 So good morning, everybody. This is a joint committee meeting of House appropriations and House Ways and Means on Wednesday, April 29th. And I want to welcome everybody here. I think we have just about everybody from the two committees. And what we're going to do today is here. Information about revenue from Tom Kovett. I want to sort of set the stage that this is not a revenue forecast. This is maybe not even an update. It's Tom Kovett's best information that he has at the moment to share with the two committees about what's happening with the administration at some point there will be a consensus forecast and Tom may want to talk a little bit about how that will unfold. So, Kitty, I don't know if you have a few words you want to say to get it started. No, I just want to note, Teresa will be there. There's two handouts. Will they be shared on the screen at the same time. I will be sharing the source. I'll share them on the screen. So if members aren't we're not able to print them off or don't have a second device to look at we will have them on the screen. And as I mentioned earlier if we could hold off on questions until the ends of certain sections. And that way I think the information will will will roll out more smoothly and that we can get bogged down on one section but be able to get the entire overview from Tom Kovett. If you would use your hand you we all know how to use our electronic hands and I see representative Hill you have a question. Your hand is up. Not a question just a request that people please mute themselves I'm getting a lot of feedback already. And there are about five or six people who are not muted. Okay, thank you George. And when you do have a question don't forget to unmute yourself. At least we see it a lot on the house floor or even in committee people start to talk but you got to unmute yourself first. So Tom welcome and I think we should just jump in and get started. We're happy to have you. I wish the news would be happier than it is but we can hear your latest thoughts on where we are. Thank you very much kitty and Janet. We've been doing revenue forecast for fiscal 20 since May, since March 11. And we flagged potentially 80 to $100 million in revenue vulnerability. Since then, and I, it's, it's grown a little bit since then for FY 20, and we were asked to start framing FY 21 order of magnitude kind of estimates a week or so ago. We've been doing this jointly on a consensus basis, and all of the FY 20 data that are included in the documents that are handed out today, our consensus, but FY 21, as Janet mentioned is not. So, I went ahead and did runs using all the same models that we use. We have macroeconomic assumptions from Moody's. We've modified those slightly and and and have done a run through all the categories. There is phenomenal uncertainty right now, which is why there's good reason to be forecasting frequently and updating frequently as new information comes in. And the other thing is that it really important to remember is that this is not primarily an economic event. This is an epidemiological event with huge economic consequences. And it's controlled by the epidemiology and to with secondary effects, mostly in the form of federal offsets to try to mitigate some of the health consequences of of this so we've been spending more time looking at epidemiological models and what that might mean for both understanding how deep is the hole we're in now, and what are the potential paths out that that might be reasonable to consider. There are four or five models that have state level estimates that we think are good. We've also been working with people in the administration might be a check who who kind of has coordinated for the administration that information. And so we're all in sync with that and and had an opportunity to talk with model developers of the epidemiological models to a T they will all tell you the quality of the inputs that they've had have been subaltern. They have not had there's not been enough testing to populate the models in a way that provide really rigorous output. And that's why you've seen the models jump around quite a bit in terms of, you know what the peak dates might be what the hospital resources might need it might be, you know various things like that. We've also been looking at other countries to try to get some idea of what paths out might look like. And also, early on what problems with hospital health care utilization, and the like, we might be confronting. So, so that's, that's one set of issues. And, and there's phenomenal uncertainty there. We couldn't get any of the epidemiological modelers to do projections longer than about eight weeks. So, you know, when we start talking about fiscal 21 were beyond those models, but the considerations that are epidemiological are the most important ones, you know, saying, you know, to what extent, you know, will will infections And as was mentioned before this started. The state has been very successful in social distancing. The metrics from Google and a couple other sources that we have show that there's been very, very high compliance in Vermont with that. And as a result, you know, the stats today. Anyway, you look at them are very, very good. That's a good place to be starting from. But looking at other countries and understanding what we know about the the viral spread. There's a there's high risk in a resurgence at some point. Unlike some places like New Zealand that, you know, basically are claiming they've eradicated it, and they're an island and can control who's coming in and and test people coming in and things like that. That's going to be much, much harder in any of the United States. And particularly in Vermont, where there is a lot of interstate commerce and some of the critical economic sectors that eventually we'd like to be starting up again will involve a lot of connection and commerce with surrounding states and urban areas, which have had much higher infection rates so the epidemiological realities are what's driving this the huge federal offsets are completely unprecedented. There's almost $3 trillion that's been committed so far, and probably another trillion or so will still be forthcoming. At least we hope it'll be forthcoming because much of that would be targeted towards aid to state local governments and and that will be a dire need as these revenue numbers show and and as as you've all been hearing from people in other states as well. So that the way those funds flow though will be very important to measuring economic and revenue impacts. And it looks like today. Whoops, okay, we've got screen sharing sorry. It looks like today, Vermont's been getting a disproportionate share of the federal monies are our receipts from the pay tech protection program have been north of a billion dollars. That substantially above are the state share of GDP relative to the nation. But exactly how that money will be spent and when is is up in the air. Just, just to give you an example with the PPP program. One might have expected that a lot of the relief would have gone to things like restaurants and leisure and hospitality businesses that have been very heavily impacted impacted and I have many small businesses that are that comprise the sector. I, in, in fact, the, the share that's gone to leisure and hospitality is is behind four other categories of business, including construction professional and technical workers. You know, and, and the, the monies that are received because businesses don't have to show harm. Basically the money's flowing to lots and lots of small and not so small businesses, not necessarily those that need it most. There's a lot of potential capacity but it won't necessarily rectify some of the layoffs that have occurred early on, and it also won't deal with longer lasting impacts, unless there's a third and fourth and fifth version of the same thing. So, there will be some sectors that see very long lasting impacts. In addition to the epidemiological issues and the, and the federal offsets, there are also behavioral issues that will be really important. So how consumers react to some of these things will be important. There are levels of fear that can control act economic activity that could supersede any of the dollars that are handed out so even if things open up. We've seen this in Georgia, just very recently, where businesses were told they