Ways & Means hears administration's "state guarantee" to equalize local school spending

The Ways & Means Committee on Thursday, Feb. 13, heard from legislative counsel and tax department staff about draft legislative language for a proposed "state guarantee," a mechanism the administration would use to partially match school districts' locally approved spending above a statewide foundation amount.

John Gray, Office of Legislative Counsel, told the committee the state guarantee rate would be calculated as "1 minus the ratio" of a district's anticipated equalized grand list per pupil to the median district's equalized grand list per pupil, and that the guarantee amount is that rate multiplied by the district's approved local spending above the base. "It's 1 minus the ratio because we're trying to generate a rate," Gray said as he read the draft language.

The nut of the proposal: districts below the median property-wealth measure per pupil would receive a state payment that covers a percentage of the extra spending they approve; districts at or above the median would receive no state match for extra spending. Gray used three hypotheticals to illustrate the rule: if a district's property wealth per pupil equals the median, the state guarantee rate would be zero; if it is half the median, the rate would be 50 percent; if it were 150 percent of the median the formula would yield a negative number and the draft sets a floor of zero.

Tax department staff described how the dollars would be raised. Rebecca Samrat, deputy commissioner, said a statewide education tax rate would be set to raise both the foundation (base) amount and the aggregate state guarantee after accounting for forecasted revenues and exemptions. "That rate that's being set is meant to produce both the base amount after accounting for other revenue streams and the state guarantee," Samrat said, adding the tax department could notify districts of their match rates in January so districts could incorporate that information into budget planning.

Committee members asked how the proposal would affect local taxpayers and voting. Under the current concept described to the committee, voters would not vote on the base foundation amount; boards or local voters would vote only on any additional local spending above the foundation. If a district's voters approve additional local spending, the state would pay its match for districts below the median; the remaining portion would be raised at the district level. "There's a local vote on local spending," Gray said. "The state guarantee would reduce the amount essentially that they have to raise to achieve the spending that they want."

Witnesses and members discussed how the administration's regional design (five proposed regions in the staff model) and treatment of homestead and non-homestead grand lists affect outcomes. Tax department staff said the proposal combines homestead and non-homestead grand lists into a single tax base and that the draft incorporates the homestead exemption in the equalized net grand list. Staff pointed to modeling from FY 2025 showing interregional differences in equalized grand list per pupil and said equalizing up to the median is a policy choice intended to limit state exposure.

Committee members raised follow-up questions about caps on allowable local spending above the foundation, possible effects on statewide tax rates if one region "maxes out" its allowed extra spending, whether categorical funding would be treated separately, and how efficiencies from larger regional districts might produce savings. Tax department staff said the proposal could include a tight cap on discretionary additional spending (staff suggested a cap possibly in the neighborhood of 5 percent of the foundation amount as an example), but that many parameters remain policy choices for the Legislature.

Jake Feldman of the tax department and other staff said additional modeling would help the panel evaluate fiscal exposure under different scenarios, including more districts (for example 12) instead of the five-region model and separating homestead and non-homestead treatments. Committee members asked staff to return with scenario modeling and estimates of maximum state exposure under the match formula.

No formal vote or legislative action occurred in the committee meeting; the session consisted of staff presentation and member questions. Committee members requested follow-up materials and scenario analyses at a future meeting.

Next steps noted during the meeting: staff said districts would be provided match-rate estimates in January under the draft timeline and the committee asked staff to return with scenario modeling showing the state's potential exposure and the distributional effects of alternative parameter choices (different caps, different median targets, alternative district counts).