House Appropriations hears JFO outline of foundation formula, property tax and homestead exemption in education transformation bill

MONTPELIER — On April 7, 2025, the House Appropriations Committee heard Joint Fiscal Office staff describe the education funding provisions of the education transformation bill (H-454), including a proposed foundation formula that would deliver a state “educational opportunity payment” (EOP) to each district, revisions to pupil weights, changes to how property taxes are classified and collected, and a replacement of the current property tax credit with an income-based homestead property tax exemption.

Julia Richter, Joint Fiscal Office analyst, told the committee the EOP “would be calculated by multiplying a base amount that would be in statute and increased by inflation by a district’s pupil count adjusted for certain pupil circumstances, [pupil] weight.” The base amount included in the draft discussed by Ways and Means last week is $15,033, Richter said.

The bill would apply weights to pupils for economically disadvantaged students, English learners and a new special education weighting based on the cost of disabilities; those weights would determine funding under the EOP. Richter said the proposal would repeal current-law tax-capacity pupil weights and replace them with weights that directly affect funding. She also said Professor Colby’s modeling — used by drafters — did not support grade-level weights, so the draft excludes higher weights for particular grades.

The draft would also keep some categorical aid (for example, universal school meals) but adjust others to align with the new formula. The existing special education census block grant would be repealed and replaced with the new special education weights.

The draft establishes two targeted grants: a sparsity grant and a small-school grant for districts that meet statutory sparsity or “small by necessity” rules that staff said will be defined by rule. Richter said the bill includes intent language and required studies — for example, a report from the Agency of Education on transportation reimbursement — to inform outstanding policy choices.

The bill would allow local voters to approve supplemental district spending of up to 10% of a district’s EOP. Under the draft, all districts could raise supplemental spending at the same tax rate; revenues above what the district with the lowest grand list per pupil could raise at that tax rate would be “recaptured” into a supplemental district spending reserve. John Gray, Office of Legislative Counsel, said that reserve would first be available to cover any mathematical shortfalls and any remaining funds at fiscal year end would flow to a school construction aid special fund for grants.

On the tax side, the proposal retains a single statewide education property tax rate that the General Assembly would set annually to meet education fund obligations, but it would apply that rate to four statutory property classifications: homestead (primary residence and house site), non‑homestead apartment (parcels with a landlord certificate), non‑homestead residential (second homes/short‑term rentals or dwelling units without long‑term tenants) and non‑homestead nonresidential (commercial/industrial). Draft language in Ways and Means sets each class factor at 1.0 now but establishes the statutory structure to vary factors in future years.

The bill would repeal the current property tax credit/income sensitivity system and replace it with a homestead property tax exemption tied to household income. Richter summarized the draft’s phase-in as a stepped schedule that phases an exemption down from a high percentage at very low incomes to no exemption above $115,000 of household income; the exemption would be applied to the house‑site value so the tax rate is charged against a reduced value. Richter told the committee the exemption is applied using prior‑year income (a look‑back) but would largely remove the long lag present in the current credit system.

Richter said preliminary JFO modeling (with important caveats) indicates the foundation formula and associated grants could increase state education spending by about $37 million compared with FY2025 levels; separate modeling of the homestead exemption versus the current property tax credit system estimated roughly $45 million in greater cost. Richter emphasized both estimates are preliminary, that special education weight impacts were not included in some runs because the necessary data were unavailable, and that district configuration and other outstanding policy choices will materially affect final numbers. The committee was told the Ways and Means fiscal note would be available to Appropriations the following day.

Committee members asked for clarifications about implementation. Richter and John Gray said most of the substantive operational changes would be contingent on the effective operation of newly configured school districts; the draft’s major changes would take effect July 1, 2029, only after districts are organized and have assumed responsibility for resident students. The bill also proposes changes to the December 1 information letter, a statewide reappraisal cadence and regional assessment districts to ensure necessary data are available in advance of implementation.

No formal votes were taken in the Appropriations committee meeting. Staff said Ways and Means had not yet voted the full strike‑all amendment and that the committee would receive the fiscal note and further materials before making funding decisions.

The committee will continue consideration at future meetings; Joint Fiscal staff provided a high‑level timeline and said more detailed fiscal tables and effective‑date tables would be published with the fiscal note.