could reopen but many of them didn't. And those that did some had early rushes of customers and then later it's looked like a, you know, customers just aren't flocking back in. So, I think that will be another issue, especially in tourism related businesses. There, there will be a reticence to, to just coming right back and it's not like, not like that will be a quick bounce back. So anyway, that that's another set of issues that we're considering. Lastly, the economic statistics that we rely on to to populate the economic models are, are likely to be somewhat unreliable. So an example is the unemployment rate. So the unemployment rate in Vermont based on initial claims for unemployment insurance is almost certainly north of 20%. We've seen continuing claims above 70,000 in the state, but the actual unemployment estimate will come via a survey that's done in April. And this survey depends on a response rate that in part is stimulated by follow up actions, everything from, you know, lots of calls and such to knocking on doors. Well, the staff doing this isn't knocking on any doors right now. So, that will affect the, the this particular metric and its accuracy, and then furthermore BLS models those results and the data turns into the unemployment rate that we commonly look at it's, it's, there are six different rates I think I've shown at different times to the committees all these different rates and how they vary but but you three is the most common one. One of the questions in you three is are you looking for work. You have to be actually you have to say yes I'm looking for work to be considered unemployed by that metric. A lot of people who have been laid off aren't looking for work they're waiting for their job to come back. They, you know, the reply may say I'm not looking for work and therefore the unemployment number the headline number may be much lower than what it really is. So, there are things like that we have to take into account. The other thing is, almost all economic data that we're using is backward looking so you know we're, we're, we're getting statistics now that that relate to a month earlier several weeks earlier. And we've been trying to develop more timely stats we've been working with the tax department to get real time feeds for key companies and key taxpayers that will help give us insights into particular industries. The loss of the meals and rooms and sales and use filings because of the deferrals is a really clouds our ability to do as much analysis as otherwise we could have these two critical sectors and and tax sources but we're still able to look at collections of taxpayers that are paying or our filing bang to get a clear understanding and we're doing that on a on a weekly and sometimes daily basis. We were also working with the utilities in the state have been really cooperative in providing daily electricity consumption data by sector. That's a useful window into what's really happening or where people are so that'll be useful that's been useful both to look at what kind of the clients we've gotten, but also as we start to come out of this. To what extent are we really emerging and and which sectors and where is is there some resurgence. We ran these numbers without the benefit of month and tax data and April's a critical month because it's the first month that they'll give us a window into this period in the second half of March, when the shutdowns really started. And so we'll have that data finalized in a few days, and then we'll be able to go in and start doing these sorts by individual company and groups of companies will be grouping them by NAICS codes. That involves assigning a lot of companies NAICS codes because they're not all in the tax department data. There's a lot of legwork involved in that but hopefully we'll be using some of these other stats to help us. See into things more quickly because this has been incredibly rapidly moving and things have been changing. Really quickly, but I think it's hard sometimes to understand this in typical economic terminology. It's not a traditional recession. It's a plan temporary shutdown, and then they're going to be lots and lots of knock on economic effects from this. The revenue estimates in the tax attached sheet, you know that that sources just put up, and you all have as handouts, and there should be some notes that that are with that as well are our best understood as order of magnitude type estimates. And just to give you a sense of that, they're roughly triple for FY 21 relative to the January forecast or roughly triple the losses of FY 20. So it's not like this is just going to be a steep second quarter drop and then things are going to bounce back. It will be much longer lived and and and uncertain pending what happens epidemiologically. So there, you know, there are a lot of things going on at a more detailed level. One of the hardest hit tax categories as meals and rooms of course that's both affected near term by an almost complete cessation of activity, and will be much slower and coming back. And then also a lot of spending on tourism and and travel is done by older age cohorts. And that is a group that's most affected by the virus and and probably will be the most fearful about coming back so that sectors likely have more long lasting impacts into FY 21 and beyond corporate tax to is something that can swing wildly because it's based on on profitability and people tend to pay ahead so estimated tax payments are payments based on normal flows of business and business was really cooking leading up to this. So, you know, corporate receipts were looking very good we even had an extraordinary payment in March, which, which had to do with merger and transition activity, which is kind of thing you get when the economy is really doing well. But the flip side is corporate profitability is turned on a dime, and, and the cash needs the corporations have are huge. The corporations are hoarding cash. And not only will estimated payments drop but we'll start to see probably some refunding, and that could swing corporate revenues hard down personal income tax is sort of has lagged because it's what happens in calendar 20 that will be that will affect next April's collections so that also has quite large fiscal 21 impacts. So anyway, that's, that's sort of where we're at with this. This is going to get refined and, and in a couple of weeks we will have a consensus version. The administration wanted to have all of the April data in before they started in on it and it will be no later than May 15 but hopefully a little bit earlier. If we can process that will have a consensus version of the same, but we will be using the same macro economic data that was purchased jointly with Jeff Carr so I, you know, I think I order magnitude I don't expect it to be radically different, but we'll, we'll be doing, you know, a lot of fine tuning to this, and even to FY 20 will have better information when we fully fully analyze April, April data. So I'll throw it up to questions. Now I think that's, that's sort of most of the overview. Thank you, Tom. Go ahead. I just wanted to make one comment so as we go ahead with the budget adjustment for fiscal year 20. The data in front of us is consensus. It's, it's fiscal year 21 that we will receive in mid, in mid May. That's right. Peter. And Tom, thank you. So the personal income tax data that you have on here for Q4 of FY 20 shows a down of almost $177 million. Does that take into account what they anticipate they will receive on 15 July, because it was pushed back from 15 April. So all of the FY 20 you'll see on that sheet, it has the, there are separate columns for the separate column for the shift, it's called. So it's a FY 20 to 21 shifts are called out. But the, the final numbers for FY 20 and 21, that are the farthest to the right. Do not include those shifts because right now the understanding is that the tax department will be able to count those in July when they come in and, and count those as part of FY 20, even though the counting will take place later. So they feel like they're, you know, they're comfortable being able to capture and identify and separate that revenue and move it back to FY 20. So right now, we're assuming that that will get cleaned up for cash flow purposes. We call it out there and we do estimate it separately so those shifts are pretty substantial as you