Vermont Legislature SmartTranscripts:

[Sen. Ann Cummings (Chair)]: Thanks. Uh-huh.

[Jake Feldman (Vermont Department of Taxes)]: Dave Coleman, Matt Slurkin. And there's a handout that's on from me on the Senate Finance and its documents page.

[Sen. Thomas Chittenden (Vice Chair)]: Thank

[Jake Feldman (Vermont Department of Taxes)]: you for having us in and for screening. I think I'm I I think but what I picked up on yesterday was to talk about the renter credit, one year expansion. If that's easy or hard, we would have been safe. Then I can answer any questions on that. And then there was a request to talk about excess spending penalty changes. So that's what I have lined up. I'm happy to talk about anything else that that comes up. So the first thing on the renter credit, what that is is the senate and their amendment basically wanted to make the renter cabinet a little bit more generous for one year. It's just a temporary expansion. The mathematical change to it is pretty simple. It's when we calculate the credit, it's it's equal to 10% of the fair market rent for the county that the person lives in, and their family size correlates to the number of bedrooms. And so what the senate wanted to do was to bump that to 12.5 and a half. So it's a it's a 25% expansion. And along with that, the maximum in law, which instead of being 2,500 for twenty twenty six claims, would go to 3,250. So it's a pretty simple mathematical change, and it is straightforward for us to administer, and it would cost about $4,000,000 which is coming out of that transfer from the general fund to the head fund. So it's, I guess, being held in

[Sen. Ann Cummings (Chair)]: the general fund to cover it. Reduces the transfer by 4,000,000. So are all renters eligible for this credit or is it based on income?

[Jake Feldman (Vermont Department of Taxes)]: It's based on income. It goes to 65% of the area median. So, these medians and the rent amounts are coming from HUD. So, basically, you kind of look up to these HUD tables, and if the person is under 65% of the area median, and also that varies based on family size, then they're eligible. And up to, what is it, 30 or 40%, they get a full credit, and then there's a phase out as they get closer to 65% of area median.

[Sen. Ann Cummings (Chair)]: And that's household income?

[Jake Feldman (Vermont Department of Taxes)]: It's individual income, which for renters, if you share the apartment with somebody who's not in your household, like a roommate, you actually can both get it right. So you don't have to talk to your roommate about their income information and social security number.

[Sen. Ann Cummings (Chair)]: And so it's individual income but also varied by family size.

[Jake Feldman (Vermont Department of Taxes)]: It does, yeah. And there's about 17,000 recipients in the state out of about 75,000 ish renting households, I don't Yeah. Well, that's running for bed. One year is pretty expensive. Easy enough to do.

[Sen. Martine Larocque Gulick (Member)]: Thanks. Okay. Hang on. So the increase from 25 to 33,250 is a 30% increase, but the increase in the amount of the credits from 10 to 12 and a half is 25%. I know it's just 5%, but just thinking about the math as to why the 2,500 is not increased by the same 25%.

[Jake Feldman (Vermont Department of Taxes)]: That's a good question and don't know the answer to it. Patrick here can join the fiscal office. This had originated as Senator Hardy's proposal, and I forget where exactly the information she was pulling from, but it was a type of survey that had showed that rents have increased by about 30% since this and it was last sort of touched. So Okay. That already would have the exact report for that, but that's where the that figure originated.

[Sen. Martine Larocque Gulick (Member)]: So there's not an abnormality. There's no relation between one and that

[Sen. Ann Cummings (Chair)]: at once policy, I guess. Yeah. It was just if we're gonna give a point to one group, we should give a break to the other. We're not you just messed with percentage for one year.

[Sen. Martine Larocque Gulick (Member)]: And the rental rate increase because it's 2024 when this was changed to the winter Right. '1. '21. The last time or there was. No. Right. Okay. And

[Jake Feldman (Vermont Department of Taxes)]: then and then that was was expanded a couple of years ago. Think '24. Yeah.

[Sen. Ann Cummings (Chair)]: Okay.

