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NO. 71. AN ACT RELATING TO EDUCATION, TAXATION AND EDUCATION FINANCING.

(H.577)

It is hereby enacted by the General Assembly of the State of Vermont:

* * * Local Share Property Tax * * *

Sec. 1. 16 V.S.A. § 428(e) is amended to read:

(e) The payment provisions of section 5403 of Title 32, and the administrative provisions of section 5409 of Title 32 shall apply to the local share property tax. Taxes assessed and collected by a municipality shall be assessed and collected in accordance with chapter 133 of Title 32.

Sec. 2. 16 V.S.A. § 511(e) is amended to read:

(e) The payment provisions of section 5403 of Title 32, and the administrative provisions of section 5409 of Title 32 shall apply to the local share property tax. Taxes assessed and collected by a municipality shall be assessed and collected in accordance with chapter 133 of Title 32.

* * * Education Fund * * *

Sec. 4. 16 V.S.A. § 4025(c) is amended to read:

(c) An equalization and reappraisal account is established within the education fund. Moneys from this account are to be used by the division of property valuation and review for staff, equipment, lister training and administration of the equalization studies pursuant to section 5405 of Title 32, and to assist towns with maintenance or reappraisal on a case-by-case basis; and for reappraisal payments pursuant to section 4041a of Title 32*[, and equalization studies pursuant to section 5405 of Title 32 and for reappraisal payments pursuant to section 4041a of Title 32]*.

Sec. 5. 16 V.S.A. § 4027(a) is amended to read:

(a) Annually, on or before June 30, the commissioner of *[taxes]* education shall determine the equalized yield amount which will be used to determine:

* * *

* * * Transitional Provisions * * *

Sec. 6. Sec. 24 (b)(1) of Act No. 60 of the Acts of 1997 is amended to read:

(1) In fiscal year 1999, notwithstanding provisions of chapter 135 of Title 32 and section 4027 of Title 16, for purposes of local education spending in excess of the general state support grant amount, each school district *[,]* shall adopt a budget and set a tax rate pursuant to law. However, school districts shall contribute to or receive from the education fund as *[follows:]* determined under subdivisions (A), (B) and (C) of this subdivision. Each school district shall notify the commissioner of education of its budget, any union school or joint contract school assessment, and any deficit to be added to its budget pursuant to 24 V.S.A. § 1523(b) by June 1, 1998. If the district has not adopted a budget by that date, the commissioner shall base the district's contribution or receipt upon the local education spending portion of the district's fiscal year 1998 budget, and may later adjust the district's contribution upward or receipt downward based on the district's fiscal year 1999 local education spending portion of its adopted budget. If a union or joint contract district of which a school district is a member has not adopted a budget by that date, the commissioner shall use the most recently adopted union or joint contract budget, allocated according to the current year's apportionment, to determine the assessment portion of local education spending. A district which pays under subdivision (A) or (B) of this subdivision shall pay one-half the amount due on or before December 1, 1998 and the other half due on or before June 1, 1999.

(A) a school district with an equalized grand list in excess of $15,000.00 per equalized pupil shall pay an amount equal to 50 percent of the revenues raised from its nonresidential property, as defined in subdivision 5401(10) of Title 32, for local education spending in excess of the general state support grant amount,

(B) a school district with an equalized grand list of between statewide average and $15,000.00 per equalized pupil shall pay an amount up to 50 percent of the revenues raised from its nonresidential property, as defined in subdivision 5401(10) of Title 32, for local education spending*[, as defined in subdivision 5401(10) of Title 32]* in excess of the general state support grant amount, according to a sliding scale developed by thecommissioner of education by rule, and

(C) a school district with an equalized grand list per equalized pupil which is equal to the statewide average or less than the statewide average shall receive a payment equal to up to 75 percent of the revenues raised from all property taxed for local education spending in excess of the general state support grant amount, according to a sliding scale developed by the commissioner of education by rule.

Sec. 6a. TRANSITION; CURRENT EDUCATION EXPENSE; ITEMS

Notwithstanding 16 V.S.A. § 4029, relating to use of funds for local education spending, any school district which in fiscal year 1998 made payments from the school district fund to the town fund for the services of the town treasurer, clerk and auditors may include such payments in fiscal year 1999 as legitimate items of current education expense.

* * * Statewide Education Property Tax * * *

Sec. 7. 32 V.S.A. § 5401 is amended to read:

§ 5401. DEFINITIONS

* * *

(6) "Equalized education property tax grand list" means one percent of the aggregate fair market value of all nonresidential and homestead *[real]* property that is required to be listed at fair market value as certified during that year by the director of property valuation and review under section 5406 of this title, plus one percent of the aggregate value of property required to be listed at a value established under a stabilization agreement described under section 5404a of this title, plus one percent of the aggregate use value established under chapter 124 of this title of all nonresidential *[real]* property that is enrolled in the use value appraisal program.

* * *

(7) "Homestead" means the principal dwelling owned and occupied by a resident individual *[or part-year resident individual]*, as defined in section 5811 of this title, in which the individual claims residence for purposes of income tax liability and rights and privileges of residency. A homestead also includes a dwelling owned by a farmer asdefined under section 3752 of this title, and occupied as the permanent residence by a parent, sibling, child, grandchild or shareholder of the farmer-owner, provided that the shareholder owns more than 50 percent of a corporate farmer-owner, including attribution of stock ownership of a parent, sibling, child or grandchild. A homestead includes as much of the land surrounding the dwelling as is reasonably necessary for use of the dwelling as a home, but in no event more than two acres per dwelling unit, up to a maximum of 10 acres per parcel. A homestead may consist of a part of a multi-dwelling or multi-purpose building, including cooperative property occupied as a permanent residence by a member of a cooperative housing corporation incorporated under 11 V.S.A. chapter 14, and a part of the land upon which it is built. A mobile home may constitute a principal dwelling for purposes of this chapter. A homestead does not include buildings or improvements detached from the home except for a building used as a garage for personal passenger vehicles and any sheds used for noncommercial purposes. A homestead does not include that portion of a principal dwelling used for business purposes if the portion used for business purposes includes either two or more rooms or more than 25 percent of the floor space of the building.

* * *

(10) "Nonresidential *[real]* property" means all *[real]* property except:

* * *

(B) Property which is subject to the tax on railroads imposed by subchapter 2 of chapter 211 of this title, the tax on steamboat, car and transportation companies imposed by subchapter 3 of chapter 211 of this title, the tax on telephone companies imposed by subchapter 6 of chapter 211 of this title, or *[, in 2001 and after,]* the tax on electric generating plants imposed by chapter 213 of this title.

* * *

(D) Personal property, machinery, inventory and equipment*[.]* ; provided however, that this subdivision shall not exclude from the definition of "nonresidential property" the following real or personal property:

(i) utility cables and lines, poles and fixtures (except those taxed undersubchapter 6 of chapter 211 of Title 32);

(ii) gas distribution lines (except aboveground meters, regulators and gauges, and leased water heaters are excluded personal property);

(iii) ski lifts and fixtures and snow-making equipment for a ski area affixed to the land excluding transportable equipment.

* * *

(11) "Education property value" means the aggregate fair market value of all nonresidential and homestead real property that is required to be listed at fair market value as certified during that year by the director of property valuation and review under section 5406 of this title, plus the aggregate value of property required to be listed at a value established under a stabilization agreement described under section 5404a of this title, plus the aggregate use value established under chapter 124 of this title of all nonresidential real property that is enrolled in the use value appraisal program.

Sec. 7a. 32 V.S.A. § 5401(10)(F) is added to read:

(F) Property owned by a municipality which is located within that municipality and which is used for municipal purposes including the provision of utility services.

Sec. 7c. 32 V.S.A. § 3606 is amended to read:

§ 3606. STANDING TIMBER

Sec. 8. 32 V.S.A. § 5402(a) is amended to read:

(a) A statewide education property tax is imposed on all nonresidential and homestead property at a rate of $1.10 per $100.00 of equalized education property *[tax grand list]* value as most recently determined under section 5405 of this title; but the homestead property tax liability for eligible claimants under chapter 154 of this title shall not exceed the lesser of two percent of household income for the calendar year in which the tax isassessed or the amount of statewide education property tax the municipality would have assessed on the homestead if its equalized value had been reduced by $15,000.00.

Sec. 8a. Sec. 50a of Act No. 60 of the Acts of 1997 is amended to read:

Sec. 50a. LIMITATION ON EDUCATION PROPERTY TAXATION OF CERTAIN ELECTRIC GENERATING PLANTS

Notwithstanding any provisions of this act or local law to the contrary, in 1998 and after*[, a]*:

(1) A municipality may assess upon any operating electric generating plant subject to the tax under chapter 213 of Title 32 an education property tax. The tax rate shall not exceed the education property tax rate assessed on such property in fiscal year 1997. The tax shall be assessed on the municipal grand list value of such property, but in no event shall the education property tax assessment exceed the education property tax assessed on such property in fiscal year 1997.

(2) A municipality which has upon its grand list an operating electric generating plant subject to the tax under chapter 213 of Title 32, shall be subject to the education property tax under chapter 135 of Title 32 at one-half the rate provided in section 5402(a) of Title 32; and

(3) If a municipality described in subdivision (2) of this section adopts an education budget with local education spending, as defined in section 4001(6) of Title 16, per pupil which is in excess of its fiscal year 1998 local education spending per pupil (unless the spending increase is due to a change in average daily membership), then the provisions of sections 428 and 511 of Title 16 and Sec. 24(b) of Act No. 60 of the Acts of 1997 shall not apply to that municipality, and it shall impose a tax on its education property tax grand list, as defined in section 5401(5) of Title 32, at the rate necessary to raise that excess amount over the 1998 local education spending.

(4) For purposes of a claim for property tax adjustment under chapter 154 of Title 32 by a taxpayer in a municipality affected under this section, "local share property tax" shall mean the tax assessed in the fiscal year under subdivision (3) of this section; and the "local share property tax liability" under subdivision 6066(a)(2) of Title 32 shall be theclaimant's statewide property tax liability multiplied by a fraction, the numerator of which is the tax rate imposed under subdivision (3) of this section and the denominator of which is the actual tax rate imposed under subdivision (2) of this section.

(5) *[The revenue from this tax shall be deposited into the education fund established by this act; and in fiscal years 1999 and 2000 shall be credited to the account of the municipality that collected the tax, first to its local share property tax liability and then to its statewide property tax liability.]* Notwithstanding section 426 of Title 16, the treasurer of the municipality shall on December 1 of the year in which the tax is levied and on June 1 of the following year, pay to the state treasurer for deposit in the education fund one-half of the taxes assessed under subdivisions (1) and (3) of this section.

(6) A municipality subject to this section shall receive from the state, in addition to payments under section 4028(a)(1) and (b) and any other state education aid provisions of Title 16, a payment equal to the municipality's education budget for that fiscal year minus the state education aid payments, and minus any portion of the school budget paid from other sources such as endowments, parental fund raising, federal funds or nongovernmental grants; and this additional payment, if any, shall be made in the same manner as payments under section 4028 of Title 16. The commissioner of education may determine the net payment due to the treasurer by the municipality under subdivision (5) of this section, after accounting for payments to the municipality under this subdivision.

Sec. 9. REPEAL

32 V.S.A. § 5403(d) (deposit of education property tax revenue into the education fund) is repealed.

Sec. 10. 32 V.S.A. § 5406 is amended to read:

§ 5406. NOTICE OF FAIR MARKET VALUE AND COEFFICIENT OF

DISPERSION

(a) Not later than January 1 of each year, the director of the division of property valuation and review shall notify the town clerk and chair of the board of listers of each municipality of the *[fair market]* equalized education property value and the coefficient of dispersion of that town for *[that]* the prior year, and of the manner by which *[fair market]* theequalized education property value and coefficient of dispersion were determined by the director.

(b) Not later than April 1 of each year, the director shall certify to the commissioner of education the *[fair market]* equalized education property value and coefficient of dispersion for the prior year of every municipality of the state.

Sec. 11. 32 V.S.A. § 5409 is amended to read:

§ 5409. *[ADMINISTRATION AND]* DUTIES OF MUNICIPALITIES AND

ADMINISTRATION

The following shall apply *[to municipalities]* with regard to the tax imposed under this chapter and to the local share tax imposed under section 428 or 511 of Title 16:

* * *

(3) In any case of administration under subdivision *[(3)]*(2) of this section by the commissioner of taxes of local share property tax:

(A) Sections 5868, 5869, 5873, 5875, 5881, 5882, 5883, 5884, 5885, 5886, 5887, 5891, 5892, 5893, 5894 and 5895 of Title 32, as amended, shall apply in the same manner as to income tax.

(B) Persons aggrieved by decisions of the listers may appeal in the manner provided for property tax appeals in chapter 131 of Title 32; *[and sections 5226 and 5227, and Articles 5 and 6 of chapter 133 of Title 32, shall apply in the same manner to the local share property tax,]* and the commissioner of taxes shall have all the powers described in *[those sections]* chapter 133 of Title 32.

(C) The commissioner may abate in whole or in part the statewide or local share property taxes of a taxpayer who has been granted an abatement of municipal taxes under section 1535 of Title 24.

Where possible notification and communication under this section shall be by electronic format specified by the commissioner.

(5) In case of insufficient property tax payment by a taxpayer to a municipality, payments shall be allocated first to municipal property tax, next to local share property tax, and last to statewide education property tax. In case of insufficient payment by a taxpayer to the department of taxes, payments shall be allocated first to liabilities other than education property taxes, next to local share property tax, and last to statewide education property tax.

(6) In case of overpayment by a taxpayer who has an income tax liability under chapter 151 of this title and a homestead property tax liability, a refund of the overpayment, after accounting for any benefit amount allowed under chapter 154 of this title, shall be deemed to be a refund of income tax for purposes of debt setoff under subchapter 12 of chapter 151 of this title.

(7) Notwithstanding section 435 of this title, the commissioner shall deposit the revenue from taxes imposed under this chapter and the local share property tax under Title 16 in the education fund, credited to the account of the municipality for which it was received.