can see. And, but, but the final numbers when I'm talking about FY 20 and FY 21, I exclude the shifts there. All the revenue goes into the year that it was supposed to go into. And you can see, you know, a lot of those shifts are pretty, pretty large but if you go all the way over to the right hand column in the, in the yellow thing where it says FY 20 revenue. That's the revenue, excluding the shifts. Thank you. Chip, then Emily. Hi, Tom. So you said that the Legion hospitality industry is, they have a low use of the payment protection program relative to other sectors. So I'll assume that that in part means that they just haven't applied for it. And if that's true, do we know why? We don't have a lot of good information right now that's statistical anecdotally smaller companies and particularly in the restaurant component of that, the entities can be quite small. The initial applications were, were banks favored their larger customers and customers that had borrowed before. And the application process required going through a bank. And it's a lot of the small, smallest businesses complained that they couldn't get a bank to process it. And, and they were left out of the first, first round altogether. It's not a terribly complicated application, but there are some steps that, you know, could could cause some difficulty or might be hard to understand for some of the smallest businesses. So, I haven't seen statistics, you know, that break that out further but anecdotally that's, that's what I've heard. What might be coming into play with this is that a lot of them shed their workers early on, and they, you know, they're concerned about taking out a loan, then refiring the workers because most of the money has to be used for payroll. Not being a physician in three months to really be back in business not having enough demand to still support the business and then having payroll obligations and all the expenses of starting up. So, I think there's there's been a mix of things that that have played into that. I also think that when there's a restart, some of the lowest paid workers will be better off being unemployed with it with the extra money the $600 a week extra that's that's provided through July 31 will be better off to remain unemployed until July 31 rather than coming back, and there's and the employees also have safety concerns so I think there could be real issues about getting workers back into some of those establishments. Thank you, that whole kind of ring true. One other question you said it, we may have difficult to getting an accurate unemployment rate. For the reasons you described, are there are negative consequences to do that, if we, we aren't able to get a accurate picture. Well, it just means for my purposes, I, you know, those are stats that we use in the economic models that we then estimate revenue impacts from. So, in, in the case of the unemployment rate if it comes in way too low. We'll use a proxy that we think is more accurate. So I think probably something like a little bit above 16% is about the lowest that I think I would use but we'll, we'll, we'll plug in some other number, because we don't believe it, but it just is a lot of work to derive something that we think is, you know, what the number should be. That said, I've spoken at length about this with Matt Berowitz who's the economist of the Department of Labor, and he said that state BLS economists, which, you know, BLS is funding the, the, all the statistical work at the Department of Labor are, are all saying that, that, that BLS should be using the data without all the massaging that typically gets done to try to stabilize erratic data, because the data aren't erratic because there's noise and, and collection problems primarily, they're erratic because there's this unprecedented event. So, we'll see how they come out but it just might mean that I have that, that Jeff Carr and I would have to agree on numbers that we think are more realistic plug them in, and hopefully, you know the system catches up with it. Thank you. Emily. I'm sorry there's a printer going very close to my head and so if it's as loud for you as it is for me I'm sorry. This is sort of an amateur question but what is CHYA on the chart. Well I'm sorry. Percent change year ago. Thank you. Yeah, CH change why a year ago I'm sorry. Yeah. Kitty are you trying to. I did I can't raise a hand as a coho so. I wanted to I just wanted to go back to chips question Tom about the PPP program. I have a small machine supply company in St. John's very who's reached out and I've had some other in Vermont size their medium but they're small compared to the rest of the world businesses, who almost wish they, well at this point they wish they hadn't even applied for the program, because the guidance still is so murky, and the clock is already ticking that if they've received the money they have eight weeks to get it out but their employees aren't back and employees don't want to come back, and they don't know if they can meet the timeline and they don't, they don't want it as a loan. If their employees eventually come back and they feel they're going to be on the hook for money, and even they've had lawyers look at it and lawyers are disagreeing on what it means and even lawyers at national levels for, you know, an industry at national levels are not agreeing and and they just feel the PPP program is really they're uncertain if they should be in it, not knowing what the end result is going to be have you heard these, these types of issues. Yes, absolutely. And they're making up the rules as they go. So there are a lot of open questions that haven't been determined. And so, you know, the, even, even as they were launching this, you know, it was announced at an interest rate of half a percent, and they just change it to one percent. And, you know, they're just a whole bunch of things that are really important components of it for people that might be getting it, that are either changing or ill defined. So I don't know if they're going to end up being very generous with those kind of things, or if they're going to be, you know, strictly auditing stuff, it's hard to say. I went through the process on behalf of a nonprofit, for which I am on the board. And so I did the application and and so have that personal experience with it. And it was a head scratcher, you know, just to, you know, I mean, I know what the intent is. So I'm thinking, All right, they'll be reasonable about it. And, and, you know, otherwise this entity is going to have to lay off people. It's a relatively small nonprofit, but they're about 20 employees. And so it's I can sympathize with the businesses that are trying to figure this out. And, and the clocks ticking. We were one of the first ones that, and so that Friday when the door was supposed to be open, we tried to apply with Citizens Bank. They wouldn't even, they said they didn't get direction from Treasury that was adequate until the following Tuesday. So four days later, even then the application took quite a while. It was, we signed documents last Friday, but there's still no money. George. Yes, thank you. Tom, thank you for that presentation. But I also, I wanted to go back to the chart that we have and make sure I'm understanding it clearly. If we look at the second line, the total general fund, and I look to the far right. Well, the 2020 consensus forecast is minus 4%. And then the best guess at 21 is minus 14%. That's an additional 14% on top of, on top of that. The, the 4% for 2020, correct? That's correct. And then the only other, the other question I had is just curiosity, but why is the percent drop in the meals and rooms tax different for the Ed fund and the general fund. So it's about a percentage point difference. Is that just math that I'm. Well, I'm not sure if that's a rounding sort of thing. I mean, that's allocated by a formula. It's pretty close. But the formula shouldn't change between the years. I'm trying to think if there's any other small nuance that's going into that. That's right. I don't need an answer now. It's just a curiosity. I don't see that it's slightly different. I'll, I'll, I'll look into that. We could have to do with the, with the exclusion of the shifts, but yeah, it's more or less an identity. So that should be that percent change. I think should be the same. I'll look at that. I'll look into that and see if