[Jake Feldman (Vermont Department of Taxes)]: The next slide is a little bit wonky. And before we get into details, I'd just like to say that the excess feminine threshold is the only bright line for cost containment in the society. Everything else is, you know, fuzzy. And so, what we're asking, what it boils down to, is that the excess spending will not be also made to be buzzy. Keep it bright. So there were a few changes in the Senate's amendment. The first one was allowing any bond payments to be exputed from an excess spending threshold regulation, not just bond payments approved prior to 07/01/2024, which is current law. That would create property tax pressure on the low and moderate spending districts, to pay for the recent construction projects of the highest spending district. And an anecdote to illustrate that, I'm on a school board, and we got a letter from a district that said, hey, can you support this change to that excess spending penalty because we want to build a new high school? And everyone else in my voice, go, yeah, sure, let's do that.

[Sen. Martine Larocque Gulick (Member)]: And I was

[Jake Feldman (Vermont Department of Taxes)]: like, well, hold on a second. We're a medium spending district. Do you want to charge people in Montpelier and Roxbury more money to pay for for the the construction project in the Southern District. And then when they thought of it that way, they thought, you know, maybe it's not a slam dunk. But that's what it would do. It would take that cost and socialize it.

[Sen. Randy Brock (Member)]: But you acknowledge that the currency is doing that for all debt that was approved prior to 2024. So, I mean, we are doing that now. This is, if anything, is just extending that to also apply to dentists. So if anything worth equalizing the policy, this is a new policy that's could raise your concern. Our existing status quo has that same concern for you. That's a

[Jake Feldman (Vermont Department of Taxes)]: good point. I mean, think the reason that the 07/01/2024 date was in there is because there was a feeling at the time that hold on, let's pause on new construction until we understand what the state needs, until there's a vision for where schools should be built. And so I think that's why that that that is where it is.

[Sen. Thomas Chittenden (Vice Chair)]: I mean, someone even worked on that policy, think, with Senator Beck and you, Senator Cummings, I think that was before your call, it was very much like knowing that we have a significant need for school construction. We were, in some ways, imagining the moment that we're in of this large scale education reform and that we want to do school construction strategically, and we don't want to create a situation where districts are engaging school constructions projects, creating that spending that does exactly what Jake described, and not doing in a way that's aligned with long term policy goals for the state because of all the impact that has sort of across the board for everyone. I'm particularly concerned in this moment about school construction being exempt into the future during this transition time, because I think it would create some a lot of incentives that are counter to the other incentives that we've laid out in September. And I really wanna make sure that the yield bill is aligned with the direction that we're sort of setting for working on that other bill.

[Sen. Martine Larocque Gulick (Member)]: I'll always be a tireless advocate for those schools that need to be rebuilt because of health concerns and other reasons that are not necessarily driven by other considerations representing one of those districts.

[Sen. Randy Brock (Member)]: Your district conditionally passed a bond that will only

[Sen. Martine Larocque Gulick (Member)]: happen if this Only happens if the excess spending threshold is removed, so I put a bit of a vested interest in that, but it's also contingent upon 25% of their costs being borne by state aid or some other kind

[Sen. Ann Cummings (Chair)]: of aid. So it's, you don't have plenty of Which is being envisioned actually, in the state aid, That's people's right, yes.

[Jake Feldman (Vermont Department of Taxes)]: Yeah, I know.

[Sen. Thomas Chittenden (Vice Chair)]: And so all of that, I think all of those conversations are better had in my 55 than here.

[Sen. Ann Cummings (Chair)]: Okay, so you would like to put school construction back in to?

[Sen. Thomas Chittenden (Vice Chair)]: Right now, I'm just getting and getting my significant concerns with Well, the reason that I really wanted to have Jake in to talk about these is because I think they're it creates incentives that might not have been intentional. And so we wanted to just sort of better explore some of the incentives that it does set up.

[Sen. Randy Brock (Member)]: Would you simultaneously agree that if we do lower the excess spending threshold, that there is an argument to at least exclude debt, not going forward, but that has been passed prior to now. So since 2024, I think that Colchester comes to mind.