Sec. 12. 32 V.S.A. § 5410(a) is amended to read:

(a) A resident *[or part-year resident]* may declare one homestead for purposes of this chapter.

Sec. 13. 32 V.S.A. § 5410(d) is amended to read:

(d) *[The commissioner shall adopt rules governing late filing of a residency claim and the eligibility requirements for declaring a homestead.]* A homestead declaration filed with a property transfer tax return under section 9606(b) of this title shall be deemed to be timely filed under this section.

Sec. 14. 32 V.S.A. § 5410(f) is amended to read: (f) If the property identified in a declaration under subsection (b) of this section is not the taxpayer's homestead, the commissioner shall assess the taxpayer a *[tax]* penalty in an amount equal to *[110 percent of the property tax reduction granted on account of the homestead declaration]* eight percent of the education tax assessed on the property, or if the declaration was filed with fraudulent intent, then the commissioner shall assess the taxpayer a penalty in an amount equal to 100 percent of the education tax assessed on the property plus interest from the original due date of the property tax on the property, at the applicable rate established in section 3108 of this title. Any *[tax]* penalty imposed under this subsection may be recovered by assessment and enforcement and with appeal rights in the same manner as an income tax under chapter 151 of this title. Amounts collected under this subsection shall be credited to the education fund. The commissioner may waive or reduce the eight percent penalty under this subsection for good cause. Education taxes assessed in the fiscal year upon property identified in a declaration of homestead, but which was not the taxpayer's homestead, shall remain payable to the commissioner.

* * * Homestead Property Tax Income Sensitivity * * *

Sec. 15. 32 V.S.A. § 6061 is amended to read:

§ 6061. DEFINITIONS

The following definitions shall apply throughout this chapter unless the context requires otherwise:

* * *

(2) "Homestead" means a dwelling as defined in section 5401(7) of this title, which is owned or rented by the claimant as the principal residence, and if owned, then declared in the taxable year by the claimant in accordance with section 5410 or 9606(b) of this title.

* * *

(6) "Property tax" means the amount *[assessed for payment on the homestead during the taxable year for]* of ad valorem taxes, exclusive of special assessments, interest, penalties, and charges for service, assessed *[for payment]* in the *[taxable year]* fiscal year on real property in this state used as the claimant's homestead.

(A) "Statewide property tax" means the tax assessed under chapter 135 of this title *[for payment]* in the *[taxable year]* fiscal year on real property in this state used as the claimant's homestead.

(B) "Local share property tax" means the tax assessed under section 428 or 511 of Title 16 *[for payment]* in the *[taxable year]* fiscal year on real property in this state used as the claimant's homestead.

*[Taxes that normally would have been due in the taxable year but because of special circumstances were billed by the town to be due after the taxable year shall be considered as having been assessed for payment in the taxable year, and not assessed for payment in the succeeding year.]*

(7) "Rent constituting property taxes" means for any homestead and for any taxable year, at the claimant's option, (A) 21 percent of the gross rent or (B) that portion of the gross rent which equals the property tax assessed for payment in the calendar year allocable to the claimant's rental unit for the period rented by the claimant. "Gross rent" means the rent actually paid during the taxable year by the individual or other members of the household solely for the right of occupancy of the homestead during the taxable year. If a claimant's rent is government-subsidized, the property tax allocable to the claimant's rental unit shall be reduced in the same proportion as the rent is reduced by the subsidy. "Rent constituting property taxes" shall not include payments for a room in a nursing home in any month for which Medicaid payments have been made on behalf of the claimant to the nursing home for room charges.

* * *

(10) "Fiscal year" means the municipal fiscal year which began in the taxable year.

Sec. 16. 32 V.S.A. § 6066 is amended to read:

§ 6066. COMPUTATION OF ADJUSTMENT

(a) The property tax of an eligible claimant who owned the homestead on the last day of the taxable year shall be adjusted as follows:

(1) the claimant's statewide property tax liability shall be the lesser of 2.0 percent of household income for the taxable year, or the amount of statewide education property tax the municipality would have assessed on the homestead if its equalized value had been reduced by $15,000.00;

(2) the claimant's local share property tax liability shall be the local share percentage rate established under section 4027 of Title 16 for the municipality in which the homestead is located, multiplied by the statewide property tax liability determined under subdivision (1) of this subsection; and

(3) a claimant whose household income does not exceed $47,000.00 shall also be entitled to a credit against the claimant's tax liability under chapter 151 of this title equal to the amount by which the property taxes upon the claimant's homestead, adjusted under subdivisions (1) and (2) of this subsection, exceeds a percentage of the claimant's household income for the taxable year as follows:

If household income (rounded to then the tax payer is entitled to

the nearest dollar) is: credit for property tax paid in excess

of this percent of that income:

$0 - 4,999.00 3.5

$5,000.00 - 9,999.00 4.0

$10,000.00 - 24,999.00 4.5

$25,000.00 - 47,000.00 5.0

In no event shall the credit exceed the amount of the adjusted property tax.

(b) An eligible claimant who rented the homestead on the last day of the taxable year, whose household income does not exceed $47,000.00, and who submits a certificate of *[rent or]* rent constituting property taxes shall be entitled to a credit against the claimant'stax liability under chapter 151 of this title equal to the amount by which the rent constituting property taxes upon the claimant's homestead exceeds a percentage of the claimant's household income for the taxable year as follows:

If household income (rounded to then the tax payer is entitled to

the nearest dollar) is: credit for rent constituting property tax paid in excess of this percent of that income

$0 - 4,999.00 3.5

$5,000.00 - 9,999.00 4.0

$10,000.00 - 24,999.00 4.5

$25,000.00 - 47,000.00 5.0

In no event shall the credit exceed the amount of the rent constituting property tax.

(c) To be eligible for a property tax adjustment under this chapter the claimant:

(1) must have been domiciled in this state during the entire taxable year; and

(2) may not be a person claimed as a dependent by any taxpayer under the federal Internal Revenue Code during the taxable year.

(d) The owner of a mobile home which is sited on a lot not owned by the homeowner may include an amount determined under subdivision 6061(7) of this title as rent constituting property taxes paid on the lot with the amount of property taxes paid by the homeowner on the home for the purpose of computation of adjustments under subdivision (a)(3) of this section, unless the homeowner has included in the claim an amount of property tax on common land under the provisions of subsection (e) of this section.

(e) Property taxes paid by a cooperative, not including a mobile home park cooperative, allocable to property used as a homestead, shall be attributable to the co-op member for the purpose of computation of adjustment of property tax liability of the co-op member under this section. Property owned by a cooperative declared as a homestead may only include the homestead and a pro rata share of any common land owned or leased by the cooperative, not to exceed two acres per homestead. The share of the cooperative's assessed value attributable to the homestead shall be determined by the cooperative and specified annually in a notice to the co-op member. Property taxes paidby a mobile home park cooperative, allocable to property used as a homestead, shall be attributed to the owner of the homestead for the purpose of computation of adjustment of property tax liability of the homestead owner under this section. Property owned by the mobile home park cooperative and declared as a homestead may only include common property of the cooperative contiguous with at least one mobile home lot in the park, not to exceed two acres per homestead, and without regard to the overall ten-acre limitation of section 5401(7) of this title. The share attributable to any mobile home lot shall be determined by the cooperative and specified in the cooperative agreement.

(f) If a claimant takes title to the homestead during the calendar year preceding the claim, the parties' proration of taxes shall be based upon the unadjusted property tax to the time of sale, unless the parties otherwise agree. The commissioner shall establish by rule the procedure in case of midyear transfers for payment of education property taxes, claims under this section, and withholding by the transferee where the transferor has not yet satisfied in full the education property tax liability.

(g) If the land surrounding a homestead is owned by a nonprofit corporation or community land trust with tax exempt status under Section 501(c)(3) of the Internal Revenue Code, the owner may include an amount determined under subdivision 6061(7) of this title as property tax paid on the land with the amount of property taxes paid by the homeowner on the home for the purposes of computation of adjustment under this section. The amount allocable to any homeowner under this subdivision shall be determined by the nonprofit corporation or community land trust. The nonprofit corporation or community land trust shall provide to that homeowner, by January 31, a certificate specifying the amount allocable to that homeowner. The certificate shall indicate the proportion of total property tax on that parcel which was assessed for municipal property tax, for local share property tax and for statewide property tax.

Sec. 16a. 11 V.S.A. § 1608 is amended to read:

§ 1608. ELIGIBILITY FOR PROPERTY TAX RELIEF

Members of cooperative housing corporations shall be eligible to apply for and receive *[tax credits as homeowners under 32 V.S.A. chapter 153]* a homestead property taxadjustment under 32 V.S.A. § 6066, subject to the conditions of eligibility set forth therein.

Sec. 16b. HOMESTEAD PORTION OF PROPERTY OWNED BY A BUSINESS

The Department of Taxes shall review under the homestead property tax income sensitivity provisions of Act 60 of 1997 the treatment of an owner of a business residing in and claiming as a homestead a portion of real property owned by the business. The department shall, insofar as possible, determine the costs and fiscal impact on state revenues of allowing such business owners to claim in the computation of adjustment of property tax liability of the homestead a portion of the property taxes paid by the business. The Department shall also consider and define appropriate parameters for allowing such claims. The Department shall report its findings and any recommendations to the Legislative Oversight Committee on Restructuring Education and all members of the general assembly by October 15, 1998.

Sec. 16c. DEFINITION OF HOMESTEAD AND HOUSEHOLD INCOME

The Department of Taxes in consultation with the Joint Fiscal Office shall carry out a study of the alternatives in the definitions of homestead property and household income. Specifically, the study shall include examinations of the following issues: the inclusion of sheds, the elements in household income, and the treatment of income of a student claimed as a dependent. The study shall also look at the development of a phase out of income sensitivity rather than the $75,000.00 limit in current law. The results of the study shall be presented to the Legislative Oversight Committee on Restructuring Education and all members of the general assembly by November 15, 1998.

Sec. 17. 32 V.S.A. § 6068 is amended to read:

§ 6068. APPLICATION AND TIME FOR FILING

(a) A tax adjustment claim shall be filed with the commissioner and shall describe the school district in which the homestead property is located and shall particularly describe the homestead property for which the adjustment is sought, including a parcel identification number if the town has assigned one.

(b) No benefit shall be allowed unless the claim is filed with the commissioner on orbefore the due date for filing the Vermont income tax return, *[without]* with extension.

(c) *[The commissioner shall, upon request of a claimant, extend the claim filing date to June 1.]*

* * * Transition Rules * * *

Sec. 18. Sec. 52 of Act No. 60 of the Acts of 1997 is amended to read:

Sec. 52. LOCAL SHARE AND STATEWIDE PROPERTY TAX PAYMENT AND

ADJUSTMENT TRANSITION RULES

(a) Notwithstanding sections 428 and 511 of Title 16, and section 5403 of Title 32, local share and statewide property taxes assessed on homesteads in 1998 shall be paid to municipalities in the same manner as the municipal property tax.

(b) Notwithstanding section 6066 of Title 32, the amount of property tax adjustment available to claimants in fiscal year 1998 shall not affect the local share or statewide property tax liability of the claimant, but instead shall be paid *[as a credit against the claimant's income tax liability under chapter 151 of Title 32]* between July 1 and July 15, 1998, for claims filed by June 1. If the claimant's municipality has not adopted a budget at the time of the claim, the claim shall be paid within 45 days after the budget is adopted. A claimant may file a claim for the 1998 property tax reduction payment provided under this subsection until December 1, 1998, and the towns shall include with their property tax bills in 1998 a notice, prepared and supplied by the Department of Taxes, informing homeowners of the 1998 property tax reduction payments and forms and instructions for claiming such benefits.

(c) In determining the property tax adjustment claims made in 1998 for education property taxes to be billed in 1998, the commissioner of education shall determine a transitional statewide property tax rate for each municipality and a transitional local share percentage for each municipality, using the municipality's education budget for the fiscal year beginning July 1, 1998, and the municipality's equalized grand list. The transitional rate and local share percentage shall be used to calculate a claimant's education property tax adjustment under subdivisions 6066(a)(1) and (2) of Title 32, based upon the 1997 equalized grand list value of the claimant's homestead and the household income of the claimant for calendar year 1997.

Sec. 19. Sec. 52b of Act No. 60 of the Acts of 1997 is amended to read:

Sec. 52b. REPEAL

Sec. 20. Sec. 100(h) of Act No. 60 of the Acts of 1997 is amended to read:

(h) Secs. 51, 52, 52a, 52b, and 52c, relating to homestead property tax adjustment, shall take effect January 1, 1998, except subsection 6066(b) (renter claims) shall take effect January 1, 1999, and the prospective July 1998 payment under Sec. 52 of this act shall be in lieu of an income sensitivity adjustment under subdivisions 6066(a)(1) and (2) of Title 32 in April 1999. *[Sec. 52b, relating to repeal of the property tax rebate program, shall take effect January 1, 1999.]*

* * * PILOT * * *

Sec. 21. APPROPRIATIONS FOR PAYMENTS IN LIEU OF TAXES

Notwithstanding any provision of Act Nos. 60 and 61 of the Acts of 1997, in fiscal year 1998, payments in lieu of taxes under subchapter 4 of chapter 123 of Title 32:

(1) shall be calculated in addition to, and without regard to, the appropriations in Secs. 50 and 51 of Act No. 61 of the Acts of 1997 for Montpelier and state correctional facilities; and

(2) for payments made on account of agency of natural resources land, shall be paid only from the funds appropriated under Sec. 185 of Act No. 61 of the Acts of 1997.

Sec. 22. REPEAL

Section 3660 of Title 32 (PILOT payments special rule for agency of natural resources lands) is repealed effective January 1, 1998.

Sec. 23. 32 V.S.A. § 3701(2) is amended to read:

(2) "Assessed value of state buildings" means the estimation of the current cost of replacing a building, maintained for insurance purposes by the state agency or other entity responsible for insuring the building, depreciated by the age and condition of the building.