that's an issue. Tom, I've got a couple of questions. One, if you can sort of help us understand how we compare to other states in terms of what's going on and with revenue. And the other question is, when you do a revenue forecast, you often describe the risks and the risks being on the upside or the downside and maybe some idea of what those risks are and perhaps you could talk about that a little bit. Yeah. I haven't seen a lot of other states revenue forecast. The Federal Reserve Bank in Boston shared some recently with the, with the six states that are a part of, of, of that. Massachusetts had done three scenarios and they varied by a factor of 10 in terms of the revenue loss. So, you know, from half a billion to five billion. And so that just gives you an idea of, you know, that's sort of like saying, we don't know. And fair enough, it's, it's, it is highly uncertain. None of the other states had official forecast out for FY 21. Maybe one other did, but they're, they're just starting to come out and of course they're going to be based on models like the Moody's model and things like that. And effectively Moody's just the credit rating part of Moody's came out with a report that was in the news this morning saying about $160 billion across all states. But two days earlier, the Moody's economics group, the analytics group that produces the macro models that we work with. They said it would be more like 200, possibly as much as 300 billion across state government. So, even within the same entity. There's, there's that much variation. We're looking at forecasts that are done by some of the economists that participate in the Wall Street Journal surveys. There about 75 economists with that and, and a handful of them are people I know personally so we've gotten some forecasts from people there, they're all over the map. You know, some of this being like a very short duration thing and it comes right back. Others say the second quarter is not the worst CBO just came out with a forecast that was saying the third quarter is really going to be worse than the second quarter but the, but then it's improving others have a second wave, they're quite a few that have a third or fourth quarter 2020 blip back up, you know, real another second wave infection and a second shutdown and things like that. So you just get very different scenarios based on what what's out there. In terms of risks that it's not sort of the normal economic risks that, you know, would be saying okay, there's an imbalance and that needs to be corrected in order for growth to resume. And then there are a lot of knock on effects to that, but we know what the rebalancing needs to do we knew what we're housing prices needed to be in order to be back in balance after you know the real estate crash that occurred. There's, there's nothing like that going on the economy that's driving this there. There are parts of the economy that were arguably out of balance or at risk and they were those things that on that, on that matrix of revenue risks and the last revenue forecast we had, you know, so the stock market was listed as something that, you know, was a vulnerability because it's arguably overvalued. Well, one of the first things that happens is it loses a lot of value, and corporate bonds, junk bonds, corporate leverage is really really, really high. And that's a real vulnerability that secondary effects can be problematic. So it, you know, it kind of anything that's vulnerable, it, it lays bare. But I, but I think the risks are more the epidemiological risks that you all are aware as aware of as I am. I don't have any special insights into that, George, maybe you, you know, could could speak to that or, you know, people that look at it and we're in touch with all the people doing these epidemiological models. But it's not like there's a lot of clarity going out a year or two years. I think you're muted. Yep. Am I on. Yeah. All right. Um, yeah, can I, and I hate to do this to you, but we were on the the PPP program there a little while ago. And I just have a small question on that. I had a company apply and they did everything right went through the bank that he did the whole thing and got it in right on time, only to find out that small companies in the eyes of the federal government had bombarded them. Now, in the eyes of the federal government, I believe a small company is up to 500 employees. It's not small in Vermont size. But anyway, so all these guys a little guys with 25 employees got got lost on the whole thing. I have heard this is my question now. I have heard that. Recently, the federal government is going to put in another bunch of funds for that. And a couple of questions, what is that true when will that be and will it be more targeted for what is in rural communities a true small business. Yeah, so the second tranche of that was approved recently. And it's had some applications startup problems that that were similar to the prior one. With that there was, there was some carve outs of of part of the additional money was to be allocated to under served areas and the smaller banks, so that they would presumably get to just those those those folks that you're talking about. It remains to be seen whether that is really the way it'll happen. They've also been trying to limit the big banks from pushing through like hundreds of applications all at once. And the bigger banks are just better set up to, you know, to do that so they've been dominant today. So anyway, that was the intent of the second round of it. I think it'll be very, it'll be fully sub subscribed very quickly, and whether any more money is available or not I don't know. I said there are a lot of entities that are getting this that don't really have a need, because you don't have to show damages to qualify. You just have to say there's uncertainty associated with the, you know, the pandemic. And so you're getting a lot of companies that are applying that, you know, maybe they have laid off, you know, one or two and a half months without the whole staff and then they get, you know, free payroll for two and a half months and some other expenses and, you know, that's that's just extra, extra profit, extra cushion. But it's, it's not really a need based isn't targeted by need. So, I think that's why it was so heavily utilized and accounting firms to I don't know if any of you got the accounting firms. They got out letters to their clients and again this is going to be, this is going to benefit bigger firms more than smaller firms, saying, go for it this money's here. Here's all you have to do. Okay. Doesn't sound good for the little guy. Oh, it hasn't been. Let's see if there are any other questions George and since I don't, since I don't see any other questions. The, you know, the issue is with so much of the uncertainty around the future of this has to do with the uncertainty about whether we will have an effective vaccine and how hard it's been to find medications that actually treat the disease. You know, there's some disconcerting information about people who have been infected have had negative tests, and then seem infected again, which would say antibodies might not be as protective as we would hope. And, you know, various diseases have a real range of how, how protective previous infection antibodies, antibodies are. And so I think that's part of the big uncertainty with the epidemiological projections that, you know, that that's that are out there if we had, if we do find a vaccination that works, then, then things will be very different. And people, you know, people are working very hard, but there's still no guarantee will even ever have one that really, really works. And that just leaves the so much uncertainty. And then there's the whole other behavioral piece which is pretty hard to predict from the epidemiological point of view, you know, will, will people continue to self isolate will blow. You know, some of these states opening early cause a nationwide rebound. It's, it's, there's just so many unknowns with something so new. Thank you, Marty. Thank you, Tom, I'm looking at them to far right hand corners the right hand columns the FY 20 revenue and the 21 revenue and the changes. And I find that curious that on the transportation fund. The 21 numbers are better than they were in 20, as opposed to all of the other categories where it continues to get worse. And I'm