[Sen. Thomas Chittenden (Vice Chair)]: Yeah. Colchester is a very specific case because actually the dates are just We just just possibly. They

[Sen. Ann Cummings (Chair)]: Yeah. Yes. Yes. Very

[Sen. Martine Larocque Gulick (Member)]: shy about it too. He never mentioned that. It represents from Colchester. He's very shy.

[Jake Feldman (Vermont Department of Taxes)]: I never bring it up every day. Every day, fair enough.

[Sen. Martine Larocque Gulick (Member)]: Okay. Saying that on the right.

[Jake Feldman (Vermont Department of Taxes)]: Okay. The second thing is more about unintended consequences. And I think we talked about this in ways and means, but I don't think we had a chance when the bill was in the senate to talk about these two parts. But there's some new concepts in section two where if a district can manage to keep its overall education spending, or its per pupil spending flat year over year, that they're exempt, that would make them exempt from the excess penalty. And that provision would push quite a bit of property tax pressure onto the homesteads in these low and moderate spent habitats, besides being sort of an odd loophole. This new calculation detail could have unintended behavioral consequences, and it will also make modeling for the December 1 letter and the yield bill less time granted.

[Sen. Ann Cummings (Chair)]: Can you say more

[Sen. Thomas Chittenden (Vice Chair)]: about unintended behavioral consequences? Yeah, I mean, I've been

[Jake Feldman (Vermont Department of Taxes)]: trying to think of them all, and I don't know that I can. For example, for the obvious thing is, suppose in FY '27, your district two is spending 18,000 a ken, which would be quite a bit of low threshold. Then in FY '28, the excess spending penalty is, whatever, 16,800 or whatever it's gonna be. You know, in in current law, you would, as a district, think to yourself, well, we need to somehow reduce it by 1,200 per per student. But with these provisions, you now have two diff two new targets. Well, we we either need to reduce it by 1,200 to totally get out of it, or we need to figure out a way to get our education spending level versus last year, or we need to figure out a way to make our per pupil spending level from last year. So you have two new apps, and there are ways to manipulate your education spending. So remember, education spending and budget minus this whole package of offsetting revenue items equals education spending. So, you know, a savvy district could probably figure out a way to meet those other targets by manipulating the offsetting Barbuda use target. Another thing that could happen is a district thinks, well, you know, let's really suffer for one year. But if we can suffer for one year, then in subsequent years, maybe we can figure out a way to get our per pupil spending level or education spending level. So like, they would spend balloon spending in one year with with a plan to to mitigate it in in future years. And I I haven't thought of all the different ways to to work this.

[Sen. Thomas Chittenden (Vice Chair)]: I mean, you could spend a lot in one year, put a bunch of that in reserve, and then continue spending just a dollar below that, plus have all that reserve available to you, and you wouldn't be over the excess spending penalty anymore.

[Jake Feldman (Vermont Department of Taxes)]: Yes. You could do that. Let's say

[Sen. Martine Larocque Gulick (Member)]: you have paid the tax

[Jake Feldman (Vermont Department of Taxes)]: rate for a couple of them.

[Sen. Thomas Chittenden (Vice Chair)]: But not the excess, but just for one year, and then they would be exempt for five. Okay.

[Sen. Ann Cummings (Chair)]: So that's the difference. If I balloon spent, and I spent way more per pupil one year, the next year, if I keep my per pupil spending level, then I'm not paying the excess spending threshold?

[Sen. Randy Brock (Member)]: For the second year.

[Sen. Ann Cummings (Chair)]: For the second year. Get nailed the first year. Get nailed the

[Sen. Martine Larocque Gulick (Member)]: second other property tax. Right?

[Sen. Ann Cummings (Chair)]: Yeah. Okay.

[Sen. Martine Larocque Gulick (Member)]: I mean,

[Jake Feldman (Vermont Department of Taxes)]: that's Wow.

[Sen. Martine Larocque Gulick (Member)]: I mean, it's mathematically possible.