Sec. 24. 32 V.S.A. § 3701(5) is amended to read:

(5) "Adjusted municipal tax rate" means the total sum of money voted by a municipality for all noneducational expenses pursuant to section 2664 of Title 17 or section 1309 of Title 24, divided by the adjusted municipal grand list of the municipality.

Sec. 25. 32 V.S.A. § 3705(a)(1) and (2) are amended to read:

(1) the adjusted municipal grand list for the *[current]* prior assessment year, with the assessed values of all state-owned property shown separately, together with a statement of the common level of appraisal used to weight the assessed values of state-owned property;

(2) the adjusted municipal tax rate to be used in assessing taxes on the *[current]* prior adjusted municipal grand list; and

Sec. 26. REPEAL OF PILOT FORMULA LIMITATION

32 V.S.A. § 3703(b) (PILOT grant formula reference to current year data) is repealed effective July 1, 1997.

* * * Telecommunications Service Sales Tax * * *

Sec. 27a. MINIMUM TAX

(a) 32 V.S.A. § 5915 is amended to read:

§ 5915. MINIMUM TAX

An S corporation which is subject to the provisions of section 5914 of this title shall pay an annual tax of *[$150.00]* $250.00 to the commissioner of taxes on or before the due date prescribed for the filing of C corporation returns under section 5862 of this title.

(b) 32 V.S.A. § 5921 is amended to read:

§ 5921. MINIMUM TAX

A partnership or a limited liability company which is taxed as a partnership under the Internal Revenue Code and is subject to the provisions of section 5920 of this title shall pay an annual tax of *[$150.00]* $250.00 to the commissioner of taxes on or before the due date prescribed for the filing of the entity's federal return. The tax shall be submitted together with a form prescribed by the commissioner. A limited liability company that does not receive partnership treatment under the Internal Revenue Code shall be taxed for state purposes in the same manner as taxed under the Internal Revenue Code.

(c) This section shall take effect upon passage and shall apply to tax years beginning on or after January 1, 1998.

Sec. 29. REPEAL

Subdivision 7501(b)(5)(B)(iv) of Title 30 (exemption from universal telecommunications service tax for property or services subject to sales and use tax) is repealed, effective for services provided on or after September 1, 1997, and billed in the regular course of business on or after October 1, 1997.

* * * Determination of Homestead Property for Transition Year FY 199 * * *

Sec. 31. Sec. 100(c) of Act No. 60 of the Acts of 1997 is amended to read:

(c) Secs. 18 through 24 and 26 through *[28]* 27, establishing the new system of education finance, shall take effect on July 1, 1998. Sec. 28, requiring a separate statement of homestead tax on a property tax bill, shall take effect January 1, 1999. Sec. 25, relating to transitional funding of technical education centers, shall take effect on passage.

Sec. 32. Sec. 100(g) of Act No. 60 of the Acts of 1997 is amended to read:

(g) Secs. 45 through 48, relating to the statewide property tax, shall take effect January 1, 1998, except that 32 V.S.A. § 5410, relating to homestead declaration, shall take effect January 1, 1999. For purposes of the fiscal year 1999 transition, the value of nonresidential property and homestead property in each municipality shall be asdetermined by the Director of Property Valuation and Review based on the grand list information as reported *[to]* by the Director for *[April 1, 1996]* January 1, 1997 and using the calculated percentage split between homestead and nonresidential property produced in June 1997 in conjunction with H.527 of 1997, in the Joint Fiscal Office document ACommittee of Conference Spreadsheet #6@. Secs. 49 through 50b shall take effect from passage.

Sec. 33. [Deleted and incorporated in Sec. 71.]

Sec. 34. [Deleted and incorporated in Sec. 72.]

* * * Act 61 Reference to Annual Fair Market Valuation Studies * * *

Sec. 35. Sec. 169 of Act No. 61 of the Acts of 1997 is amended to read:

Sec. 169. EDUCATION - BIENNIAL VALUES

Notwithstanding any other provision of law, beginning January 1, 1992, and until January 1, 1998, the commissioner of taxes shall determine the aggregate fair market value and the coefficient of dispersion of all taxable property biennially, instead of annually. Beginning in 1998, the commissioner of taxes shall determine the aggregate fair market value and the coefficient of dispersion of all taxable property annually.

Sec. 35a. 32 V.S.A. § 5079(b) is amended to read:

(b) An owner of a mobile home, except those held for sale by a manufacturer, distributor or dealer, may not sell, trade or transfer the home without a mobile home uniform bill of sale endorsed by the clerk of the municipality in which it is located indicating that all *[real and personal]* property taxes assessed *[against the owner]* with regard to the mobile home, but not the mobile home site, have been paid. Where ownership of an abandoned mobile home is transferred pursuant to a court order issued pursuant to 10 V.S.A. § 6249, the order shall constitute a release of the mobile home from any lien for penalties, interest and taxes due the town to the date of the bill of sale, prorated as of that date. Where ownership of an abandoned mobile home is transferred pursuant to 10 V.S.A. § 6249 to an owner who certifies to the court that the mobile home will be disposed of, the order shall constitute a release of the mobile home from any lien for taxes due the town and an authorization to remove the mobile home from the town for thepurpose of disposal.

* * * FY 1998 Payments to Municipalities * * *

Sec. 36. Sec. 98(a) of Act No. 60 of the Acts of 1997 is amended to read:

(a) Municipalities for administration of education property tax. There is appropriated from the general fund for fiscal year 1998 to the director of property valuation and review the sum of *[$100,000.00]* $180,000.00 to be paid to each municipality at the rate of $1.00 for each R1, R2 and MHL and MHU parcel *[with more than two acres]* and for each farm, to assist in compensating the town officials who determine the listed value of the homestead and the nonresidential portion of the parcel.

* * * Property Tax Exemptions and Tax Stabilization Agreements * * *

Sec. 47. 32 V.S.A. § 5404a is amended to read:

§ 5404a. TAX STABILIZATION AGREEMENTS (a) *[Tax stabilization agreements]* Tax agreements affecting the education property tax grand list. A tax agreement shall affect the education property tax grand list of the municipality in which the property subject to the agreement is located if the agreement is:

(1) a prior agreement, meaning that it was:

(A) *[an agreement]* a tax stabilization agreement for any purpose authorized under 24 V.S.A. § 2741 or comparable municipal charter provisions entered into or proposed and voted by the municipality before July 1, 1997, or *[an]* a property tax exemption adopted by vote pursuant to chapter 125 of Title 32 or comparable municipal charter provisions before July 1, 1997; or

(B) an agreement relating to property sold or transferred by the New England Power Company of its Connecticut River system and its facilities along the Deerfield River which was warned before September 1, 1997; or

(2) *[an agreement]* a tax stabilization agreement relating to industrial or commercial property entered into under 24 V.S.A. § 2741, or comparable municipal charter provisions or an exemption for the purposes of economic development adopted by vote under *[chapter 125]* sections 3834 (factories; quarries; mines), 3836 (private homes and dwellings), 3837 (airports), or 3838 (hotels) of Title 32 or comparable municipal charterprovisions after June 30, 1997 if subsequently approved by the *[general assembly pursuant to this subsection]* Vermont economic progress council pursuant to this subsection and section 5930a of this title. *[A tax stabilization agreement may be approved by the general assembly if it is entered into or voted for the purpose of promoting economic development, affordable housing, land conservation, or other public purposes.]* An agreement or exemption may be approved by the *[general assembly]* Vermont economic progress council only if it has first been approved by the municipality in which the property is located with respect to the municipal tax liability of the property in that municipality. Any agreement or exemption approved by the *[general assembly]* Vermont economic progress council may not affect the education tax liability of the property in a greater proportion than the agreement or exemption affects the municipal tax liability of the property. A municipality's approval of an agreement or exemption under this subsection may be made conditional upon approval of the agreement or exemption by the *[general assembly under this subsection]* Vermont economic progress council. The legislative body of the municipality in which the property subject to the agreement or exemption is located or the business that is subject to the agreement or exemption may request the *[secretary of administration to recommend to the general assembly, and the board shall approve the agreement if the secretary finds that the agreement promotes economic, land conservation or other public purposes]* Vermont economic progress council to approve an agreement or exemption pursuant to section 5930a of this title. The *[secretary]* council shall also report to the general assembly on the terms of the agreement or exemption, and the effect of the agreement or exemption on the education property tax grand list of the municipality and of the state. *[An agreement may be approved by act of the general assembly, and if]* If so approved by the council, an agreement or exemption shall be effective to reduce the property tax liability of the municipality under this chapter beginning April 1 of the year following approval.

(3) an agreement relating to affordable housing, which may be *[approved]* submitted to the council for its approval under subdivision (2) of this subsection, or alternatively may be approved under this subdivision by the commissioner of taxes upon recommendation ofthe commissioner of housing and community affairs provided the agreement provides *[for substantial amounts of rehabilitated housing]* either for new construction housing projects or rehabilitated preexisting housing projects and secures federal financial participation which may include projects financed with federal low income housing tax credits.

(4) an exemption of property owned by a nonprofit volunteer fire, rescue or ambulance organization and used for the purposes of the organization, adopted, extended or renewed by vote of a municipality under chapter 125 of this title or comparable municipal charter provision after July 1, 1997.

(5) an exemption of property owned by a municipality situated in another municipality, which has been exempted from municipal property taxes by vote of the municipality in which the property is situated, and which is used for municipal forest lands, municipal water supply, or for other noncommercial municipal purposes. To be exempted under this subsection, the property must have been voted an exemption by the municipality before January 1, 1998, and such exemption may be extended or renewed thereafter by a similar vote of the municipality.

(b) *[A prior tax stabilization agreement, a tax stabilization agreement subsequently approved by the general assembly, or an agreement relating to affordable housing]* An agreement affecting the education property tax grand list defined under subsection (a) of this section shall reduce the municipality's education property tax liability under this chapter for the duration of the agreement or exemption without extension or renewal, and for a maximum of ten years. A municipality's property tax liability under this chapter shall be reduced by any difference between the amount of the education property taxes collected on the subject property and the amount of education property taxes that would have been collected on such property if its fair market value were taxed at the equalized nonresidential rate for the tax year.

(c) Tax agreements not affecting the education property tax grand list. A tax agreement shall not affect the education property tax grand list if it is:

(1) A tax exemption adopted by vote of a municipality after July 1, 1997 under chapter 125 of this title, or voted under a comparable municipal charter provision or otherprovision of law for property owned by nonprofit organizations used for public, pious or charitable purposes, other than economic development exemptions voted under sections 3834, 3836, 3837, or 3838 of this title and approved by the Vermont economic progress council, or exemptions of property of a nonprofit volunteer fire, rescue or ambulance organization adopted by vote of a municipality.

(2) A tax stabilization agreement relating to agricultural property, forest land, open space land or alternate energy generating plants entered into after July 1, 1997 by a municipality under section 2741 of Title 24.

(3) A tax stabilization agreement relating to commercial or industrial property entered into after July 1, 1997 by a municipality under section 2741 of Title 24, or a property tax exemption for purposes of economic development adopted by vote after July 1, 1997, which has not been approved by the Vermont economic progress council to affect the education grand list under subsection (a)(2) of this section and section 5930a of this title. In granting tax stabilization agreements for commercial or industrial property under section 2741 of Title 24, a municipality shall consider any applicable guidelines established for the approval of such stabilization agreements by the Vermont economic progress council established in section 5930a(c) of this title.

(4) Notwithstanding section 6306 of Title 10, a transfer of the development rights to real property under chapter 155 of Title 10 which is less than a permanent transfer of those rights, or is a lease of those rights for a fixed period, entered into on or after January 1, 1998, and a transfer or lease of such rights executed prior to January 1, 1998 upon the expiration of the period of the transfer or lease not to exceed five years.

(d) Tax agreements not affecting the education property tax grand list as defined in subsection (c) of this section shall not reduce the total education property tax liability of the municipality to the state under this chapter. However, such agreements shall reduce the education property tax liability of the owner of the property subject to the agreement to the extent provided in the agreement. A municipality shall assess a tax on its municipal grand list at a rate sufficient to raise an amount equal to the difference between the municipality's total education property tax liability to the state under this chapter and theamount collected from education property taxes in the municipality after reductions for all tax agreements in effect in the municipality as defined in subsection (c) of this section. Any such tax assessed under this section shall be identified on the tax bill of the municipality as a separate tax for municipally voted tax agreements.

(e) A municipality may apply to the Vermont economic progress council for an allocation of the education grand list value for up to ten years, of a portion of the increase in the value and liability assessed under section 5402 of this title on new economic development that is subsequently approved by the Vermont economic progress council pursuant to this section and section 5930a of this title. Allocation to a municipality pursuant to this subsection shall be in addition to any other payments to the municipality under chapter 133 of Title 16. If allocated, the allocated portion of the education fund liability shall be used by the municipality to support economic development through the purchase or financing of infrastructure including, but not limited to wastewater treatment, water supply, transportation and utility connections.

* * * Economic Advancement Tax Incentives * * *

Sec. 48. 32 V.S.A. chapter 151, subchapter 11E is added to read:

Subchapter 11E. Economic Advancement Tax Incentives

§ 5930a. VERMONT ECONOMIC PROGRESS COUNCIL

(a) There is created a Vermont economic progress council which shall be attached to the department of economic development for administrative support, including anexecutive director who shall be appointed by the council, knowledgeable in subject areas of the council's jurisdiction, and hold the status of an exempt state employee, and a staff assistant who shall be an employee in the state classified service, whose positions shall both come from currently vacant state employee positions and not add any new positions to the state. The council shall consist of nine citizens of the state appointed by the governor. The governor shall appoint citizens to the council who are knowledgeable and experienced in the subjects of community development and planning, education funding requirements, economic development, state fiscal affairs, property taxation, or entrepreneurial ventures, and shall make appointments to the council insofar as possible as to provide representation to the various geographical areas of the state and municipalities of various sizes. Members of the council shall serve initial staggered terms with three members serving three-year terms, three members serving two-year terms, and three members serving one-year terms. All council members' terms shall be three-year terms upon the expiration of their initial terms and council members may be reappointed to serve successive terms. The governor shall select a chair from among the council's members.