assuming that people are going to be out driving again and, and doing what I'm not sure if they're not spending money, what are they doing out driving around. Well, while they're the, the, the lockdowns are presumed to end but the, the return back to work will, will be slow but it's, it will be happening. Relative to these other. You're looking at it relative to the other categories. And you have a lot of lagged effects in the general fund I talked about the corporate tax, but also personal income which is just huge. And a lot of those effects are, are, are really calculated on calendar year activity. And when you look at calendar 2020, it's going to have all of the worst quarters, you know, as a part of that. So having a risk there is really high. But that's still, yeah. You know, you're not going to have a complete, nowhere in this forecast is another complete shutdown of activity. And, and that's what really, you know, knocked out all the, all the gasoline usage and, and, and the like. You know, there, there's still pronounced impacts, but they're not quite as severe. Thank you. Okay, I just found that interesting that the fund doesn't seem in such a bad shape. Relative at this point, I think if you asked anybody in the transportation department, they'd, they'd be screaming but it's, yeah, it's it again, it went down a lot in fiscal 22. So when you look at the two year change, it's, it's pronounced. Yeah, because those figures are cumulative. It doesn't look like there's more questions and we do want to keep some time for Mark Pearl to talk about the Education Fund. So, unless there's some last question, I think we'll thank you Tom for the work you're doing. It's a tough situation, but the fact that you're giving us some guidance means that we can start doing some of the work that we've got to do both on budget adjustment for House Appropriations and for us in the Education Fund. So, thank you. You're welcome. Thank you Tom. Katie, do you want to get Mark started? I think it's, I think it would be great Mark if you are are ready to start both committee. I know you've done the overview with the House Ways and Means Committee and both Janet and I thought it would be helpful if appropriations heard it and then we could share and listen to each other's questions. We are hearing a lot about the Education Fund in our communities and so this is a timely presentation. And do you have, you have slides that you will put up Mark. Yeah, yeah I do. So, good, good morning everybody. So, Sorsha, do you, am I able to share my own screen? Yes, you are. Yeah, so I'm going to pull up there so let's see. And again for committee I think it would be best if Mark got through his presentation and then we do our questions at the end. We are on the floor at 1030 and I'm assuming people would like at least a 10 minute break before we go to the floor. So we have approximately a half an hour mark for this. That's great. Kitty, can I just ask are we actually on the floor or are we doing, is this a caucus of the whole? I believe we're on the floor and I think we have a couple of bills that we're moving today. Okay. Does anyone else want to weigh in? Yeah, according to email from Bill McGill, the morning will be a caucus of the whole. Oh, thank you. Thank you. Are we, are we then moving bills in the afternoon? I think so. Okay. Correct. Thank you, George. Okay. Okay, so I plan to walk you through a couple of balance sheets. There's a lot of information on here. So I'm going to point you to some specific lines on here. So there's a lot of information on here, but don't panic. I'll take you to the right lines. And I also wanted to point out that although house raising means has been through this presentation at least once. So even in FY 20, it's going to look a little bit different. And based on what Tom said earlier, my understanding is this is now a consensus forecast. So these numbers for FY 20 are probably pretty good, even though they've moved around a bit. So what I, this sheet has three columns on the first one right here for FY 19 is just for reference. So what I'm going to focus on are the two columns here that are both FY 20. So the middle column, which is January in 2020 shows you where we were or where we thought we were going to end the current fiscal year prior to the outbreak of the coronavirus. So I'm going to take you down to show you that we were actually in pretty good shape prior to things going south a month ago. So if you look online 30, you can see this $12.9 million, that's a surplus that's on top of having a full reserve up here online 26. So we have a full reserve, 36.4, which is a 5% reserve, and we had a $12.9 million surplus. So we thought we were pretty good, pretty good shape going into 2020. At some points we were talking about even potentially having a tax rate reduction. So if you now move over to the next column over, which is labeled FY 2020 COVID-19. First I will show you what happened to the numbers that Tom has just gone over. So sales and use lines three, four, five and six are all non-property tax revenues that are forecasted by Tom Covet and Jeff Kyler, our consensus numbers. And you can see that the sales and use took the biggest hit, but we've also lost revenue in purchasing use, meals and rooms, and the lottery transfer. So effectively that amounts to about a $54 million loss in non-property tax money. The impact of that is that if you go back down to the same lines, we've used up the $12.9 million surplus. We've used up the $36.4 million that was in the stabilization reserve, and we are still $4.5 million short. That's a deficit which will be carried forward into FY 21. Okay. Everybody with me? Yes. Okay, so there's two caveats to go along with this. And Tom mentioned these. The first is that businesses have been allowed to defer some sales and use tax revenue and some meals and rooms tax revenue until this is June, but it's actually May 25th. And the second balance sheet assumes that all of that money is remitted and that it's all remitted between now and July 29th or 30th. And that money will all be for accounting purposes. All of that money will show up in 2020. But whether or not that money is actually remitted is still an open question. The other caveat is that this assumes that all of the education property tax money that we're expecting to collect comes in. For FY 2020, it's probably not a huge issue because most of the education property tax revenues that are due into the Education Fund this fiscal year have already been collected. It's possible because sometimes still have collection dates yet to come that they won't be able to collect some of that money. They are however required to remit it to the Education Fund. So for the purposes right here, I'm assuming all that money comes in. So in some ways, this is a best case scenario. The only thing I'll make is that there is $27 million in federal aid from the elementary and secondary emergency education relief fund that will be available for supervisory unions that money will go not through the Education Fund, but directly to the school districts and then out to individual school districts. My understanding is that AOE has still not received the guidance and the application materials they need in order to let districts know how much money that is. But you'll notice up on line 20, which is total uses. I haven't made any changes in there. So it's possible there are some additional costs that districts are incurring in FY 2020. But there's also potential of this available aid coming through. So I've just left things as they are, but it's just pointing it out because it's, you know, even in 2020 with a consensus forecast, there's still some uncertainty here. So any questions on that part before I move on. Yeah, I had a clarification question. So the $54 million loss that we have to make up and that's that in and to get to 54 we're using our 5% reserves and the entire 20 or 13 million of surplus. Yes. 13. Okay, 13. The 23 million that's coming in for aid. Who decides if that is used to apply to the 54 or if it's for other expenses districts have incurred how who decides how that money is used. I don't know the the the the feds will make the payment to the agency of education and the agency of education then has to allocate that money to supervise reunions based on the title one formula. So really have no stay on where it goes or how