House Ways & Means hears mechanics of "excess spending yield" in draft education finance bill

The House Ways & Means Committee on April 1 heard the Joint Fiscal Office explain how draft 1.1 of an education finance proposal would calculate an "excess spending yield" to equalize tax rates when school districts raise spending above the state foundation formula.

Julia Richter, Joint Fiscal Office, told the committee the yield would be set annually by the Department of Taxes in the December 1 letter and used to convert each district's chosen excess spending into a tax rate. "Everything in here are example numbers, unless otherwise mentioned," Richter said while walking lawmakers through the mechanics and three made-up district examples used to illustrate calculations.

The discussion matters because the proposal ties the tax rate for spending above the foundation to a statewide yield based on the school district with the lowest property-tax capacity per pupil and because draft language benchmarks that district at 80% (0.8) of its equalized grand list per pupil — effectively creating a built-in cushion that would send some locally raised dollars into a state reserve.

Richter described the calculation in steps: compute each district's equalized grand list per pupil (total equalized grand list divided by long-term average daily membership); identify the district with the lowest grand list per pupil; apply an 80¢-per-$100 (0.8) rate to that district's total grand list to get total revenue; divide that revenue by the district's pupil count to get an "excess spending yield" (her example produced an $8,000 yield). Districts' excess spending per pupil are then divided by that yield to produce the local excess-spending tax rate. "So the excess spending yield would be $8,000," Richter said in the example.

Using Richter's three artificial districts (A, B and C), all of which chose an additional $2,000 per pupil in excess spending in the example, the yield produced a uniform excess-spending tax rate of 25¢ per $100 of property value. Because grand lists differ, the amount raised on that 25¢ rate varied by district; the draft would send the difference between what is raised on the equalized rate and what each district approved for excess spending into a state reserve. Richter said that, as currently drafted, money held in the reserve would be retained for about a year to account for recalculations, then be transferred into the school construction special fund.

Committee members repeatedly pressed on the policy choices and consequences behind the numbers. Representative Holt warned of behavioral effects: "There is a real risk here," he said, describing the possibility that communities would try to raise needed funds outside the formula if the penalty for using the state mechanism is too large. Representative Maslow and others asked how the choice of district configuration — district size and which towns are grouped together — would change outcomes, since the calculation depends on which district has the lowest grand list per pupil.

Several members asked whether the 80% benchmark is a penalty and whether it should be 0.9 or 1.0 instead. Richter confirmed the 0.8 is a policy choice: benchmarking the lowest district at 80% rather than 100% means that the lowest-capacity district will effectively contribute part of what it raises to the reserve. "If this were to be a dollar ... by saying it's 0.8 ... we're benchmarking against 80% of the district's grand list," she said.

Lawmakers also focused on follow-on questions that the slides did not address in detail: whether a cap on excess spending would be included elsewhere in the proposal; whether excess spending should be measured as a dollar per pupil or a percentage of the Educational Opportunity Payment (EOP); and how the policy would interact with proposed changes to district configuration. Richter said those are separate policy decisions and that her slides were illustrating only the mechanics of equalizing rates if districts are allowed to raise above the foundation.

No motion or vote was recorded on the proposal during the segment. Committee members asked for additional examples tied to possible district maps and for slides that show alternative choices for the benchmark (for example, 0.9 or 1.0) and for further detail on how the reserve would be administered.

The committee paused the discussion after roughly 50 minutes of detailed questions and examples; members said they would return to further work on the draft's parameters, including how to measure excess spending and whether to include a statutory cap.

The Joint Fiscal Office provided the calculations and examples, and the Department of Taxes was identified as the agency that would calculate the annual yield in practice. No formal decision was made at this meeting.