In addition to the nine members appointed by the governor, there shall also be two regional members from each region of the state; one shall be designated by the regional development corporation of the region and one shall be designated by the regional planning commission of the region. Regional members shall be nonvoting members and shall serve during consideration by the council of applications from their respective regions. For attendance at meetings and for other official duties all members, including regional members, shall be entitled to compensation for services and reimbursement of expenses as provided in section 1010 of this title.

(b) The Vermont economic progress council, within 45 days of receipt of a complete application, shall approve or deny the following economic incentives:

(1) tax stabilization agreements and exemptions under subdivision 5404a (a)(2) of this title;

(2) the economic advancement tax incentives set forth in this subchapter;

(3) sales and use tax exemptions provided in section 9741 of this title that require the approval of the Vermont economic progress council;

(4) property tax exemptions that require the approval of the Vermont economic progress council under subdivisions 5404a(d)(1) and (2) of this title; and

(5) applications for allocation to municipalities for a portion of education grand list value and municipal liability from new economic development under section 5404a(e) of this title.

(c) The council shall review each application under subsection (b) of this section by evaluating its overall consistency with the following guidelines:

(1) The degree to which the enterprise creates new full-time jobs that are filled by Vermont residents, not including those jobs or employees transferred from an existing business in the state or replacements for vacated or terminated positions with the applicant business, and provides opportunities that increase income, reduce unemployment, and reduce vacancy rates. New jobs include those which exceed the average annual employment level in Vermont for the applicant business in the preceding two fiscal years;

(2) The degree to which the new jobs pay more than the prevailing regional wage, provide employee benefits, and offer opportunities for advancement and professional growth;

(3) The creation of positive fiscal impacts on the state, the host municipality and region as projected by the cost-benefit model applied by the council under subsection (d) of this section;

(4) The degree to which the enterprise uses Vermont's resources;

(5) The degree to which the enterprise is welcomed by the host municipality, including conformance with appropriate duly adopted town and regional plans, and conformance with all permit and approval requirements;

(6) The degree to which the enterprise strengthens the quality of life in the host municipality and fosters cooperation within the host municipality's region;

(7) The degree to which the enterprise uses existing infrastructure or is adowntown redevelopment project;

(8) The degree to which the enterprise protects or improves Vermont's natural, historical, and cultural resources, and enhances Vermont's historic settlement patterns.

(d) In reviewing the application of a business or municipality which the council pursuant to subsection (c) of this section has determined to be eligible for the economic incentives under subsection (b) of this section, the council shall apply a cost-benefit model that provides a uniform and comprehensive methodology for assessing and measuring the fiscal benefit to the state and region of the state of proposed economic development activities. The council shall develop the cost-benefit model subject to the approval of the joint fiscal committee and shall perform cost-benefit analysis in consultation with the commissioner of economic development. The cost-benefit model shall measure the present value of the anticipated direct and indirect fiscal benefits that will inure to the state against the anticipated direct and indirect fiscal costs associated with a proposed tax stabilization agreement under subdivision (b)(1) of this section and economic advancement incentive under subdivision (b)(2) of this section. The present value calculation may include consideration of: (i) the passage of time on the multi-year fiscal benefits and costs; (ii) inflation on the value of multi-year fiscal benefits and costs; and (iii) other cost and benefit factors as determined by the council.

(1) In determining the fiscal benefit or cost of the incentives approved under subdivisions (b)(1), (4) and (5) of this section, the council shall calculate the net present value of the enhanced or forgone statewide education tax revenues. If the council approves an incentive pursuant to this section, the fiscal costs, if any, to the state shall be counted as if all those costs occurred in the year in which the council first approved the incentive and that cost shall reduce the amount of the annual authorization for such approvals established by the legislature for the applicable fiscal year.

(2) In determining the fiscal benefit or cost of the incentives approved under subdivision (b)(2) of this section, the council shall calculate the present value of the enhanced or forgone state tax revenues attributable to the approved incentives, reflecting both direct and indirect economic activity. If the council approves an incentive, the fiscal costs, if any, to the state shall be counted as if all of those costs occurred in the year inwhich the council first approved the incentive and that cost shall reduce the amount of the council's annual authorization for approval of economic incentives as established by the legislature for the applicable fiscal year.

(e) A business or municipality may apply to the economic progress council to receive the economic incentives available under subsection (b) of this section, except that only a municipality may apply for approval of a tax stabilization agreement as allowed under 32 V.S.A. § 5404a(a)(2) and (e) and for education fund revenue sharing under 32 V.S.A. § 5404a(a)(2).

(f) The economic progress council shall have the authority to adopt rules under chapter 25 of Title 3 to provide streamlined and efficient procedures for processing and deciding applications.

(g) Decisions of the economic progress council shall be administrative decisions that are not subject to the contested case hearing requirements of chapter 25 of Title 3. The council's decisions shall be final and not subject to judicial review.

(h) Information and materials submitted by a business applicant concerning its income taxes and other confidential financial information shall not be subject to public disclosure under the state's public records law in Title 1, chapter 5.

(i) By January 10 of each year the governor shall recommend to the general assembly, and the general assembly shall thereafter establish by law, an annual authorization for a gross maximum amount of value for incentives the council may approve under subdivisions (b)(1), (4) and (5) of this section and an annual authorization for a net amount of value of incentives which the council may approve under subdivisions (b)(2) and (3) of this section. Any unused balance of either of the council's annual authorizations may be carried forward and granted by the board in the following year.

(j) By January 10 of each year, the council, in consultation with the commissioner of economic development, shall report to the joint fiscal committee of the legislature on the gross value of incentives granted pursuant to subdivisions (b)(1),(4) and (5) of this section and the gross and net values of the incentives granted pursuant to subdivisions (b)(2) and (3) of this section during the preceding year and the cumulative impact of the credits issued. The report shall include an evaluation of past credits, and if there is a net loss, thecurrent year's authorization shall be adjusted to account for it accordingly. The report of the council in January 1999 shall also include review of other successful state development programs dedicated to higher value jobs, opportunities to create new economic activity not addressed by tax credits, and recommendations for economic development tools for fiscal year 2000.

§ 5930b. ECONOMIC ADVANCEMENT TAX INCENTIVES

A person may request approval of not more than three of the five economic incentives provided in this subchapter. Approval of the Vermont economic progress council pursuant to this subchapter may be for up to five years.

§ 5930c. ECONOMIC ADVANCEMENT PAYROLL TAX CREDIT

A person, upon obtaining the approval of the Vermont economic progress council pursuant to section 5930a of this title, may receive a credit against income tax liability imposed under this chapter equal to a percentage of its increased payroll costs, defined as salaries and wages, within the state of Vermont in the tax year for which the credit is claimed above its costs of salaries and wages from the preceding tax year according to the following schedule:

(1) A person reporting less than $10 million in annual sales in the tax year that the credit is claimed may receive a credit against its income tax liability equal to ten percent of its increased costs of salaries and wages costs in the applicable tax year.

(2) A person that reports annual sales of $10 million or more, but less than $20 million, in the tax year that the credit is claimed may receive a credit against its income tax liability of six to nine percent of its increased costs of salaries and wages in the applicable tax year based on the following proportional, graduated scale:

(A) a nine percent tax credit for reported sales of $10 million through $12,500,000.00;

(B) an eight percent tax credit for reported sales of more than $12,500,000.00 through $15 million;

(C) a seven percent tax credit for reported sales of more than $15 million through $17,500,000.00; and

(D) a six percent tax credit for reported sales of more than $17,500,000.00through $20 million.

(3) A person reporting more than $20 million in annual sales in the tax year that the credit is claimed may receive a credit against its income tax equal to five percent of its increased costs of salaries and wages in the applicable tax year.

(4) For a person in its first year of operation, its costs of salaries and wages in the preceding tax year shall be deemed to have been zero.

§ 5930d. ECONOMIC ADVANCEMENT RESEARCH AND DEVELOPMENT TAX

CREDIT

(a) A person, upon obtaining the approval of the Vermont economic progress council pursuant to section 5930a of this title, may receive a credit against its income tax liability imposed by this chapter in the amount of ten percent of qualified research and development expenditures undertaken within the state of Vermont in the tax year for which the credit is claimed.

(b) "Qualified research and development expenditures" shall have the same meaning as provided for the term "qualified research expenses" included in the Internal Revenue Code at 26 U.S.C. § 41(b).

§ 5930e. WORKFORCE DEVELOPMENT INCENTIVE TAX CREDIT

(a) A person, upon obtaining the approval of the Vermont economic progress council pursuant to section 5930a of this title, may receive a credit against its income tax imposed by this chapter in the amount of ten percent of its qualified training, education and workforce development expenditures within the state of Vermont in the tax year that such expenditures were made.

(b) Qualified training, education and workforce development expenditures under this section shall mean:

(1) expenditures eligible for financial assistance under the Vermont training programs administered by the department of economic development;

(2) expenditures defined in subdivision 127(c)(1) of Title 26 of the United States Code concerning the employee educational assistance initiative; or

(3) expenditures for employer-provided child care and transportation subsidies that allow for training and educational activities for welfare-to-work participants.

(c) A person that has obtained the approval of the Vermont economic progress council, may receive a credit against its income tax imposed by this chapter in the amount of twenty percent of its qualified training, education and workforce development expenditures for the benefit of welfare-to-work participants in the tax year for which the credit is claimed.

§ 5930f. VERMONT EXPORT TAX INCENTIVE

An entity doing business in Vermont and one or more other states, upon obtaining the approval of the Vermont economic progress council pursuant to section 5930a of this title, may receive a credit against its income taxes imposed by this chapter in an amount equal to the difference between a calculation of its income tax under the formula for apportionment provided in section 5833 of this title and a calculation of its income tax under the formula for apportionment provided in section 5833, except that such calculation shall be determined (i) without regard to section 5833(a)(3); and (ii) by doubling the sales factor in section 5833(a)(3).

§ 5930g. SMALL BUSINESS INVESTMENT TAX CREDIT

(a) A person, upon obtaining the approval of the Vermont economic progress council under section 5930a of this title, may receive a credit against its income taxes imposed by this chapter in an amount equal to five to ten percent of its investments within the state of Vermont in excess of $150,000.00 in plants or facilities and machinery and equipment in the applicable tax year according to the following:

(1) A person employing fewer than 150 full-time employees that has obtained the approval of the Vermont economic progress council may receive an income tax credit equal to ten percent of its investments in plants or facilities and machinery and equipment in the applicable tax year.

(2) A person employing between 150 and 250 full-time employees that has obtained the approval of the Vermont economic progress council may receive an income tax credit of six to nine percent of its investments in plants or facilities and machinery and equipment in the applicable tax year based on the following proportional sliding scale:

(A) a nine percent tax credit for 150-174 full-time employees;

(B) a eight percent tax credit for 175-199 full-time employees;

(C) a seven percent tax credit for 200-224 full-time employees: and

(D) a six percent tax credit for 225-250 full-time employees.

(3) A person employing more than 250 full-time employees that has obtained the approval of the Vermont economic progress council may receive an income tax credit equal to five percent of its investments in plants or facilities and machinery and equipment in the applicable tax year.

§ 5930h. CARRY-FORWARD, CARRY-BACK AND RECAPTURE

(a) A five-year carry-forward is allowed for each economic incentive under this subchapter. The carry-forward period shall run for no more than five years after the last year of the term approved by the council for the receipt of incentives.

(b) Carry-backs are not allowed for the economic incentives under this subchapter.

(c) In the event a person that has obtained the approval of the Vermont economic progress council under section 5930a of this title ceases to employ in Vermont, for a period of 120 consecutive days, at least 75 percent of the number of employees it employed in Vermont as of the year in which a credit was received under this subchapter, then for any such year and all succeeding years, carry-forward of any unused credit shall be disallowed. Furthermore, there shall be imposed upon each such employer a recapture penalty equal to a percentage of the total credit used, computed in accordance with the following table:

Years between close of tax year Percent of credit recaptured when credit became available

and year when business became

ineligible

Two or less 100%

More than 2, up to 4 50%

More than 4, up to 6 25%

The recapture shall be reported on the taxpayer's income tax return for the tax year in which the 120 consecutive-day threshold occurred.

§ 5930i. CREDIT ALLOCATION

Credit as calculated in this subchapter to a person who is a partnership, limited liability company, subchapter S corporation, or trust, shall be available to a partner, member,shareholder, or beneficiary required to pay Vermont income tax in the same proportion as the income of the person is distributed to the shareholder, partner, member or beneficiary.

Sec. 48a. REPEAL AND MERGER

10 V.S.A. § 699a (creating the Vermont Economic Progress Council) is repealed effective from date of passage of this act, and all provisions relating to findings and purposes and powers and duties of the Vermont Economic Progress Council set out at 10 V.S.A. §§ 699 and 699b shall apply to the Vermont Economic Progress Council as created in 32 V.S.A. § 5930a(a) as added by Sec. 48 of this act.

* * * Sales and Use Tax Exemptions * * *

Sec. 50. 32 V.S.A. § 9741(34) is amended to read:

(34) Sales of electricity, oil, gas and other fuels used on site directly and primarily in the production or provision of products or services by a business that has obtained the approval of the Vermont economic progress council pursuant to section 5930a of this title or used directly or indirectly in manufacturing tangible personal property for sale.

Sec. 51. 32 V.S.A. § 9741(39) is amended to read:

(39) Sales of building materials within any three consecutive *[calendar]* years in excess of one million dollars in purchase value used in the construction, renovation or expansion of facilities which are used exclusively, except for isolated or occasional uses, for the manufacture of tangible personal property for sale, and similar sales in excess of $250,000.00 in purchase value provided that the municipality where the business is located is not receiving from the commissioner of taxes an allocation pursuant to section 9819 of this title, that are either (i) used for the production or provision of products or services by a business that has obtained the approval of the economic progress council pursuant to section 5930a of this title, or (ii) incorporated into a downtown redevelopment project as defined by rule by the commissioner of the department of housing and community affairs.