much money it is. You know we doesn't have any guidance I don't I can't really answer that question I don't know how that money would be used. It may be that it just bypasses the education fund entirely and shows up in school in school balance sheets, and they have that money available to cover COVID-19 related classes incurred either in FY 20 or in FY 21, but it's an open question at this point that we just don't have any guidance on that one. Mark. I'm not recommending we do this necessarily but if if the legislative if we decided that that money should be netted against the payments that we're going to go out to schools the legislature would have to make that decision am I right about that. I don't know the answer that question normally, if it just if you're talking FY 21, normally if a district receives federal aid that federal aid shows up as an offsetting revenue so it's subtracted from their budget before they get to education spending. But whether it can be used for that whether it's going to be accounted for that way I don't know at this point. Okay, so the agency may may have a maybe maybe making that decision on their own. George. Mark, thank you for the presentation you did say that the numbers were different than the last time you presented this to the Ways and Means Committee. But I'm wondering if you could show me where those differences are. Okay, up here on lines, right here these these lines right here. Initially, the downgrade was about $89 million and now it's Mark, Mark, I'm not looking at the screen that torture has up. I'm looking at the document from the email so rather than saying just here can you tell me what line it is. Sure lines three, four, five and six in the most right hand column. So just between what we thought we were going to have in January and what we think now on this sheet is $54 million previously in House Ways and Means I showed you a sheet that had an $89 million drop there so it was a much, you know, this is a better, this is a much better sheet than you looked at earlier, because the deficit that we're carrying forward from 20 21 now looks like it'll be about four and a half million and at what one point, it was 39 and a half. But that's where the difference is. And that's why I wanted to go over this again with you because the numbers change quite a bit for that year. But again, this is this, this should be consensus at this point, 21 is going to be a different story those numbers are going to be still moving targets for a while, but I think we're pretty much getting pretty close to what we think we're going to have in 2020. So we shall be happy. No. Less unhappy. Less unhappy. Could you be very clear about what it is we carry from fiscal 20 to 21 have a deficit. We have a reserve. No, I can tell you right now, I mean, it's a really good point because it gets lost and so looking at this, the four and a half million dollar deficit is only a small part of a big story because we're also going to go with 21 with no stabilization reserve zero in there. So if you're really looking at what the what the problem is, it's the, it's the 36 and a half and actually by next year that number growth that was stabilization reserve would go to 38 million. I'll show you that on the next sheet, but that 38 million plus the four and a half million dollar deficit is money that has to be made up just to get to ground level next year just to get to zero next year. So four and a half plus 38. Yeah, plus whatever budgets have been voted what what what is the problem we have to solve in 21. Okay, I'm kind of next balance sheet I have a 21 sheet. Okay, you're going to get there. Okay. Go ahead. I think you're muted Mary. Sorry about that I pushed it a bunch of times. How good is the assumption that the 20 million and sales and use and rooms and meals will be collected and able to be added to 20, the FY 20 numbers. Yeah, I don't have any really real way of answering that other than point to point out it until it's collected it's a risk, but you know I don't know by all I can tell you we were assuming all that money will be collected. To the extent it's not that problem that deficit that four and a half million dollar deficit will get larger. So I appreciate that we're making that assumption. It strikes me that there's a high likelihood that some portion of that will not be collected. I agree. Are we thinking half a quarter, a 10th. Is it just too wild to speculate. I have no idea. Okay, thanks. Yeah. Okay, so I'm so sure if I'm going to move on to a next page. I are another sheet how do I do that. I would stop the share of the screen move on to your next document then reshare. Okay, let me see. Uh oh. Red letters at the top mark stop share. Stop share, stop share. Got that. Okay. Share screen. And then we'll look at this one. Okay, can everybody see this one. Yep. Okay, so this three more columns on the sheet. I'm going to focus on the middle one first. And what the middle column reflects is the updated revenue forecast. That is not consensus at this point. At current law. It's to show you if nothing happened, if we didn't find any other source of money, if things just went ahead as normal. What would be the impact on tax rates next year? And so, um, Let's say I haven't been through this one before. So let's see. Yes, no, it's, it's, it's really awful. So what you can see, if you want to stick into the cut to the chase, you can see up here. There is either a 22 or a 23 cent increase. Whether you're homestead or non homestead property. And that's in order to fill. The, um, non property tax revenue gap. In FY 21 plus the deficit that's coming forward. Um, and I'll go over this on a separate sheet again. I'm in. I just want to show you on the show. But it's the, it's basically the total amount that would be have to be raised next year to make up for that lost non property tax revenue money and the problems we have coming forward from 21. I mean, from 20, including having to fill a reserve backup. So this one does assume about the reserve is full back up at, um, 38%. So if you drop down the bottom here, you can see we've got a $38 million reserve, which is the full five, five percent. And, um, And obviously no surplus since we're having to raise it. All of the money that we have to raise next year to make up for that lost non property tax revenue money and the problems we have coming forward from 21, which is the total amount that's coming forward from 20, which is the total amount that's coming forward from 20. All of the money that needs to be raised on the property tax. So we have a place to go. Again, this assumes that. 100% of the property tax that is built for us collected and comes in. Maybe a much bigger problem in 21 that it is in 20, since none of that money has been collected yet. But these tax rate increases are quite dramatic. Um, Okay. And then, you know, I have a, um, an outline of a, I don't know what it means that I can walk you through, but before I jump off this sheet, um, I just want to show you, um, It'll be helpful. We've helped me to go through this last column here before I get to the next sheet and show you what's going on. So on the right hand column, what we've assumed is that the tax rate parameters that were set back in December. Um, the recommendations from the tax commissioner remain in place here. And those are the tax rates that school boards were looking at when they were planning their budgets. And what voters were looking at when they approved those budgets, these are the tax rates. So in there, there's a built in tax rate of about 4.8 cents and six cents for the homestead and the non-residential property. That does not get you anywhere near being able to fill, um, you know, to be able to bring down this tax rate. That tax rate would be that, that's a 23 cent difference. So on this line right here shows you the increase in the tax rate that would be necessary to balance the fund and hold these tax rates at where taxpayers were expecting them to be back in January when they were preparing their budgets. So it's an additional 17.2 cents solely attributable to the loss of revenues. As a result of the COVID-19 shutdown. What you're trying to do here is you're trying to separate out the tax rate that is sort of the underlying tax rate that was just needed to fund budget changes that got voted. And a tax rate that is directly related to the pandemic. That's