Joint Fiscal Office walks Ways & Means through Education Fund outlook, reserves and CLA changes

Ezra Holden, fiscal analyst with the Joint Fiscal Office, briefed the House Ways & Means Committee on Jan. 15 on the December 1 Education Fund Outlook, describing how revenues flow into the fund, how appropriations and reserves are set, and how recent formula changes affect reported tax rates.

The presentation laid out the top-line revenue mix for fiscal 2026, the mechanics of education appropriations and categorical aid, the statutory stabilization reserve, and how prior‑year reversions and one‑time transfers affect the fund’s unreserved balance. Holden and staff also explained a change in the way the statewide common level of appraisal (CLA) is applied in the yield model, which raises pre‑CLA district rates on paper while aiming to reduce disruptive swings between preliminary rates and final bills.

Holden began by differentiating the major revenue sources in the Outlook. For fiscal 2026 the forecasted mix presented was about 34% gross homestead property tax, about 39% non‑homestead property tax and roughly 33% from non‑property taxes; those shares reflect gross figures before subtracting property tax credits. "We have something in Vermont called the property tax credits," Holden said, noting that credits appear as negative revenue and reduce the gross shares to arrive at the fund total shown on the Outlook (line 10).

Committee members asked how other programs interact with the Ed Fund. Holden and staff clarified that the renter rebate is a separate policy funded from the general fund and does not appear as a direct cost in the Education Fund Outlook. "The renter rebate is not showing up in any of these lines," staff said when asked whether the rebate affects the Ed Fund totals.

On the appropriation side, staff again explained the technical term "education payment" — described as a district’s total education spending minus offsetting revenues — and walked the committee through categorical aid lines (lines 12–21) that fund discrete services such as special education, transportation and small‑school support. Staff noted that some categorical lines are driven by statute or formula, and that policy changes can alter particular lines; for example, Act 127 changed the small‑school and merger support amount, producing a large year‑to‑year movement on that line.

Special education funding was highlighted as one categorical line with both historical and recent drivers; staff referred members to the Agency of Education budget documentation for detail and said the committee will take additional testimony on specific lines. Staff also referenced Act 173 in describing the census grant element of special‑education funding.

Holden moved from revenues and appropriations to allocations and reserves. The committee was reminded that the stabilization reserve is statutorily established (Title 16) and set annually at 5% of the prior fiscal year’s net education appropriations. That moving target means the Legislature may need to transfer the difference into the reserve each year; staff pointed to the Outlook lines showing a higher stabilization target for the coming year and the corresponding transfer required to reach the target.

The briefing covered prior‑year reversions — dollars that were set aside in earlier years but not spent and therefore revert to the fund — and used a $24.3 million reversion in the FY24 column as an example of money that became available when prior books were closed. Staff also explained the December 1 modeling rule that requires a uniform rate change across homestead and non‑homestead classes for that letter, which can leave small, residual unallocated balances in the Outlook because the model cannot tweak rates to arbitrarily fine precision.

Holden and staff pointed to one recent, unusual adjustment: a budget‑adjustment transfer that moved cannabis sales revenue out of the Education Fund and into after‑school programming where it had been originally intended. Staff described that as a relatively rare one‑time transfer and said it sets a precedent they are flagging for future planning.

The presentation closed by describing the Outlook’s bottom line for fiscal 2026. Staff said the December 1 letter carried a prior‑year unreserved/unallocated balance — about $33 million in the model — and that the current projected unreserved/unallocated dollars for FY26 were roughly $930,000 under the December 1 assumptions; that leftover is the Outlook’s unallocated "bottom line" after the model funds appropriations, stabilization and any additional reserves.

Committee members asked detailed technical questions about the CLA math and the yield bill changes adopted last year. Staff summarized the change as a move away from adjusting every town up to 100% of fair market value toward adjusting towns toward the statewide average CLA (about 70% in the staff illustration). Staff said the intent of that algebraic change was to reduce the gap between preliminary pre‑CLA district rates and final post‑CLA tax bills, noting it raises pre‑CLA district rates on paper while aiming to reduce disruptions at the town level. Staff emphasized that the CLA change does not directly change the final tax liability that appears on property tax bills but does change the way district rates are reported and modeled.

Holden and staff said committees will take deeper testimony on many specific lines in coming sessions — including a dedicated look at sales and use tax and a focused session on CLA and the yield calculation. The presentation concluded with staff offering follow‑up materials and noting further hearings and testimony will be scheduled.