Sec. 51a. 32 V.S.A. § 9819 is added to read:

§ 9819. REALLOCATION OF RECEIPTS

Receipts from the tax imposed by sections 9771 and 9773 of this title on sales of building materials in excess of $250,000.00 used in the construction, renovation, or expansion of facilities by a business approved by the economic progress council andincorporated into a downtown redevelopment project as defined by the commissioner of housing and community affairs shall be allocated by the commissioner of taxes for payment to a municipality where the business is located to aid in the financing of municipal infrastructure that supports the business which generated those tax revenues.

Sec. 52. 32 V.S.A. § 9741(40) is amended to read:

(40) *[Sales of building materials within any three consecutive calendar years, in excess of one million dollars in purchase value, incorporated into a downtown redevelopment project as defined by rule by the commissioner.]*

Machinery and equipment, including system-based software used directly in the production or provision of products or services by a business that has obtained the approval of the Vermont economic progress council under section 5930a of this title.

* * * Construction in Progress; Brownfields - Property Tax Exemptions * * *

Sec. 53. 32 V.S.A. § 5402(d) is added to read:

(d) The following shall also be excluded from the definition of "nonresidential real property" as set out in section 5401(10) of this title and exempted from the statewide education property tax grand list:

(1) Real property, excluding land, consisting of unoccupied new facilities, or unoccupied facilities under renovation or expansion, owned by a business that has obtained the approval of the Vermont economic progress council under section 5930a of this title that is less than 75 percent complete, not in use as of April 1 of the applicable tax year, and for a period not to exceed two years; and

(2) Real property consisting of the value of remediation expenditures incurred by a business that has obtained the approval of the Vermont economic progress council under section 5930a of this title for the construction of new, expanded or renovated facilities on contaminated property eligible under the redevelopment of contaminated properties program pursuant to section 6615a(f) of Title 10, including supporting infrastructure, on sites eligible for the United States Environmental Protection Agency "Brownfield Program," for a period of ten years.

* * * Vermont Employment Training Program * * *

Sec. 54. 10 V.S.A. § 531(b) and (c) are amended to read:

(b) The secretary of commerce and community development shall find in the contract that:

(1) the employer's new or expanded facility will enhance employment opportunities for Vermont residents; *[and]*

(2) the existing labor force within the state will probably be unable to provide the employer with sufficient numbers of employees with suitable training and experience*[.]*; and

(3) the employer provides its employees with at least three of the following:

(A) health care benefits with 50 percent or more of the premium paid by the employer;

(B) dental assistance; (C) paid vacation and holidays;

(D) child care;

(E) other extraordinary employee benefits; and

(F) retirement benefits.

(c) The employer promises in the contract to:

(1) employ new persons at a wage which, at the completion of the training program, is two times the prevailing state or federal minimum wage, whichever is greater, reduced by the value of any existing health benefit package up to a limit of *[15]* 25 percent of the gross program wage, or for existing employees, to increase the wage to two times the prevailing state and federal minimum wage, whichever is greater, reduced by the value of any existing health benefit package up to a limit of 15 percent of the gross program wage, upon completion of training; provided, however, that in areas defined by the secretary of commerce and community development in which the secretary finds that the rate of unemployment is 50 percent greater than the average for the state, the wage rate under this subsection may be set by the secretary at a rate no less than one and one-half times the federal or state minimum wage, whichever is greater;

* * *

(3) provide its employees with at least three of the following:

(A) health care benefits with 50 percent or more of the premium paid by the employer;

(B) dental assistance;

(C) paid vacation and holidays;

(D child care;

(E) other extraordinary employee benefits; and

(F) retirement benefits.

* * * Appropriation * * *

Sec. 55. APPROPRIATION

(a) There is appropriated from the state's general fund for fiscal year 1998 a sum of $100,000.00 for the Vermont economic progress council to employ a contractor to design and prepare the cost-benefit model required pursuant to 32 V.S.A. § 5930a(d) and perform cost-benefit analysis under the model for the council.

(b) There is appropriated from the state's general fund for fiscal year 1998 a sum of $21,000.00 for the council's executive director, one administrative staff member for the council, and one classified staff position for the department of taxes. All three of these positions shall be obtained by the transfer of currently vacant state employee positions and shall not add any new positions to state government.

Sec. 55a. REPEAL

Sec. 47 of No. 50 of the Acts of 1997 (appropriating $100,000.00 to the department of taxes for a tax expenditure study) is repealed.

* * * Annual Economic Incentive Authorization * * *

Sec. 56. AUTHORIZATION

(a) The Vermont economic progress council is hereby authorized to approve applications under subdivisions (b)(1), (4) and (5) of section 5930a of Title 32 up to a total of $300,000.00 in fiscal year 1999 as determined pursuant to subdivision 5930a(d)(1) of Title 32.

(b) The Vermont economic progress council is hereby authorized to approve applications under subdivisions (b)(2) and (3) of section 5930a of Title 32 up to a total of $2,000,000.00 in fiscal year 1999 as determined pursuant to subsection 5930a(d)(2) of Title 32.

* * * Tax Increment Financing (TIF) Districts * * *

Sec. 58. 32 V.S.A. § 5401(10) is amended to read:

(10) "Nonresidential real property" means all property except:

* * *

(E) The excess valuation of property subject to tax increment financing in a tax increment financing district established under subchapter 5 of chapter 53 of Title 24 *[prior]* *[to June 10, 1997]* to the extent that the taxes generated on the excess property valuation are pledged and appropriated for interest and principal repayment on bonded debt or prefunding future tax increment financing district debt and to the extent approved for this purpose by the Vermont economic progress council upon application by the district under procedures established for approval of tax stabilization agreements under section 5404a of this title, and that any such action shall be included in the annual authorization limits provided in section 5930a(d)(1) of this title.

* * * Commission on Property Tax Exemptions * * *

Sec. 59. COMMISSION ON PROPERTY TAX EXEMPTIONS

(a) There is created a Commission on Property Tax Exemptions of 11 members, composed of:

(1) five citizens of the state, with knowledge of property taxation, collection and appraisal, municipal and local government, nonprofit tax exempt organizations, education finance, or regional and municipal planning, appointed by the governor;

(2) two members of the House, not of the same political party, appointed by the Speaker;

(3) two members of the Senate, not of the same political party, appointed by the Committee on Committees; and

(4) the Commissioner of Taxes, or his or her designee, and the Director of the Division of Property Valuation and Review, or his or her designee.

(b) The Commission shall elect its chair from among its membership, may hold public hearings, and meet as necessary to perform its duties. For attendance at meetings, members of the Commission who are not state employees or members of the General Assembly shall be entitled to compensation for services and reimbursement for expenses as provided to members of state boards under 32 V.S.A. § 1010. Members of the Commission who are members of the General Assembly shall be entitled to compensation for services and reimbursement for expenses under 2 V.S.A. § 402. The Commission shall be attached to the Department of Taxes for administrative support, and staff assistance to the Commission shall be provided by the department.

(c) The Commission shall review all exemptions from property taxation under chapter 125 of Title 32 and any other provisions of law, including mandatory exemptions, partial exemptions, and exemptions subject to municipal vote. The Commission shall also review the construction and interpretation of such property tax exemptions by municipal and state officials and the courts of the state. The Commission shall review the equity, uniformity, costs, efficiency, purposes and public benefit of property tax exemptions, particularly within a system of state property taxation for education and municipal property taxation for municipal services. The Commission shall report and make any recommendations for revision of exemptions from property taxation to the General Assembly on or before January 15, 1999.

Sec. 61. 24 V.S.A. § 138 is amended to read:

§ 138. LOCAL OPTION TAXES

(a) Local option taxes are authorized under this section for the purpose of affording municipalities an alternative method of raising municipal revenues to facilitate the transition and reduce the dislocations in those municipalities that may be caused byreforms to the method of financing public education under the Equal Educational Opportunity Act of 1997. Accordingly,

(1) the local option taxes authorized under this section may be imposed by a municipality only during *[fiscal]* calendar years 1999, 2000 *[and]*, 2001 *[the transitional years preceding]* *[full implementation of that act]* and 2002;

(2) a municipality opting to impose a local option tax *[shall do so no later than]* may do so prior to July 1, 1998 to be effective beginning January 1, 1999, and anytime after December 1, 1998 a local option tax shall be effective beginning on the next tax quarter following 30 days' notice to the department of taxes of the imposition; and all authority to opt to impose *[or collect]* a local option tax under this section shall terminate *[July 1, 2001]* September 1, 2001, and all authority to impose a local option tax shall terminate on December 31, 2002; and

(3) a local option tax may only be adopted by a municipality in which:

(A) the education property tax rate in 1997 was less than $1.10 per $100.00 of equalized education property *[tax grand list]* value; or

(B) the equalized grand list value of personal property, business machinery, inventory, and equipment is at least ten percent of the equalized education grand list in fiscal year 1998; or

(C) the combined education tax rate of the municipality will increase by 20 percent or more in fiscal year 1999 or in fiscal year 2000 over the rate of the combined education property tax in the previous fiscal year.

(b) If the legislative body of a municipality by a majority vote recommends, the voters of a municipality may, at an annual or special meeting warned for that purpose, by a majority vote of those present and voting, assess any or all of the following:

(1) a one percent sales *[and use]* tax excluding tax on telecommunications,

(2) a one percent meals and alcoholic beverages tax,

(3) a one percent rooms tax.

(c) Any tax imposed under the authority of this section shall be collected and administered by the *[municipality]* department of taxes, in accordance with state law governing such state tax or taxes; provided however, that a sales tax imposed under thissection shall be collected on each sale that is subject to the Vermont sales tax. All costs of administration and collection shall be borne by the municipality.

(d) Of the taxes *[collected]* reported under this section, *[60]* 80 percent shall be *[retained by]* paid to the municipality in which they were *[collected and]* reported for calendar year 1999, 70 percent shall be paid to the municipality in which they were reported for calendar years 2000 and 2001, and 60 percent shall be paid to the municipality in which they were reported for calendar year 2002. Such revenues may be expended by the municipality for municipal services only and not for educational expenditures. The remaining *[40 percent]* amount of the taxes *[collected]* reported shall be remitted monthly to the state treasurer for deposit in the PILOT special fund. Amounts to be paid to a municipality under this section shall be reduced by five percent to reflect the difference between the amounts reported and collected. Taxes due to a municipality under this section, less the costs of administration and collection, shall be paid on a quarterly basis.

(e) As used in this section, Amunicipality@ means a city, town or incorporated village.

(f) Nothing in this section shall affect the validity of any existing provision of law or municipal charter authorizing a municipality to impose a tax similar to the local option taxes authorized in this section.

Sec. 62. REPEAL

32 V.S.A. § 5403(c) (escrow of education property tax) is repealed effective July 1, 1997.

Sec. 63. 32 V.S.A. § 4152(a)(9) is amended to read:

(9) Separate columns which will show the listed valuation of declared homesteads as defined in section 5401(7) of this title.

Sec. 64. NOTICE OF HOMESTEAD VALUE ALLOCATION

Every municipality shall notify the owner of record of each declared homestead, as defined under section 5401(7) of Title 32, of the most recent listed value of the parcel and the homestead portion of the parcel. Notice shall be provided on or before the date on which the listers must return the grand list book to the town clerk for 1999, in the same manner and with the same appeal rights as provided under subsection 4111(e) of Title 32.

Sec. 65. 32 V.S.A. § 4111(e) is amended to read:

(e) When the listers return the grand list book to the town clerk, they shall notify by first class mail, on which postage has been prepaid and which has been addressed to their last known address, all persons, listed as property owners in the grand list book of any change in the appraised value of such property or any change in the allocation of value to the declared homestead as defined under section 5401(7) of this title, and also notify them of the amount of such change and of the time and place fixed in the public notice hereinafter provided for, when persons aggrieved may be heard. Notices shall be mailed at least fourteen days before the time fixed for hearing. Such personal notices shall be given in all towns and cities within the state, anything in the charter of any city to the contrary notwithstanding. At the same time the listers shall post notices in the town clerk's office and in at least four other public places in the town or in the case of a city, in such other manner and places as the city charter shall provide, setting forth that they have completed and filed such book as an abstract and the time and place of the meeting for hearing grievances and making corrections. Unless the personal notices required hereby were sent by registered or certified mail, or unless an official certificate of mailing of the same was obtained from the post office, in the case of any controversy subsequently arising it shall be presumed that the personal notices were not mailed as required.

Sec. 66. MUNICIPAL CHANGE IN DUE DATES FOR EDUCATION

PROPERTY TAX

Notwithstanding any charter provision to the contrary, the governing body of a municipality is authorized to change its property tax due dates in order to comply with the requirements of Act 60 of the Acts of 1997, as amended.