right. So you could call it, you could call this the normal tax rate up in these three lines here. That would be the normal tax rate that people would have expected to get. Without the pandemic. As a result of the pandemic, if you break it out, it looks like there's another 17 cents, which would be a sort of COVID-19 tax rate. In order to balance the fund paper schools next year and, you know, end up down here with a full reserve. So, um, maybe that's, it's a good jumping off where I can come back to the sheet, but it might be easier if we look at the one page outline. I did a question first. Mark from Bob. Bob, you have a question. I think you're. What's up, Bob. Bob, you're, you need to unmute. Okay. There we go. That work. Yeah. Yeah. All right. Sorry. In that the schools have been closed for a. I don't know. Month. Maybe a month and a half, whatever they are. And we'll continue to be closed for the month of May. What isn't it? Wouldn't there be a cost savings? Some place along the line. Um, you know, I don't have any information on an individual. District budget. But what I can tell you is that, um, most, most education expenditures by 80% of them are due to salaries and benefits and teachers are still, are still being compensated and being paid. Um, teachers probably are. But how about assistance and. Janitorial. There's got to be. My understanding is that, um, schools are continuing to, I don't, I don't think they've had substantial savings, but again, I can't speak to the, to the details of it. I don't have any information on individual budgets. But it, you know, it's a good point. And that's why I pointed out here on line 10. I'm assuming. You know that. That's the sources of line. Sorry. Down here that the uses haven't changed. Under either of those, you know, under either scenario. And going. Well, it just seems to me there should be a savings. Although I'm not going to be a bit surprised. Thanks. Okay. I was going to say that that, that is something our committee has taken a very small amount of testimony on that. And I know the house education committee has taken quite a lot more. Um, and it, it, it'd be, if there, I think it'd be important at some point for, um, everybody. Um, everybody in the house to understand sort of what the additional pressures are on schools. And, and I think it's, I think some of them maybe have had some saving. A lot of them have actually spent more money. Just for clarification. The under the far right column on line D. The 17, the 17 cent increase due to COVID related. Impacts. Um, Um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, um, Yes. But again, what it doesn't count for is the two thirds of revenues that come into the education fund or property tax money. And this assumes that 100% of that money is going to come into the fund. Well, and I want to be clear to the world that this is not a proposal. We're not proposing to raise education property tax rates by 17 cents. What Mark has done here is he wants to have us understand what would happen if we don't find another source of revenue. Yes. Thank you. Thank you. Okay. And right. So the middle column shows you what happens if you do nothing. The right hand column breaks these two outs and you may be able to address each one differently. And that's what I'll get into in the single sheet. I also want to be clear that we haven't found another source of revenue. So this is this, this is the problem that we're looking at. And the way the fund, the way the education system works is that it will end up with property taxpayers if we don't find another solution. And for the Appropriations Committee, it was really important to understand the Ed fund, but we will do the same exercises with the T fund and with the general fund. So that you know, we will see the problems in all three of our major funds. Okay. So, so the sheet that I just put up, it's labeled a preliminary analysis of a proposal to finance education spending next year. It's very preliminary. I would call it more of an outline and an idea that I can walk you through. But I think that will help you get your head around what we were looking at in that right hand column so first, we had to add up the total increase in the education property tax that's necessary to finance voter approved spending in both 20 and 21. And so what those are, we've already gone over these, but I'll just reiterate, four and a half million dollars to cover the projected 2020 deficit, 38 million to fully reserve the stabilization reserve in 21, the following year, and to fully fund voter approved increase in school budgets. Those are already been approved. Those are budgets that were approved during town meeting week. There's a few stragglers out there. That number is not going to change significantly. And then the $113 million revenue shortfall and non-property taxes that Tom just went over. All of that money needs to be made up. It's a huge amount of money. More than I've ever seen doing this for ages. But that's the problem we're coming up with. So how to address the problem. So starting with two, as I pointed out in the earlier shoot, you can maintain what I've called on here, the new education property tax rates to 21, which are the ones that we were expecting voters to have to deal with and what they voted for. And those would raise the average homestead tax rate by four and a half cents, the non homestead tax rate by six cents, and the average tax rate on household income by about a point eight tenths of a percent. That doesn't get us anywhere near closing the gap that I've labeled that I've put late, late fourth in one, but it gets you part of the way there. And it's what people were expecting to pay before any of this happened. And that would be then just determine the additional increase in the education property tax that's necessary solely attributable to the impact of the coded related recession, and that is the money that I was showing you on that line. 17.2 cents and the $149 million that could be needed. You don't want taxpayers seeing 22 cent increase in their tax rates in the current environment would be extremely difficult, unprecedented. And so what this proposal is suggesting is that through some other source of money, taxpayers get money in their hands so that they can pay their property tax bills next year. That would be quite a bit of money but one suggestion has been to use a portion of the one and a quarter billion dollars from the federal cares act to offset the increase in education property taxes that's attributable solely to coven 19 through a flat credit per partial taxable property or some other mechanism. That would have a number of advantages we've had those those have been bills around about delaying payment dates and, you know, pushing back penalties and doing all that kind of stuff. Those kind of solutions to the problem create all kinds of chaos going through the system because it's like a domino system where the municipalities collect the money. If they don't collect the money they don't have it. If they don't have to pay it to the state on time, it just pushes the problem off to the school districts and when they have to borrow. So there's all kinds of complications that get raised. If you, if you, if you try to address this by just dumping money into the Ed fund or something like that, this would put money into the hands of taxpayers so that they can pay their bills on time. Municipalities would be able to raise and remit that money without having to worry about penalties or anything like that. So this this approach is a lot more elegant than anything else that we've been looking at so far I think because it wouldn't require a lot of disruption to the existing system that we have. Let's have the problem that we don't have any money to do it. So in terms of having any money. There is supposed to be money for state local governments and the next stimulus package that comes through and that's already not happened once so you know it's it's dancing. The other possibility is that there's more flexibility allowed for the cares act money that we already have. And the third possibility is the only other one I can think of is that the state would borrow, you know, 150 to $250 million. And use that money to assist taxpayers and paying their bills and FY 21. And that paid through the Education Fund over, you know, 1015 years where however long you