On Tuesday, the Senate Finance Committee took up H.492, which sets the property tax yield amounts that determine local property tax rates. Representative Kornheiser and Representative Beck from House Ways & Means joined the Committee to explain the bill.

Kornheiser led off by saying that the expiration of ESSR funds, as well as the increase in school spending, are inter-related and expected. Schools drew down those funds to meet lockdown-related education needs over the past few years. She believes that spending will remain high, as those needs have not fully dissipated yet. However, “we are fortunate that we still have a significant amount of revenue going into the [Education] Fund.” Much of this revenue can be attributed to an increase in federal spending which prompted local spending and increasing property values that resulted in tax revenues that exceeded expectations. Because of these excess funds, the state has “a lot more money to possibly lower property tax rates in the yield bill.”

Kornheiser is also “very aware” that the pupil weighting changes are going into effect this year and that school districts will be experiencing a “real change” in their tax capacities next year. It is unclear if per pupil spending will stabilize or continue to grow at similar rates.

It seems likely that in FY2024 we will also have “unexpected revenues” and she joked about how long we can call these “unexpected.” However, she acknowledged that we cannot keep assuming this year to year. This conclusion led them to develop a secondary reserve fund and said the “bubble is a bubble” that is not going to burst, but that the “bubble that is going to decrease.”

Their proposal was to take some of the FY24 Education Fund dollars and hold them with the intention of applying them to the following year’s tax rates. The idea being that if they used all the funds currently available to lower tax rates now when they could see a larger increase next year.

Beck described the proposal as using the same yield amounts that were forecast in the December Letter (which is what districts use to estimate their property taxes).

That leaves the state with a $22M “chunk” to alleviate any uncertainty on volatility next year.  It seems unlikely that another $65M surplus (like this year) will materialize for FY2024.

Chairwoman Cummings wanted to be absolutely certain that the (seemingly now permanent) universal school meals program does not slip by unfunded in future years (for FY2024 it was funded out of the surplus). She noted that some districts did universal meals on their own because even “paying someone to operate the cash register was more costly.”

Next, the Joint Fiscal Office (JFO) presented the latest Education Fund outlook. Cummings noted that when they decided to put cost of living adjustments (COLAs) in statute for the pension funds in 2016, no one anticipated the inflationary rates we see now. “We need [more] money in the pension fund to make the fund whole,” she stated. There is a proposal in the bill to make an “extra” $3M payment to the funds to offset these COLA increases. However, there is some concern that may not be enough.

Senator Kitchel joined the Committee and explained that they have “spent a lot of time” putting together a package to “get us” to 2038 (when legislators hope that the pension funds will balance out). There wsd also interest from the Speaker and Pro-Tempore to revert the methodology back to the pre-2016 version, but that would likely require an additional $9.1M one-time payment to “revert back” according to the actuaries, she claimed.

She would prefer they go ahead and pre-fund the reserves now so they don’t have to re-visit in the future. She is worried about counting on the “uncertain future” of surpluses to close the gap.

Pivoting, Cummings indicated that she thought this bill would potentially be a good vehicle for changes to Vermont’s Bond bank that would provide it with more flexibility to loan funds with “alternate financing of assets” such as greenhouse gas reduction projects. This additional flexibility would allow them to better leverage available federal funding. Read more…

Senator Brock asked about what entities could actually provide this sort of program funding currently. The response was that there was currently “nothing helpful” and the alternatives might be national credit unions.

Cummings wondered if this was the right bill to put language around this, but asked for it to be drafted so they could take a look.