* * * 40% Cap Adjustment * * *

Sec. 67. Sec. 50(a) of Act No. 60 of the Acts of 1997 is amended to read:

(a) For fiscal year 1999: Any municipality having a 1997 equalized education property tax rate of $0.20 or less shall be subject to the statewide property tax under chapter 135 of Title 32 at a rate of the 1997 rate plus one-third the difference between that rate and $1.10. Any other municipality having a 1997 equalized education property tax rate less than $1.10 shall be subject to the statewide property tax under chapter 135 of Title 32 at a rate of the lesser of $1.10 or the municipality's 1997 equalized education property tax rateplus $0.30. Any municipality having a 1997 equalized education property tax rate of more than $1.10 and less than $1.15, shall be subject to the statewide property tax under chapter 135 of Title 32 at a rate of $1.10. Any municipality having a 1997 equalized education property tax rate of *[more than]* $1.15 or more, shall be subject to the statewide property tax under chapter 135 of Title 32 at a rate of $1.15. *[No municipality shall be required to set a combined municipal, school district and statewide property tax rate which is more than 40 percent higher than its combined fiscal year 1998 municipal and school property tax rate, provided that any growth in the municipal budget of more than 10 percent in that year shall not be included in the calculation of the combined municipal, school district and statewide property tax rate for that year.]* In addition, the following limitation shall apply. If, in fiscal year 1999, in order to fund that portion of a municipal budget which is no greater than 110 percent of its fiscal year 1998 municipal budget and to fund that portion of an education budget which is no greater than its fiscal year 1998 education budget adjusted by any increase in the index for state and local purchases of goods and services and for any extenuating circumstances as determined by the commissioner, a municipality's combined municipal, school district and statewide equalized property tax rate is more than 40 percent higher than its combined municipal and education equalized tax rate in fiscal year 1998, then the education property tax rates for fiscal year 1999 established by this section for that municipality shall be reduced. The statewide education property tax rate shall be reduced by an amount which will result in a combined municipal, school district and statewide education equalized tax rate for the municipality in fiscal year 1999 which does not exceed by more than 40 percent the combined municipal and education equalized tax rate of the municipality for fiscal year 1998. For purposes of determining income sensitivity adjustments to homestead property taxpayers in towns subject to this additional limitation, both the statewide education property tax rate and the local share property tax rate shall be reduced proportionately and the local share percentage shall be equal to the proportionately reduced local share rate divided by the proportionately reduced statewide education property tax rate of the town. For the purposes of determining the applicability of the 40 percent limitation of this subsection, "extenuating circumstances" may include but not be limited to increases in atown's education budget caused by an increase in its average daily membership or an increase in its education budget caused by an extraordinary, short-term, capital expenditure for physical plant and equipment. If a school district qualifies for the application of the limitation previously set forth in this subsection, and if that school district also adopts a 1999 school budget which, adjusted for any increase in the index for state and local purchases of goods and services, is the same as or is reduced from its 1998 school budget by no more than ten percent, it shall not be required to set an equalized education tax rate which is more than 35 cents higher than its 1998 equalized school tax rate. For the purpose of this limitation, an equalized education tax rate means the combination of the statewide education tax rate and any equalized l ool property tax rate. Any reductions in the 1999 equalized education tax rate referred to in this subsection shall be based on the January 1, 1998 equalized study.

Sec. 67a. Subsection (c) of Sec. 50 of No. 60 of the Acts of 1997 is added to read:

(c) Notwithstanding any other provision of law, in fiscal year 1999 no municipality in which the 1997 equalized education grand list has been reduced by an amount of 40 percent or more from its 1996 equalized grand list as a result of the exemption created in 32 V.S.A. § 5401(10)(D) of personal property, machinery, inventory and equipment, shall be required to set a combined municipal and education property tax rate which is more than $0.50 higher than its combined municipal and education tax rate in the prior fiscal year. For the purposes of this subsection, any growth in the municipal budget or the education budget shall not be included in the calculation of the combined municipal and education property tax rate for that year.

Sec. 67b. Subsection (d) of Sec. 50 of No. 60 of the Acts of 1997 is added to read:

(d) The total amount of property tax reduction benefits provided by subsections (a) and (c) of this section shall be limited for any individual taxpayer by this subsection. In fiscal year 1999, the total amount of reductions of education property tax liability for a taxpayer in a municipality for all property owned by the taxpayer in that municipality shall not exceed the amount of $5,000.00. A taxpayer whose total education property tax liability calculated without the limitations of subsections (a) and (c) of this section exceeds by $5,000.00 the amount of education property tax liability of that taxpayer calculated with the limitations of subsections (a) and (c), shall add the difference to the taxpayer's fiscal year 1999 educational property tax liability. The determination of additional liability under this section shall be the responsibility of the Division of Property Valuation and Review. Municipalities shall calculate each taxpayer's liability without regard to the limitations of this subsection and shall bill accordingly. The Division of Property Valuation and Review shall review each municipality's tax rate and grand list to determine those taxpayers who are subject to the limitation imposed by this subsection. The Division of Property Valuation and Review shall mail to each taxpayer affected by this subsection, at the taxpayer's last known address, a notice stating the amount the taxpayer owes under this subsection. Each tax notification sent by the Division of Property Valuation and Review under this subsection shall be mailed within seven days of the date on which the municipality in which the affected taxpayer resides mails its notices of taxes owed. The date for payment of taxes owed under this subsection shall be 30 days from the date of mailing of notice to the taxpayer. Within 15 days after the expiration of the date fixed under this subsection for the payment of taxes, the director of Property Valuation and Review shall issue a warrant against the delinquent taxpayer for the amount of taxes owed by the taxpayer under this subsection that remains unpaid. Such warrant shall remain in full force until all taxes thereon have been fully paid or otherwise discharged. Interest on delinquent taxes under this subsection shall be at the rate of one percent per month for the first three months and thereafter at one and one-half percent per month from the due date of such tax.

* * * Education Fund: Dedication of General Fund Revenue* * *

Sec. 68. 16 V.S.A. § 4025(a) is amended to read:

(a) An education fund is established to be comprised of the following:

(1) All revenue paid to the state from the education property tax under chapter 135 of Title 32.

(2) Local share property tax revenues from those school districts which adopt budgets with local education spending in excess of the general state support grant and which are able to raise more than the equalized yield amount.

(3) *[General funds]* Funds appropriated or transferred by the general assembly.

(4) Revenues from state lotteries under chapter 14 of Title 31.

(5) Twenty percent of the revenues raised by the tax imposed by chapter 225 of Title 32 on meals, rooms and alcoholic beverages, less an annual amount equal to $1,560,000.00 which shall remain in the general fund dedicated to the purposes of promotion of tourism and marketing.

(6) Nineteen percent of the tax on income of corporations, including S corporations, partnerships, and limited liability companies raised by chapter 151 of Title 32.

(7) Fifty-eight and three-tenths percent of the revenues raised by the bank franchise tax imposed by section 5836 of Title 32.

(8) Revenues raised by the tax on telecommunications services imposed by Secs. 76 through 84 of Act No. 60 of the Acts of 1997.

(9) Revenues raised by the increase in brokerage fees imposed by Sec. 85 of Act No. 60 of the Acts of 1997.

(10) Twenty-one percent of the revenues raised by the motor fuel tax on gasoline in fiscal year 1999, and 16 percent of the revenues raised by the motor fuel tax on gasoline in fiscal year 2000 and thereafter.

(11) One-sixth of the revenues raised from the purchase and use tax imposed by chapter 219 of Title 32, notwithstanding 19 V.S.A. § 11(1).

Sec. 68a. REPEAL

Sec. 71a of No. 60 of the Acts of 1997 (gasoline tax reduction) is repealed.

Sec. 69. 32 V.S.A. § 5061(c) is added to read:

(c) Notwithstanding the provisions of subsection (a) of this section, education property taxes assessed and due on homestead property shall be a lien in favor of the state under the provisions of section 5895 of this title, and not under the provisions of this section.

* * * Cash Flow * * *

Sec. 70. 16 V.S.A. § 4028(a) is amended to read:

(a) On or before *[September 1, January 2 and March 30]* September 10, December 10 and April 30 of each school year, each school district shall receive funds equal to one-third of:

(1) the general state support grants due under section 4011 of this title;

(2) the amount due to a district which adopts a budget with local education spending in excess of the general state support grant and which is able to raise less than the equalized yield amount.

Sec. 71. 16 V.S.A. § 428(b) is amended to read:

(b) Following adoption of a budget by the electorate and calculation of the equalized yield amount pursuant to section 4027 of this title, if the district has voted a budget with local education spending in excess of the general state support grant amount, the commissioner of education shall determine the district's local share property tax percentage. The selectboard shall then *[bill each property taxpayer for the]* determine each taxpayer's local share property tax amount, *[using]* and may use tax classifications if authorized; but *[homesteads shall be billed]* without regard to the income sensitivity calculation under chapter 154 of Title 32.

Sec. 72. 16 V.S.A. § 511(b) is amended to read:

(b) Following adoption of a budget by the electorate and calculation of the equalized yield amount pursuant to section 4027 of this title, if the incorporated district has voted a budget with local education spending in excess of the general state support grant amount, the commissioner of education shall determine the district's local share property tax percentage. The prudential committee shall then *[bill each property taxpayer for the]*determine each taxpayer's local share property tax amount, *[using]* and may use tax classifications if authorized; but *[homesteads shall be billed]* without regard to the income sensitivity calculation under chapter 154 of Title 32. The prudential committee shall have the same authority to enforce collection and payment of this tax, including the collection of interest on overdue taxes, as selectmen have in enforcing collection and payment of town taxes.

Sec. 73. 32 V.S.A. § 5402(b) is amended to read:

(b) The commissioner of taxes shall determine the education property tax liability for each municipality for the following school year by multiplying the tax rate adopted under subsection (a) of this section by the municipality's equalized education tax grand list for the previous year. On or before June 30 each year, the commissioner of taxes shall inform each municipality of its education property tax liability. The legislative body in each municipality shall then *[assess the]* determine each property taxpayer's education property tax on the education property tax grand list, *[using]* and the legislative body may use tax classifications if authorized, to raise that amount; and the legislative body shall assess the taxes determined for each nonresidential property. Taxes assessed under this section shall be assessed and collected in the same manner as taxes assessed under chapter 133 of this title. *[Taxes assessed on nonresidential property shall be collected in accord with the provisions of chapter 133 of this title; taxes assessed on homesteads shall be assessed without regard to the adjustment for eligible claimants under chapter 154 of this title, and]* Taxes on declared homesteads shall be assessed and collected as provided in section 5403 of this title.

Sec. 74. 32 V.S.A. § 5403 is amended to read:

§ 5403. ASSESSMENT, ADJUSTMENT AND PAYMENT OF HOMESTEAD

EDUCATION PROPERTY TAX

(a) On or before August 1, the commissioner shall assess the education property tax on each declared homestead. The commissioner shall include with each assessment a notice describing the homestead property tax adjustment available under chapter 154 of this title and the availability of payment by credit card or by automatic bank account withdrawal.

* * *

Sec. 75. REPEAL

32 V.S.A. § 5409(4) (municipal notice to commissioner of homestead information) is repealed.

Sec. 76. 32 V.S.A. § 5410(b) and (c) are amended to read:

(b) Annually by April 15, each resident individual *[or part-year resident individual]* may, on a form prescribed by the commissioner, which shall be verified under the pains and penalties of perjury, declare his or her homestead, if any, as of, or expected to be as of *[,]* April 1 of the year in which the declaration is made.

(c) The commissioner shall provide a list of homesteads in each town to the town clerk by May 15. The listers shall separately identify homesteads in the grand list. The clerks shall notify the commissioner by June 1 of any residences on the commissioner's list which do not qualify as homesteads and the municipality shall notify the commissioner by July 15 of the tax determined under section 5402(b) of this title and the local share tax determined under sections 428 and 511 of Title 16 on each declared homestead parcel, and shall include a description of the parcel and parcel number, the names of owners of record, the assessed value, the municipal tax rate for the statewide and local share taxes, the localshare municipal percentage rate determined under section 4027 of Title 16, and other information in a form as the commissioner shall require. Municipalities shall use, whenever possible, an electronic format prescribed by the commissioner for transmitting the information.

Sec. 77. 32 V.S.A. § 6065 is amended to read:

§ 6065. FORMS; TABLES; NOTICES

Sec. 78. VALUATION OF HYDRO-ELECTRIC GENERATING FACILITIES

DURING TRANSITION

For purposes of the education and municipal property tax grand lists and notwithstanding any other statute, the grand list value of hydro-electric facilities on April l, 1997 shall be the value for such operating facilities on the grand list until January 1, 2000 and the equalized value of these facilities shall be the equalized value as determined by the director of property valuation and review on or before January 1, 1998. Provided, however, that this section shall not amend or modify existing agreements between municipalities and owners of hydro-electric facilities in effect on September 1, 1997, nor shall it prohibit tax stabilization agreements between municipalities and owners of hydro-electric generating facilities entered into after September 1, 1997 which do not reduce the grand list value of the hydro-electric facility. Provided, further, that the grand list value may be changed if the municipality in which the facility is located completes arevaluation of all taxable real estate after April 1, 1997. For purposes of this section, Ahydro-electric facilities@ means the works used directly for the production of power and the facilities used to transmit the power to the grid, and the lands under or directly associated with those works and facilities. The Department of Taxes shall, in conjunction with the Department of Public Service, study the appraisals of hydro-electric facilities throughout the state; their values, the appraisal methods used in establishing their values, the agreements between communities and hydro-electric facilities, and the future implications agreements have on the education grand list. The Department shall report to the General Assembly by January 15, 1999 and make recommendations for creating a common method of establishing hydro-electric facility grand list values.

Sec. 79. 32 V.S.A. § 3109a is added to read:

§ 3109a. AUTHORITY TO CONTRACT FOR COLLECTION OF DELINQUENT

TAXES

The commissioner may contract with the municipal tax collector of a municipality or incorporated school district or other person to collect delinquent property taxes assessed on homestead property within a municipality. The compensation terms of such contracts shall be uniform throughout the state unless the commissioner determines that differential terms are required because of circumstances in a particular case, and recites such circumstances within the contract. A person with whom the commissioner contracts under this section shall be subject to the provisions of section 3102 of this title.

Sec. 80. Sec. 52(d) of Act 60 of the Acts and Resolves of 1997 is added to read:

(d) A homeowner who commenced construction of a dwelling or sited a new or used mobile home after April 1, 1997, no portion of which dwelling or mobile home was included on the municipality's 1997 grand list, may if otherwise qualified, receive the property tax adjustment available under subsection (b) of this section based on the value of that homestead as of April 1, 1998. In the event that a municipality has undergone a reappraisal for the 1998 tax year, the value of the homestead shall reflect the value of the homestead as if it had been valued for April 1, 1997.

Sec. 81. EFFECTIVE DATES

(a) Sec. 48 (tax credits) shall apply to tax years beginning on or after September 1,1998.