wanted to borrow. I looked at some preliminary preliminary numbers of basically paying back over a 10 year period. If you were to borrow like 250 it would add like about three cents to the tax rate every year for about 10 years so Scott has a Scott Beck has a question. Hey Mark. So I'm looking at number five year. Does that really mean we would give a flat credit regardless of what the, the property tax liability is for the personal. The version of this yes but there's there's a number of, you know, any number of ways that you might want to do this but we initially looked at a flat credit that would go out based on each parcel of property, and you're right. That would provide some more money than the, than the increase for some people and a little less than others but at, I think we looked at it at at 275 million that would basically provide the house sites up to a half a million dollars with full full coverage of their tax increase next year. People in house sites value over half a million we pay, we pay a little bit more. So, so this is, this is something our committee will will spend some time on but the thought about doing a flat credit is partly just the simplicity of it because if we want to get money, if we want to put money on people's bills, we can't have a, it can't be a very complicated system, just in order to be able to make it happen. The property tax liability is very wildly around. Yeah, this would be beneficial for people at lower income levels and lower property that values. Yeah, I mean, you could just dump the money in and support the yields and the non res great it would all come out. Yeah, if we could do that. That's what we do. And but there is a complication doing it that way which is you can kind of mess up the property tax adjustment calculation but we may be able to work around that. But that that reminds me of one other thing I forgot to mention that is in FY 21, people who receive a property tax adjustment which are about about 70% of homeowners are going to receive a property tax adjustment that's based on their calendar year 2011 income. So it's not going to reflect any of the repercussions of COVID-19 job losses and business closures and, you know, reduce revenues. It's not going to show that those taxpayers will see that money in 20 in their in their property tax credit in 22, but they probably have more need for it right now and it's not it's not going to be a number that's any bigger than it would have been in the But we don't we don't understand the income loss are gained by death sale right now. Right. I mean it. There are people that are going to make money. And you know the other thing that works against that is unemployment benefits. And I'm assuming the payments that are coming from the feds are probably counting the household income. So incomes may drop quite as precipitously as you would think otherwise. Yeah. Okay, thank you. I did. Sorry. Oh, here we go. Income sensitivity payment would be based on FY 11 income. Yes, Cal. Yeah, 11 income. Yes, not 11. That's a long time ago. Oh, geez, I like. Sorry. I'm sorry. 2019. We need you in this decade. Thank you. Thank you. Mark, number. Well, the last line there, I'm looking at different paper, but the last line there says that. Using the cares act money in this way would be problematic. I assume that's because we can't use it to offset revenue losses that, that true. That's right. And so. Well, you've just pointed out that the, you know, that 80% roughly is salary and benefits. So it would be a drop in the bucket, but is there under the present guidance as we understand it, could, could we legitimately use it to offset. You know, the small costs of running buses to deliver the. The launches that are being delivered. You know, maybe the paying the food. Staff, you know, other things like that that we might argue are specifically. Covid related. Yeah. And I think that the $27 million I mentioned, which is in the immersion. Yeah. Elementary and secondary emergency fund. And I think that the $27 million that that money can definitely be used for that for those purposes. So there may be sufficient funds data deal with that issue, at least in the car fiscal year. And as far as what else the CRF money can be used for. I mean, I think that the guidance is not crystal clear. I think nobody's really, it's a legal question. I don't think I've got a clear answer yet on that. One more question. And I'll put the caveat out there that this is not a proposal as well, but I'm just curious. Do we, you know, has there been any calculation to sort of look at what would it take for reduction in spending by districts in order to meet the, the, in order to balance the ad fund, right? So, you know, would it take a on average of some percent reduction in in spending by every district in order to make the ad fund balance under the present scenarios or do we know that a 1% reduction by every school district with the amount to in terms of spending. So we haven't done that yet, but it would be easy enough to go ahead and do it, but there's a couple problems. One is that FY 21 budgets have already been approved by voters. And more probably more important teachers contracts are being closed and settled now. So because 80% or almost 80% of school spending is attributable to salaries and benefits. They're locked into a teacher's contract for FY 21. Once you can't lay off anybody and once the salaries and benefits are locked in school districts would only have basically 20% of their budget to play with in order to create any savings. And it's for things that they may not be able to have much control over like transportation and heating and, you know, support stuff, things like that. So it's, I'm not sure for FY 21. But if that's a possibility, it could be certainly could be for 22 and we're looking, you know, we haven't gotten to 22 yet, but it's possible 22 is not going to look great either. So, answer your question. In about the way I expected it would be answered. We are closing in on 1030 when we really should be on the floor. Marty has a question. And this conversation will continue. This was just to, to put the information on the table and as ways and means works through it and as we hear more testimony in our committee. We have many, many more questions to be answered. But let's take Marty's and then I think to be respectful of the floor time. We need to adjourn this meeting. Is that agreeable Jen. Okay, just to go ahead. I just follow up on on chip comments that what does it take to reduce spending and I understand the argument we've heard that teachers contracts are already signed. But the matter is, we don't have any money. And so what would be the consequences of breaking those contracts of reducing staff anyway, and, and this is just a question to think about because I don't know the answers at all. But I'm wondering what we would have to do in order to reduce staffing in order to meet the budgets or in order to meet the income that we have. And I think we need to explore that and figure out if there are possibilities of actually doing that. I can ask Abby separate that question. It's really illegal question. My understanding is you can't break contracts but I'll leave the lawyers stuff to figure that out. The last point I wanted to make an idea to go is that, unlike the T fund and the general fund Ed fund is a little bit different because the lead time is so much greater. I mean we need you know you need to set tax rates before you leave. So you know if we if you were to get a consensus budget August it's going to be too late to factoring here decisions about tax rates probably need to be set. You know within the next month or so, in order for the all machinery to operate and at that point, I think Tom mentioned that there may be a consensus number available by the middle of May, which would be okay, but we don't have a consensus forecast at that point and setting the tax rates is something that really needs to get done before you guys leave. Thank you, Mark. Thank you, everybody for listening to the sort of the roll out of what the challenges are. So we'll adjourn and then go on the floor and for my committee we are meeting tomorrow morning I can't remember what time but we will take this up again. And for house appropriations we're meeting tomorrow at three o'clock until 430 to start outlining the process for the budget adjustment.