinations will be if you haven't already voted funds. So just posing that there's a practical sequencing issues, but those have to be struck at least in the first instance to ensure that you actually know what your aid is at the point that you are determining your local bond vote. There may be another way to approach this, but that's the current setup. And the sequencing resolution here is that funds wouldn't be released until you had actually taken that step. Really significantly, subdivision c. I'll describe some of the route that this took to get here in ways and means. This was initially provisioned that aligned quite closely with the intent language, excuse me, that you heard earlier for an additional 50,000,000 annually for purposes of the program. What you ended up with instead are efforts to ensure that whatever is recommended for state aid does not impact the state's credit rating, but it fits within the box that the Capital Debt Affordability Advisory Committee, CDAC, recommends. So that's what you get here. The treasurer in consultation with CDEC shall recommend to the house committees on education, ways of maintenance on corrections and institutions, and the senate committees on education finance and institutions, the annual total state bonding support available for for the capital budget and this program, and the annual debt service subsidies to be awarded under this chapter. So setting what are the appropriate amounts on an annual basis in a way that aligns with CDAC recommendations. The recommendation would include an analysis of how the use of state bonding support for school construction under the program affects overall capital budget capacity. That was included at corrections and institutions request. There was some concern that using or leveraging state bonding capacity for school construction might come at the expense of the existing capital budget and therefore reduce funds available essentially for ongoing standard capital expenditures in the capital bill. Also provisions here speaking to wage requirements. I think this is mainly just a clarifying language. It's a call out to two existing independent prevailing wage requirements. So any contract awarded for full construction that is paid for with state aid shall adhere to the higher of prevailing wage requirements established for state construction projects under title 29 or federal prevailing local wage requirements under the dates Bacon Act. So it's saying these are two existing independent billing wage requirements. Have to adhere to the hierarchies for contracts awarded for school construction paid with state aid. Section 73, really small, but quite substantive in effect. You may recall that in the existing program, the program that's under moratorium, there is language to prohibit state aid from going to projects that need for which results from significant deferred maintenance. That might prohibit state aid for the vast bulk of Vermont's facilities portfolio. So to ensure that that doesn't happen, it is repealed. I don't know, but that's why it's repealed. Section 74, I hinted at this earlier. This is the big legacy debt aid provision. And I just going into this will call out there is not an identified revenue source to address this. Right? So this is a new section of the state funding of public education section. So this is outside of the school construction chapter, although it relates to school construction. So that a school district shall be eligible to receive aid equal to 100% of the debt service cost of any debt incurred by the district for costs related to facility construction and renovation as of 12/31/2025. I'm gonna pause and hit each of the conditions. So the first piece, 100% aid. Of what debt service costs and what kind of debt is it? It's that existing as of the end of last year, 12/31/2025, related to facility construction and renovations. Essentially, in plain English, 100% aid for existing school construction debt for any district as of the end of last year. That's the plain English way to describe it. Aid shall be awarded annually for annual debt service costs up to a maximum total annual amount of 61,000,000, and just like the provisions that we talked about before, subject to annual appropriation for purposes of the aid. Where does the $61,000,000 come from? My understanding is that that is the maximum expected debt service cost given existing debt as of that particular date. So this would capture essentially the highest. The other way to think about it is that even if you didn't set the cap, the cap would effectively be there. That's the maximum cost. And it's time limited because it's only debt as of September '25. Any event subject to annual appropriation and no identified references.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Yep. It's conspirational.