(b) Secs. 49-54 (other economic advancement tax incentives) shall take effect July 1, 1998.

(c) Sec. 69 (homestead tax liens) shall apply to homestead education property taxes assessed and due on or after April 1, 1999.

(d) Sec. 70 (dates for state payments of education funds to municipalities) shall take effect July 1, 1999.

(e) Secs. 71 through 77 (cash flow provisions) of this act shall take effect January 1, 1999.

(f) All other sections shall take effect upon passage.

Sec. 82. 16 V.S.A. § 165(a)(1) is amended to read:

(1) The school shall, through a process including parents, teachers and community members, develop and implement a comprehensive action plan to improve student performance within the school. The plan shall include goals and objectives for improved student learning and educational strategies and activities to achieve their goals. The school shall assess student performance under the plan using a method or methods *[or]* of assessment developed under subdivision 164(9) of this title.

Sec. 83. 16 V.S.A. § 428(a) and (d) are amended to read:

(a) At each annual town school district meeting, the electorate shall vote such sums of money as it deems necessary for the support of schools *[and shall express in its vote the specific amounts voted for deficit, if any, for current expenses, capital improvements or other lawful purposes]*. If such sums are not approved or acted upon at the annual meeting, the electorate shall vote such questions at a duly warned special school district meeting. A district may vote money necessary for the support of schools therein to the end of the full school year next ensuing.

(d) The treasurer of each school district which has voted a budget with local education spending in excess of the general state support grant and which can raise more than the equalized yield amount shall, on December 1 in the year in which the tax is levied and on June 1 of the following year, pay to the state treasurer for deposit into the education fund one-half of the municipality's education property tax liability net payment, as determinedby the commissioner of education. Payment shall be accompanied by a return prescribed by the state treasurer in consultation with the commissioner of education. Any portion of local share property tax liability due to the treasurer and paid before the due date shall be discounted on a per diem basis at an annual rate of six percent. A district which has not voted a budget and for which the commissioner has used the most recently adopted budget in calculating the equalized yield amount under section 4027 of this title, shall be subject to this subsection, based on its most recently adopted budget and shall borrow the funds necessary to make payments to the state treasurer.

Sec. 84. 16 V.S.A. § 511(a) and (d) are amended to read:

(a) At a meeting legally warned for that purpose, an incorporated school district shall vote such sums of money as it deems necessary for the support of schools *[and shall express in its vote the specific amounts voted for deficit, if any, for current expenses, capital improvements or other lawful purposes]*. If such sums are not approved or acted upon at the annual meeting, the electorate shall vote such questions at a duly warned special school district meeting. A district may vote money necessary for the support of schools therein to the end of the full school year next ensuing.

(d) The treasurer of an incorporated district which has voted a budget with local education spending in excess of the general state support grant and which can raise more than the equalized yield amount shall, on December 1 in the year in which the tax is levied and on June 1 of the following year, pay to the state treasurer for deposit into the education fund one-half of the municipality's education property tax liability net payment, as determined by the commissioner of education. Payment shall be accompanied by a return prescribed by the state treasurer in consultation with the commissioner of education. Any portion of local share property tax liability due to the treasurer and paid before the due date shall be discounted on a per diem basis at an annual rate of six percent. An incorporated district which has not voted a budget and for which the commissioner has used the most recently adopted budget in calculating the equalized yield amount under section 4027 of this title, shall be subject to this subsection, based on its most recently adopted budget and shall borrow the funds necessary to make payments to the state treasurer.

Sec. 85. 16 V.S.A. § 822(c) is amended to read:

(c) The school board may both maintain a high school and furnish high school education by paying tuition *[elsewhere]* to a public school as in the judgment of the board may best serve the interests of the pupils, or to an approved independent school if the board judges that a pupil has unique educational needs that cannot be served within the district or at a nearby public school. Its judgment shall be final in regard to the institution the pupils may attend at public cost.

Sec. 86. 16 V.S.A. § 824(c) is amended to read:

(c) For students in grades 7 and 8, the district shall pay an amount not to exceed the average announced tuition of Vermont union high schools for students in grades 7 and 8 for the year of attendance for its pupils enrolled in an approved independent school not functioning as a Vermont area technical center, or any higher amount approved by the electorate at an annual or special meeting warned for that purpose. For students in grades 9-12, the district shall pay an amount not to exceed the average announced tuition of Vermont union high schools for students in grades 9-12 for the year of attendance for its pupils enrolled in an approved independent school not functioning as a Vermont area technical center, or any higher amount approved by the electorate at an annual or special meeting warned for that purpose. *[However, any increased amount approved by the electorate may not be included as a current expenditure of the district for the purposes of aid paid under chapter 123 of this title.]*

Sec. 87. 16 V.S.A. § 2963a is added to read:

§ 2963a. EXCEPTIONAL CIRCUMSTANCES

(a) The commissioner of education, in place of reimbursement under section 2963 of this title, shall reimburse a school district for 80 percent of the following expenditures:

(1) costs not eligible for reimbursement under section 2962 of this title for each student causing the school district to be eligible for extraordinary services reimbursement pursuant to that section. However, in order for a school district to be eligible for reimbursement under this section, the total costs of the district eligible for extraordinary services reimbursement must equal or exceed 15 percent of the total costs eligible for state assistance under sections 2961, 2962 and 2963 of this title; and

(2) the costs incurred by the school district in placing and maintaining a resident student in the Austine School for the Deaf. However, such expenditures do not include costs incurred for up to two such students by a school district with an average daily membership of fewer than 1,000 and for up to three such students by a school district with an average daily membership of 1,000 or greater.

(b) An eligible school district may apply to the commissioner to receive reimbursement under this section. The commissioner shall award reimbursement to a school district under this section if the commissioner makes a determination that the school district considered all the cost-effective and appropriate available alternatives for placement and programs for students before incurring these costs. A decision of the commissioner shall be final.

Sec. 88. 16 V.S.A. § 2967(b) is amended to read:

(b) *[After June 30, 1991, the]* The total expenditures made by the state in any fiscal year pursuant to this chapter *[in any fiscal year for]* shall be 60 percent of the statewide total special education expenditures of funds which are not derived from federal sources. Special education expenditures shall include:

(1) costs eligible for grants and reimbursements under sections 2961 through *[2963]* 2963a of this title,

(2) costs for services for the visually handicapped and hearing impaired,

(3) costs for the interdisciplinary team program,

(4) costs for regional multi-handicapped specialists,

(5) funds expended for training and programs to meet the needs of students with emotional behavioral problems under subsection 2969(c) of this title, and

(6) funds expended for training under subsection 2969(d) of this title

*[shall be 60 percent of the total expenditures of funds, not derived from federal sources of school districts and supervisory unions for special education]*.

Sec. 89. 16 V.S.A. § 3741 is amended to read:

§ 3741. SCHOOL BUILDINGS

Each town district shall provide, furnish, maintain and control schoolhouses suitable for schools under the provisions of this title. When so authorized by the town district, the board of school directors shall have power to lease or purchase buildings or sites for schoolhouses, locate and erect schoolhouses, and sell or otherwise dispose of schoolhouses or sites for same*[, and for such purposes a district may raise a tax on its grand list]*. A school district which issues bonded debt to pay for capital construction costs under this section is authorized under the provisions of sections 428 and 511 of this title to levy ad valorem taxes on the grand list to pay for debt service therefor as it becomes due and payable, and shall do so unless otherwise payable from other sources.

Sec. 90. 16 V.S.A. § 4011(c) and (d) are amended to read:

(c) If a school district provides for the education of its students by paying tuition, *[the district shall receive the lesser of the tuition paid or the general state support grant amount]* at the end of the school year the commissioner shall, for each student, subtract the amount of actual tuition paid from the actual general state support grant amount received per full-time equivalent student in that district in that year. If the amount of the tuition is less than the general state support grant amount, the commissioner shall subtract the difference from the general state support grant paid the following September. However, a district school board may submit an accounting of other allowable actual costs for each student for whom it paid tuition and the commissioner shall add these to the amount of actual tuition paid which is subtracted from the general state support grant. The state board shall define allowable actual costs by rule.

(d) Funds received under this section which are attributable to an increase in studentcount due to the poverty ratio of the district shall be used by the district to provide learning readiness experiences for preschool age children or early reading and math experiences for school age children. These services shall be provided to children who are at risk of not succeeding in the general education environment. School districts are authorized to work collaboratively to share resources or otherwise find ways to maximize use of funds received under this section. However, due to the difficulty of determining how much of these funds to attribute to an individual student, this subsection shall not apply to tuition funds received by a receiving school.

Sec. 91. 16 V.S.A. § 4012 is amended to read:

§ 4012. STATE-PLACED STUDENTS

(a) A district which provides for the education of its students by paying tuition to an approved independent school or a public school outside the district, shall receive from the commissioner an amount equal to the calculated net cost per pupil in the receiving school, as defined in section 825 of this title, prorated for the percentage of annual tuition billed for a state-placed student. If the calculated net cost per pupil in a receiving independent school or school located outside Vermont is not available, the commissioner shall pay the tuition charged. A district shall not receive funds under this section if all the student's education costs are fully paid under subsection 2950(a) of this title.

(b) A school district shall request reimbursement under this section by submitting tuition bills and documentation of payment to the commissioner. The commissioner shall make reimbursement twice a year, once for requests submitted prior to January 1 and once for requests submitted prior to May 1. Requests submitted on or following May 1 shall be reimbursed in the next payment. The commissioner shall reconcile tuition overcharges in the year following payment to the school district pursuant to section 836 of this title. For the purpose of recovering any tuition overcharge, the commissioner shall be considered a receiving district.

Sec. 92. 16 V.S.A. § 4015 is added to read:

§ 4015. SMALL SCHOOL SUPPORT

(a) In this section

(1) "Eligible school district" means a school district which operates at least one school and has a two-year average combined enrollment of fewer than 100 students in all the schools operated by the district.

(2) "Enrollment" means the number of students who are enrolled in a school operated by the district on October 1. A student shall be counted as one whether the student is enrolled as a full-time or part-time student.

(3) "Two-year average enrollment" means the average of the two most recently completed school years.

(b) Small schools support grant: Annually, the commissioner shall pay a small schools support grant to any eligible school district. The amount of the grant shall be determined by multiplying the two-year average enrollment in the district by $500.00 and subtracting the product from $50,000.00, except that no grant shall exceed $2,500.00 per enrolled student.

(c) Small schools financial stability grant: In addition to a small schools support grant, an eligible school district whose two-year average enrollment decreases by more than ten percent in any one year shall receive a small schools financial stability grant. However, a decrease due to a reduction in the number of grades offered in a school or to a change in policy regarding paying tuition for students shall not be considered an enrollment decrease. The amount of the grant shall be determined by multiplying the general state support grant amount for the current fiscal year by the number of enrollment, to the nearest one-hundredth of a percent, necessary to make the two-year average enrollment decrease only ten percent.

(d) Funds for both grants shall be appropriated from the education fund and shall be added to payments for the general state support grant or deducted from the amount owed to the education fund in the case of those districts that must pay into the fund under section 4027 of this title.

Sec. 93. Sec. 93 of Act No. 60 of the Acts of 1997 is amended to read:

Sec. 93. SMALL SCHOOLS SUPPORT; STUDY

On or before January 15, 1999, the state board of education shall report to the senate and house committees on education on the effects of section 4015 of Title 16 which provides a support grant to small schools. The report shall include data describing how many schools have received the grants, the amount each school has received and the board's recommendation concerning change to the definition of "eligible school district".

Sec. 94. 16 V.S.A. § 4026(e) is amended to read:

(e) The enactment of this chapter and other provisions of the Equal Educational Opportunity Act of which it is a part have been premised upon estimates of balances of revenues to be raised and expenditures to be made under the act for such purposes asgeneral state support grants for education, categorical state support grants, provisions for property tax income sensitivity, payments in lieu of taxes, current use value appraisals, tax stabilization agreements, the stabilization reserve established by this section and for other purposes. If the stabilization reserve established under this section should in any fiscal year be less than 3.5 percent of the prior fiscal year's appropriations from the education fund established by section 4025 of this title, the joint fiscal committee, in consultation with the joint legislative oversight committee on educational restructuring, shall provide the general assembly its recommendations for change necessary to restore the stabilization reserve to the statutory level provided in subsection *[(a)]*(b) of this section.

Sec. 95. 16 V.S.A. § 4027(b) is amended to read:

(b) For purposes of this calculation, if, by June 1, any school district has failed to adopt a budget for the school year beginning the next July 1, the commissioner shall use the local education spending portion of the school district's most recently adopted budget. If a union school district or joint contract district of which the school district is a member has failed to adopt a budget by June 1, the commissioner shall use the most recently adopted union or joint contract budget allocated according to the current year's apportionment, to determine the assessment portion of local education spending. If a school district, union school district or joint contract district subsequently adopts a budget in a different amount,

(1) a district which is due money from the fund shall receive the lesser of the amount due based on the former year's budget or the amount due based on the actual budget voted; and

(2) a district which is required to pay money into the fund shall pay the greater of the amount due based on the former year's budget or the amount due based on the actual budget voted.

Sec. 96. Sec. 13(b) and (c) of Act No. 60 of the Acts of 1997 are amended to read:

(b) Upon completion of the existing public school approval process, all rules adopted under 16 V.S.A. § 165 prior to July 1, 1998 are repealed. It is the intent of the General Assembly that the State Board of Education shall adopt rules delineating new standards of quality for schools pursuant to 16 V.S.A. § 165 no later than September 1, 1998. TheGeneral Assembly intends that the new standards shall retain those elements of the public school approval standards which are important to provide a quality education. It is the intent that the new standards be focused, to the greatest extent possible, on school and student performance. However, standards adopted by the state board by September 1, 1998 shall be transitional for the school years beginning in 1998 and 1999.