[Jake Feldman (Vermont Department of Taxes)]: That would be I don't know if that's

[Sen. Martine Larocque Gulick (Member)]: Behavioral and realistic. It's something to

[Sen. Thomas Chittenden (Vice Chair)]: be different. I mean, you think it's behaviorally realistic.

[Jake Feldman (Vermont Department of Taxes)]: Yeah. I do. I think it's behaviorally realistic, and I don't think that we have a handle on what this opens up at this point. But I will say, in FY27, districts who are spending over the threshold, I think it was a half dozen, I think they gave it after, their taxpayers are contributing around 6,000,000 more to the Ed Fund. Exactly. If they can manage to meet one of these outlets in FY twenty eighteen, then that 6,000,000 has to be borne by all the other homesteads, right? So But the savings is borne by all

[Sen. Martine Larocque Gulick (Member)]: the other homesteads as well. Right. But sorry.

[Sen. Ann Cummings (Chair)]: No. Once they go up, that 6,000,000, that's gone in. But the next year, they're not paying the 6,000,000.

[Sen. Thomas Chittenden (Vice Chair)]: If they bring their spending down by

[Sen. Ann Cummings (Chair)]: a single dollar. If they bring their spending down by a single dollar. So there is a $6,000,000 hole in the end fund, which needs to be made up by everybody else. Well, why would there be a hole if they're not

[Sen. Thomas Chittenden (Vice Chair)]: gonna spend Because they're only spending spending basically that amount. They're spending very close to that amount, but they're not paying the penalty.

[Sen. Ann Cummings (Chair)]: The penalty is not going in the second year. If they lost

[Jake Feldman (Vermont Department of Taxes)]: I

[Sen. Randy Brock (Member)]: recall the origination of this was really thinking about how the impact of a family leaving a district could be disproportionate for really small districts, and so we were just worried that smaller districts would be more penalized. So I think that's where this I don't if you remember that conversation points to the effect. I think that's what inspired us. Maybe there's another way to get at that. I just I'm worried that this excess spending threshold would be more punitive for the smaller districts.

[Sen. Thomas Chittenden (Vice Chair)]: I think and I'm curious to hear Jake's thought on the next, you know, the next provision. Oh, sorry. You included both of those exemptions here. Because it's there's two different ways that you can wind up here. And I understand that that the concern you were trying to address, I I guess it feels that you brought this threshold down so low that it became sort of too low for many districts to function with, and so you built in these carve outs that could I I and maybe it's just that I have lot of residual memories of that provision that we put in 01/27 that we did not owe the unintended consequences of, and they were quite large. But I I worry about these kind of provisions and that, you know, sort of a red line that works for everyone, that works for most people is better than a, you know, a waiting line or Yeah. Yeah. I think

[Jake Feldman (Vermont Department of Taxes)]: we were trying to change the technology that what

[Sen. Martine Larocque Gulick (Member)]: we want districts to do is change their spending trajectory Yeah. Regardless of well, regard but more, you know, for the high standards, and if they change their spending trajectory, and that's ultimately what we want them to do.

[Sen. Thomas Chittenden (Vice Chair)]: Yeah. I get that. I just don't know if this does that. I think I don't

[Sen. Ann Cummings (Chair)]: know that we're trying to change spending. I don't think we'd want them spending less on education and cutting classes, which is what's going on. I think a lot of this is trying, and I think we did this yesterday, to say, look, this is serious. You need and you will bring back gives you a bill that's gonna show you know, give you a way, you need to find a way to be more economic. Mhmm. You can't afford to pay a teacher to teach four or five kids anymore. And so, seriously, how are you gonna do that? And I and I was maybe the challenge is this is kind of the one instrument to hit them upside the head and say, pay attention.