[John Gray, Office of Legislative Counsel]: I okay. Section seventy five and seventy six, I will hit quickly. I noted language earlier that you could ignore. I would like to say it again, but I want so forty eleven sets out the existing section describing education payments under the state aid for public education chapter. And it just says what you would expect. Pay for statewide education spending. Pay for a base amount. In the future, says pay for the EOP. Pay for SDS. This is just the way that those payments go out. This is the language that says it's one big pay called an education payment and it encompasses all the things you would expect. That's spending, adults call. And it now includes importantly, any other amounts the state is obligated to provide under this chapter or chapter 123, which the state aid for school construction chapter. The way to think about this is, it's just saying that a payment goes out containing all the things that you're already owed anyway. Not intended to have a substantive effect, but it's intended to say that these are all kinds of education payment. I think you can think of it as saying school construction aid is a kind of education payment. Has to be done twice because we are addressing current law. And also, unlike all the other provisions I've talked about thus far, which would go effective this July 1, Section 76 is with the foundation formula rollout. It's contingent, has to be hit twice again because we're addressing again in the future. Section 77, this is a pretty meaningful change in multiple ways. Again, we are now in the foundation formula future, which again is a contingent future. This is amending the definition of supplemental district spending, which you will recall are the limited amounts that a school district can vote above its educational opportunity payment. You'll know that that has a 5% cap. The new language that you see at the top of page 128 is that the cap on supplemental district spending shall not apply to school construction expenditures. This came from a fear that in the future, folks would not have sufficient availability under the supplemental district spending to pursue any school construction projects. This solves that mechanically, but the piece I do really wanna call out is that it was never resolved where school construction would fit in the future state, whether it would even be funded in the first instance with supplemental district spending, that was never decided. Implicit in this decision is the choice to fund school construction through supplemental district spending. You got plenty of time to change this if you would like to. This isn't going effective and even contingently till 07/09/2030 anyway, but I do just wanna flag, you don't wanna accidentally decide on the funding source for school construction. It should be a deliberate choice. So just noting, this is a choice. It looks small. It looks like it's addressing just a technical thing, which it does do that, but implicit in it is the choice to fund school construction through SDS. Okay, section 78, you'll be familiar with this from Act 73. This is the ballot language that goes out for school construction. And this is addressing, honestly, an issue that exists under current law too, but it makes things a bit clear. This doesn't, like the other provisions, go effective until the future. This is recognizing that in the future, your school district might not every year or any go out for a supplemental district spending vote if they don't want to spend anything above the EOP. But if they have voted school construction funds and that is funded through supplemental district spending, they would need annually to vote funds for supplemental district spending to cover that To ensure that a district does not go out and bond for a school and then refuse to vote in SDS that would cover their annual debt service costs, this just sets up a measure for them to one time vote SDS ongoing annual spending for those debt service costs. Again, the current system sort of works this way as well. You bond. You have an ongoing obligation. Each year, you have to vote debt spending that captures those costs. But because in the future, you might not each year go and vote SDS, this addresses that. It also provides two different ballots. I'm not gonna belabor them because I'm approaching 5PM. Sorry. Two different ballots. One is describing your regular ongoing SDS vote, much like last year's one that you saw in Act 73. And the other is setting out ballot language that would go out when you first vote funds for school construction funding plus any other SDS you would wanna do. So two different ballots to try to make clear to voters, hey, you are voting right now on an ongoing annual cost that you will have to cover through SDS. In other instances, valid available to you that doesn't suggest you incur any ongoing annual cost, just a one time thing. Okay. That's all the school construction measures. I'm gonna hit the next pieces really quick. These are updates to the timeline from Act 73. You'll know that a number of transition measures were included, and they called out specific fiscal years envisioning effectiveness 07/01/2028. Those measures were repealed and then reincluded here with updated timeline. So that's what you see in your EOP transition. Nothing new here substantively. It's just kicking up the timeline to align with what's contemplated here, which is 07/01/2030. Otherwise, that's the FY '2 thousand and thirty one. So same EOP transition. Same piece here, your SDS cap transition. This is what moves you. You may recall that in the first years foundation formula rollout, you get an increased supplemental spending cap of 10%, and then it's moved down incrementally over time. Same transitionary measures, just delayed.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Can I ask a question, Madam Chair? Yeah. Okay. What if your district has assuming the implicit decision to use the supplemental district spending to pay for capital construction, What if your district has voted to build a new building, and you've had your debt service schedule, and there's the drawdown, the slope down of the supplemental spending cap, and you get caught in that because your debt service payments are bigger than what the supplemental cap is allowing?

