Joint Fiscal Office outlines education fund mechanics and options to ‘buy down’ property tax rates

Julia Richter, budget analyst with the Joint Fiscal Office, told the Senate Committee on Appropriations on Jan. 16 that the state’s Education Fund is built from a mix of property-tax and nonproperty revenues and that the Legislature must make annual policy choices that determine how much of school spending is covered by property taxes.

“The way that it works, essentially, is school boards are building budgets that need to be approved by voters,” Richter said. She described the Education Fund outlook as an "operating statement" that shows how policy choices affect the fund’s balance and the property-tax yield the Legislature must set.

Richter walked the committee through the key mechanics: local school budgets are reduced by offsetting revenues (such as categorical grants, federal dollars and tuition receipts) to calculate “education spending,” which is aggregated into the state Education Fund as the education payment. The fund’s other appropriations—categorical aids (special education, transportation, technical education, flexible pathways) and small state-level operating items—also draw from the same pot. Nonproperty revenues (sales-and-use tax, portions of meals-and-rooms tax, purchase-and-use, lottery proceeds, and occasional general-fund transfers) are subtracted from total uses; the remainder must be raised via property taxes.

A key statutory milestone is the commissioner of taxes’ Dec. 1 letter, which sets the assumptions used to estimate revenues for the coming fiscal year. Richter said that, for the Dec. 1 exercise, the state must assume the stabilization reserve is fully funded and that available surplus dollars are used to uniformly lower property-tax rates across the state. She cautioned, however, that the letter and the number used to calculate yields are point-in-time estimates that will change as school budgets are finalized and new revenue forecasts arrive.

Richter summarized how the Legislature used one-time and reserve funds in recent years to reduce property-tax liability. For fiscal year 2025, she said the state used about $69 million to buy down rates, comprised of a $25 million one-time general-fund transfer, a $13 million tax-rate-offset reserve set aside the previous year, and roughly $31 million drawn from Education Fund surplus. She provided year-by-year figures the committee can verify in the Education Fund outlook: about $20 million in FY23 and $40 million in FY24 were used to lower rates.

“If you're assuming that Education spending is going to continue to increase … you’re buying down that property-tax rate one time,” Richter said, describing the “valley” effect: a one-time buy-down lowers rates for a single year but leaves pressure for higher increases later unless other structural changes are made. She estimated that, based on the Dec. 1 data available in mid-January, it would take on the order of $100 million in additional one-time resources to reduce the average statewide property-tax change to 0 percent for the coming year, and that the figure could rise if forecasted Education Fund revenues decline.

Richter also reviewed the statutory stabilization reserve (a target of 5 percent of prior-year net appropriations). She said the reserve was about $52.1 million in FY25 and that meeting the 5 percent target for FY26 would require an additional roughly $3.5 million to reach a projected $55.6 million. She told the committee the reserve could be used to lower rates, but that doing so would require replenishing or otherwise addressing the long-term target.

Committee members pressed on specific line items and examples—why small state items appear in the Education Fund outlook, how universal school meals spending fell as federal drawdowns increased under a Medicaid pilot, and how the Dec. 1 assumptions treat surpluses and reserves. Richter repeatedly noted the difference between accounting projections and policy choices, stressing that uses shown on the Education Fund outlook reflect appropriations rather than final outlays.

The briefing made clear that lawmakers have three general levers to reduce property-tax pressures: reduce Education Fund uses, increase recurring nonproperty revenues, or apply one-time resources (surplus or transfers) to buy down rates, with the latter shifting pressure into future years unless structural changes are made.

Richter concluded by reminding the committee that the Dec. 1 letter, evolving school district budget votes and later revenue forecasts mean the numbers will change between now and session adjournment. The committee did not take formal action at the briefing; members will consider these mechanics as they formulate yield and appropriation decisions this session.