[Sen. Thomas Chittenden (Vice Chair)]: But

[Sen. Ann Cummings (Chair)]: how do you give them tools? Because right now, I think what we're seeing are things that aren't educationally advisable, you know, cutting So maybe maybe we can and I'd love to hear Jake's last point, but I'd

[Sen. Thomas Chittenden (Vice Chair)]: love to find a path forward that's maybe not a blog. On

[Sen. Randy Brock (Member)]: this exception, though, if I could add one more thing since Julia's in the room. I remember when this came up, and we did run it with the FY27 numbers and it was I think a handful of districts, you raise a good point that if this were in law that could create some reactive behaviors that might be converse to what our objectives are that have adjacent points. I don't if you recall how many districts actually would have met this exception. Right?

[Julie Richter (Joint Fiscal Office)]: Yeah. Julie Richter, JFO, and I could send the spreadsheet to Autumn too, with the updated budget data as of the May 5, there's approximately 30 districts who would qualify for the school's harmless provision. So 30 districts where either their FY 27 per pupil spending or their FY 27 total education spending was equal to or less than their f y 26.

[Sen. Randy Brock (Member)]: Those same districts weren't hitting the excess of a confession.

[Julie Richter (Joint Fiscal Office)]: Yes. Correct.

[Sen. Randy Brock (Member)]: And would they have hit at one twelve?

[Jake Feldman (Vermont Department of Taxes)]: I thought only, like, a two would have been hit.

[Sen. Randy Brock (Member)]: But, yes, good point.

[Sen. Thomas Chittenden (Vice Chair)]: I and I think the problem I mean, I the modeling that we have about sort of where people would be with existing spending is helpful. But I my concern is that we're actually gonna be changing spending in absolutely unpredictable ways based on these carve outs. There

[Sen. Randy Brock (Member)]: will be behavior adjustments to these. And,

[Sen. Thomas Chittenden (Vice Chair)]: like, totally rational ones. No? Like, I don't think it's anyone getting the system. I think that's just how about this work.

[Sen. Martine Larocque Gulick (Member)]: I mean, you're doing something crazy for one year, then you're just gonna pay the paper at

[Jake Feldman (Vermont Department of Taxes)]: the second grand fee. Maybe. It seems

[Sen. Thomas Chittenden (Vice Chair)]: like you're not because you have a carve out about the paper. There's a

[Sen. Martine Larocque Gulick (Member)]: paper carve out. Get it if you want. So you just.

[Jake Feldman (Vermont Department of Taxes)]: Hawaii, your page. The last one in the Senate amendment, there's another potential way out of Texas spending threshold we can appeal to the Secretary of Education. And that provision would limit the potential cost saving impact of the lower threshold. And I say that because districts will be over the excess spending threshold, but they say they will think to themselves, well, you know, hey. We're still the one twelve, but we can just appeal and and and, you know, the the secretary is going think it's for good cause. So that erodes them from the one twelve. Then it it also reduces the accuracy of the yield setting process because you have no idea what the secretary or the small group is gonna provide. So that means in May, when the JFO has to come up with the yield numbers, they won't be as solid, which will lead to education fund variances and unpredictability. Another thing that it will do is it will make it even harder, and right now it's quite hard, but it will make it even harder for districts to tell voters what their tax rates will be, and would cause delays in when towns can get their final property tax rates from the Department of Taxes, because the Department of Taxes need to wait for the Secretary's group to make their decision. So that would cause a delay there. And my point about making it even harder is that a school district can say, well, think your homestead rate is gonna be one point dollars five but if the secretary decides in our favor, it'll actually be 1.42 So that already we have a system that is, you know, pretty opaque and that's just this new

[Sen. Martine Larocque Gulick (Member)]: choose your own adventure.

[Sen. Thomas Chittenden (Vice Chair)]: We got some testimony from I have no idea who it was from. Maybe it was Jake even. I don't know. It could be a different location About just, like, when we're sort of constantly moving the goalpost in that particular way, how much of it erodes sort of trust in taxes, trust in school districts, trust between voters and Okay. School boards, all of that.

[Sen. Ann Cummings (Chair)]: So maybe at this point, it would be good for us to confirm. Okay.

[Sen. Thomas Chittenden (Vice Chair)]: Okay? Okay. That sounds great. Okay. Thanks. Okay. Thank you.