[John Gray, Office of Legislative Counsel]: So the measure earlier was intended to exclude from the cap any of those ongoing debt service costs. So they could be those are basically just not subject to You

[Senator Ann Cummings, Chair, Senate Finance Committee]: could still use supplemental spending, but they're Exactly. Exactly. Oh, okay.

[John Gray, Office of Legislative Counsel]: So the cap, in fact, wouldn't matter for purposes of you could have you could have no such thing as you know, you have no you have 1% cap, and it would not limit school construction expenditures under the concept here. However, it'd have to be raised under the factors that we talked about last year, which is that equalized rate where everyone's raising at the lowest taxing capacity difference rate required. Section 82 is again same transitionary measures as act 73. This is for the homestead property tax rate, identifying the gap between your pre foundation form of the homestead rate and your new uniform homestead rate post foundation from the rollout, determining the gap between the two. If your homestead rate was below your new uniform homestead rate under the foundation formula, you're incrementally brought up to that. Same on the other side. So same transitionary measures just picking up the timeline. Section 83, this looks new, but there's only one provision of this that is new. The tax department requested some delays on a couple of reports, which makes sense given the extended deadlines or extended timeline for the foundation formula. So this is kicking out the home state property tax rate transition measures with tax is meant to come back on to mitigate impacts to folks' homestead rates. It's been kicked out, I think, by one year to 12/15/2028. Same measures as before. This also corrects an issue with the effective date for this section, which, accidentally would only call an effective with the rollout of the foundation. So section 84, same thing. Kicking out this report, which is on this is something that came out of senate finance last year. The homestead exemption, which was enacted in act 73, we've included a session law provision as well to have the department of taxes come back with a report on an alternative homestead exemption structure that might minimize cliffs and the like. So kicking out that tax report on the homestead exemption structure, which is like the foundation formal delayed to 07/01/2030, kicking that report out to 2028. And then section 85, this is my last piece here. This is some changes to the advisory committee, the Ed Fund advisory committee. Essentially, this committee is becoming something that doesn't begin its work until after the foundation firm has rolled out. First meeting in 2031, reshaping the membership to be what I was told is a bit more technocratic. So it's experts in ed financing, so striking commissioner of taxes, secretary of education, chair of the state board. And you have your two members of the public with expertise in education financing appointed by the speaker and by the committee on committees and then appointed by the governor. You also have one rep from the Vermont School Boards Association with expertise in ed financing selected by the executive director. So shrinking the membership and then also narrowing the directives for the committee. You see the strict language for updating rating factors, recalibrating changes to existing categorical aid income levels eligible for the PTC. And then the new language that speaks to some of this, but not all, You maintain means to adjust revenue sources, improve equity, amount of stabilization reserve, use of reserve account, new language enactment of any updates to relief and adequate quality that are recommended by GFO and AOE. So shrinking membership, shrinking directives, delaying first implementation sorry. First meeting to 07/15/2031. The idea is this is something instead of being a transition a a committee that is serving as part of the transition to the new foundation formula is something that kicks in efforts here and is basically advising on the implementation of that foundation formula. And then a bunch of effective dates, which I'm not gonna do unless you demand it. So that's it. Hopefully, you and just to summarize my effective dates within this section, most of the state aid pieces are 07/01/2026 of this summer. Those pieces that speak to or relate to the foundation formula are obviously kicked down the road. And if you wanna know all the effective dates, you need to look two places in the act or in the bill. You need to look at section 86 at the very end, and you need to look at section 18, which Beth walked through, which is amending the x 73 updates.

[Senator Ann Cummings, Chair, Senate Finance Committee]: Thank you. I've called Julia and Esther. Julia, JFO, totally up to you if you wanna get on the phone today

[Senator Kesha Ram Hinsdale]: or if you wanna do it at a different point in time.

[Senator Ann Cummings, Chair, Senate Finance Committee]: I think people probably absorbed as much as they can absorb this evening, And we've established that education doesn't have the resilience of finance. Maybe 06:30 meetings or 10:00. So I think we probably will call it a day. At least we'll see. Thank you, everyone. I Okay. Miss Rosie.