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Administration raises concerns about S.220 changes to excess-spending rules, potential incentives to 'spend up'
Summary
Witnesses warned that S.220’s draft changes to the excess-spending threshold—especially broad bond-payment carveouts and an appeals route to the education secretary—could create loopholes and perverse incentives that shift costs across districts and complicate yield setting for the Education Fund.
Witnesses from the Department of Taxes told the Ways & Means Committee that the version of S.220 now before the legislature departs substantially from the Senate’s original capped-bridge concept and instead modifies the state’s excess-spending threshold with broad carveouts.
"It has some new carveouts ... one of them is that for the current excess spending threshold it allows you to exclude bond payments from consideration if they were passed before July 1, 2024," a tax official said, adding the bill as written could be expanded to allow all bond payments to be excluded. Tax staff warned that allowing broad exclusions shifts property tax pressure across the system because higher-spending districts could build or improve facilities without those costs counting toward the excess-spending penalty.
Committee members and witnesses discussed the Colchester example: Colchester’s bond schedule may place it over the excess-spending threshold because of a bond payment schedule that increases before decreasing. Witnesses said that while a project may be locally strategic and address health and safety needs, blanket exclusions or broad appeals would remove statewide incentives designed to restrain rapid spending growth.
The draft S.220 language also includes an appeals path to the education secretary and a small appeals group, which witnesses said could blunt behavioral incentives of the threshold if districts expect broad waivers ("for good cause or beyond the district's control such as due to emergency capital expenditures or substantial loss of pupils"). Tax staff said that broad appeal language could hinder JFO’s ability to produce accurate yield estimates for the Education Fund and make rate-setting harder ahead of late-June calculations.
Members raised the risk that a new provision allowing districts to be exempt if they keep per-pupil or total education spending flat could create opportunities to "spend up" in one year to lock in exemptions for subsequent years. Witnesses described past attempts to manage timing effects (Act 46-era actions) and warned of contract-timing and fund-balance management that can produce arbitrary results across districts.
Tax staff also flagged programmatic pressures such as mental-health costs (the Department of Mental Health was reported as running a 27% vacancy rate), which shift costs into local school budgets; they urged that appeals language be narrowed to truly exceptional events if an appeals path remains.
The Department of Taxes recommended lowering the threshold and removing broad offramps and broad appeals as one approach to preserve the threshold’s behavioral effect as a bridge to a foundation formula.