(c) In order to ensure that the transition to the new system of education finance established in this act is accomplished in a way that enables all students to receive a quality education while adjustments to the new system are being made, the state board of education shall, by rule, adopt a transitional system of standards consistent with those contemplated by 16 V.S.A. §§ 164(9) and 165, for determining which schools may be having trouble providing a quality education during the school years which begin in 1998 and 1999. The commissioner shall review *[those]* schools under *[16 V.S.A. § 165]* the transitional standards adopted pursuant to this subsection during the school years beginning 1998 and 1999 and shall immediately provide technical assistance to any that are not providing their students with a quality education. In addition the commissioner shall review under *[16 V.S.A. § 165]* the transitional standards during the school years beginning in 1998 and 1999, those schools whose per pupil spending was substantially above statewide average per pupil spending immediately prior to passage of this act and shall, if necessary, provide technical assistance to help provide a quality education if *[such a district chooses to reduce its spending level]* the school district chooses to reduce spending levels for those schools. The first full two-year cycle of implementation under 16 V.S.A. § 165(b) shall begin in the 2000-2001 school year.

Sec. 97. Sec. 16(b)-(e) of Act No. 60 of the Acts of 1997 are amended to read:

(b) Therefore, the State Board of Education shall:

(1) consult with the public, the business community, professional education organizations, parent groups and municipalities in developing recommendations under this section.

(2) study:

(A) previous public education governance proposals,

(B) the effects of Act No. 60 of the Acts of 1997 on education governance in Vermont,

(C) which administrative services should be provided at the school level and which should be provided at a more centralized level, and

(D) the best methods for incorporating public school choice into the existing and recommended governance system.

(3) consider changes to the current governance structure that would:

(A) result in the most efficient and effective method of administering Vermont's public education system,

(B) achieve the goals of subsection (a) of this section,

(C) better coordinate education services with human services, workforce education, post-secondary education and early education, and

(D) best support prekindergarten through grade 12 education.

(4) report to the Senate and House committees on education by January 15, 1999 on the following:

(A) recommendations for legislative change to redefine or more clearly define the roles and responsibilities of administrative and leadership positions within the public education system,

(B) recommendations for creation of cost savings and efficiencies within the existing public education system and incentives that will lead to implementation of these recommendations,

(C) incentives under existing law as well as recommended incentives to encourage districts to consolidate or to cooperate to combine administrative services,

(D) recommendations for reducing or restructuring of school districts and supervisory unions, and

(E) reasons for each recommendation and its anticipated impact on educational quality.

Sec. 98. Sec. 22(b), (d) and (e) of Act No. 60 of the Acts of 1997 are amended to read:

(b) Each school district which incurs allowable transportation expenditures shall receive a transportation reimbursement grant each year. The grant shall be equal to 50 percent of allowable transportation expenditures; provided, however that in any year the total amount of grants under this subsection shall not exceed the total amount of adjusted base year transportation grant expenditures. The total amount of base year transportation grant expenditures shall be $10,000,000.00 for fiscal year 1997 increased each year thereafter by the annual price index for state and local government purchases of goods and services. If in any year the total amount of the grants under this subsection exceed the adjusted base year transportation grant expenditures, the amount of each grant awarded shall be reduced proportionately. Transportation grants paid under this section shall be paid from the education fund and shall be added to payments for the general state support grant or deducted from the amount owed to the education fund in the case of those districts that must pay into the fund under section 4027 of Title 16.

(d) A district may apply, and the commissioner may pay, for extraordinary transportation expenditures incurred due to geographic or other conditions such as the need to transport students out of the school district to attend another school because the district does not maintain a public school. The state board of education shall define extraordinary transportation expenditures by rule. The total amount of base year extraordinary transportation grant expenditures shall be $250,000.00 for fiscal year 1997, increased each year thereafter by the annual price index for state and local government purchases of goods and services. Extraordinary transportation expenditures shall not be paid out of the funds appropriated under subsection (b) of this section for other transportation expenditures. Grants paid under this section shall be paid from the education fund and shall be added to payments for the general state support grant or deducted from the amount owed to the education fund in the case of those districts that must pay into the fund under section 4027 of Title 16.

(e) *[The superintendent of each supervisory union in consultation with the regional planning commissions of the respective regions, shall develop a comprehensive, integrated, region-wide transportation plan for transportation of pupils in all school districts within each region. The plans shall be submitted to the Secretary of Transportation, theCommissioner of Education, and the Legislative Oversight Committee on Education Restructuring on or before January 1, 1998.]*

Each school board shall consult with its regional planning commission, neighboring school districts and other community organizations which transport people to determine if collaboration could result in increased efficiencies and cost savings. The school board and other organizations shall consider opportunities for using current technologies such as the Geographic Information System, and shall evaluate options for creating community transportation systems. On or before July 1, 2001, each school board may amend its transportation policy adopted under section 1222 of Title 16 to reflect decisions made as a result of regional collaboration and, if it does so, shall file the amended policy with its regional planning commission.

Sec. 99. Sec. 23(a) of Act No. 60 of the Acts of 1997 is amended to read:

(a) In fiscal year 1999, a school district which in fiscal year 1998 paid capital debt service for a debt eligible for reimbursement under 16 V.S.A. § 3497(c) prior to its repeal, shall receive reimbursement for those expenditures at the same percentage rate that it was or would have been reimbursed in fiscal year 1998. Also, in fiscal year 1999, a school district which in fiscal year 1998 incurred capital debt service expenditures eligible for reimbursement under Sec. 13 of Act No. 84 of the Acts of 1987, as amended by Sec. 10 of Act. No. 128 of the Acts of 1988, prior to its repeal, shall receive aid in the amount it would have received if that section had not been repealed. Beginning in fiscal year 1999 and each year thereafter until the debt is paid, a school district which *[issued debt prior to passage of this act]* voted to incur debt prior to July 1, 1997 or which held an unsuccessful vote to incur debt prior to July 1, 1997 and subsequently held a successful vote on the same project prior to October 1, 1997 to pay for construction costs approved by the state board, shall receive capital debt service aid in an amount which will ensure that the school district will pay the debt by levying a tax on its equalized grand list which is no greater than that it would have had to levy on its *[1998]* 1997 equalized grand list. *[Beginning in fiscal year 2000, debt service aid paid under this subsection for capital costs of a union school shall be paid directly to the union school district]* These provisions shall apply only to debt issued prior to July 1, 1997 or, in the case of projects for which debt had not beenissued by that date but had been approved by the voters by that date, the provisions shall apply to debt actually issued and used for those projects. If the debt is refinanced, the provisions shall apply only to the extent of the prior obligation both in duration and total cost. A school district which issues or has issued bonded debt to pay for capital construction costs approved by the state board is authorized under the provisions of this act to levy ad valorem taxes on the grand list to pay for debt service therefore as it becomes due and payable, and shall do so unless otherwise payable from other sources, and such school district shall apply any amounts so raised to pay such debt service prior to making payments of any net amounts due to the education fund under this act. Funds paid to school districts under this subsection shall be appropriated from the education fund.

Sec. 100. Sec. 24(a) of Act No. 60 of the Acts of 1997 is amended to read:

(a) Education grants. In fiscal year 1999 the *[total]* amount *[of]* appropriated to pay for the general state support grant paid under 16 V.S.A. § 4011, the standard mainstream block grant paid under 16 V.S.A. § 2961 and the essential early education grant paid under 16 V.S.A. § 2948(c) shall be *[for each equalized pupil,]* $5,000.00 per equalized pupil in the state adjusted upward from the fiscal year 1997 level based on the appropriate annual index for state and local government purchases of goods and services. The amount *[of]* allocated to pay the general state support grant shall be the amount *[per equalized pupil]* remaining after payment of the standard mainstream block grants and the essential early education grants. Each year thereafter, the per equalized pupil in the state amount of the education grants of the previous year shall be increased by the most recent price index for state and local government purchases of goods and services.

Sec. 101. Sec. 25 of No. 60 of the Acts of 1997 is amended to read:

Sec. 25. TRANSITIONAL PROVISIONS; TECHNICAL EDUCATION

16 V.S.A. chapter 37, subchapter 5 (§§ 1561-1567) relating to financial aid for technical education is repealed on *[July 1, 1998. Pursuant to recommendation number 1 of the Report of the Joint Legislative Committee on Technical Center Construction of January 1997, it is the intent of the general assembly to defer decisions about a state aid for technical education system until the Joint Human Resources Investment Council and State Board of Education subcommittee has completed its work. The subcommittee is inthe process of developing a plan for a technical education system for Vermont and will make its recommendations for governance and financing of technical centers to the General Assembly in January 1998]* July 1, 1999.

Sec. 102. Sec. 29 of Act No. 60 of the Acts of 1997 is amended to read:

Sec. 29. REPEAL

16 V.S.A. §§ 2961 through 2969, relating to state aid for special education, are repealed on *[July 1, 1999]* July 1, 2001.

Sec. 103. 24 V.S.A. § 2804 is amended to read:

§ 2804. RESERVE FUNDS; USE

At an annual or special meeting duly warned, a municipality may establish a reserve fund to be under the control and direction of the legislative branch of the municipality. The reserve fund shall be kept in a separate account and invested as are other public funds and may be expended for such purposes for which established, or *[for other purposes,]* when authorized by a majority of the voters present and voting at an annual or special meeting duly warned, for other purposes.

Sec. 104. SPECIAL EDUCATION COST CONTROL STUDY; BLUE RIBBON COMMISSION

(a) There is created a Blue Ribbon Commission on Special Education Costs to make recommendations concerning differential special education aid rates for high and low spending school districts, to study the costs of special education in Vermont and to determine techniques for providing quality services in a cost-effective manner. The commission shall be made up of seven people, with expertise or knowledge that would be useful to the committee, appointed by the Governor. The commission shall hold its first meeting by June 1, 1998 and shall elect its chair at that meeting. The commission may meet up to 12 times in fiscal year 1999 and shall receive per diem and expenses pursuant to 32 V.S.A. § 1010.

(b) The Governor's office shall provide staff services to the Blue Ribbon Commission. The Department of Education, Legislative Council and Joint Fiscal Office shall provide services to the commission as needed.

(c) The Commission shall conduct public hearings, consult with the fiscal review paneland study special education delivery models, staffing patterns, and educational support system services. On or before December 15, 1998, the Commission shall report to the education oversight committee its recommendations concerning whether school districts with high per pupil special education spending should be reimbursed for those costs at a lower rate than those districts with lower per pupil special education spending. If the Commission recommends a differential aid system, the recommendation shall include plans for implementing the system and, if possible, suggested legislative change.

(d) On or before July 1, 1999, the Commission shall report to the education oversight committee on:

(1) The type and amount of professional and support resources and the skills and knowledge needed to provide special education services.

(2) Whether better interagency collaboration could produce special education savings.

(3) The potential for regional sharing of special education resources.

(4) Necessary changes to the system for approval of programs which educate special education professionals and changes to licensure of special education professionals.

(5) Ways in which the state could provide assistance in legal matters involving special education.

(6) Other special education cost control mechanisms.

(7) The impact of Act No. 157 of the Acts of 1996 and Act No. 230 of the Acts of 1990 on spending for regular education.

(8) The impact of Act No. 157 of the Acts of 1996 and Act No. 230 of the Acts of 1990 on costs of special education.

Sec. 104a. EARLY EDUCATION

The State Board of Education and the Agency of Human Services shall study and report to the House and Senate committees on education no later than January 15, 1999 on:

(1) The current availability of child development services, by school district, source of funding, and eligibility criteria.

(2) Service enhancements or improvements, based on existing best practiceresearch, that would have the potential to improve outcomes (school readiness and reading competence) for young children.

(3) Identification of additional services needed by school districts.

(4) At least three options for financing the service enhancements and expansions needed.

Sec. 105. ACCRUAL ACCOUNTING METHOD; TRANSITION

(a) It is the intent of the general assembly that all school districts shall adopt the accrual method of accounting in fiscal year 2000 in order to enable fair accounting for dispersal of state funds. The general assembly recognizes that in the year that a district changes from the cash-based method to the accrual method, a deficit will be carried forward into that year. However, it is not our intent that equalized yield funds shall pay for a deficit incurred under the prior system of taxation.

(b) Therefore, all school districts shall use the accrual method of accounting beginning in fiscal year 2000.

(c) Any deficit created due to changing accounting methods may be carried for up to five years and shall be paid from a tax on the grand list in addition to any municipal, statewide education and local education tax. Taxes levied under this section shall not be equalized under 16 V.S.A. chapter 133.

(d) On or before June 30, 1998, each school district incurring a deficit under this section shall submit to the commissioner of education a plan for payment of the deficit. The plan shall indicate the size of the deficit, the number of years the district intends to carry the deficit, and how it will reduce and eliminate the deficit. The commissioner shall review the plan and offer comment or suggestions for change if appropriate.

Sec. 106. REPEAL

(a) 16 V.S.A. § 431, relating to deposit of unanticipated general aid amounts, is repealed.

(b) 16 V.S.A. §§ 564 and 712, relating to interim tax assessments if a budget is not voted by the beginning of the school year, are repealed.

(c) Sec. 29 of Act No. 60 of the Acts of 1997, relating to repeal of state aid for special education costs, is repealed.

Sec. 107. 16 V.S.A. § 11(29) is added to read:

(29) "Local education spending" means the amount of the school district budget, any assessment for a union school or a joint contract school, and any amount added to pay a deficit pursuant to 24 V.S.A. § 1523(b), which is paid for by the school district from the general state support grant and from local share property tax revenues. Local education spending does not include any portion of the school budget paid for by any other sources such as endowments, parental fund raising, federal funds, nongovernmental grants or other state funds such as special education funds paid under chapter 101 of this title.

Sec. 108. 16 V.S.A. § 515 is amended to read:

§ 515. *[SPECIAL TAX ASSESSMENT TO PAY EXECUTION]* PAYMENT OF A

DEFICIT

When a demand is made upon a district for the payment of an execution issued against it and the district has no available funds to pay the same, the prudential committee shall *[forthwith assess and have collected a tax]* borrow funds sufficient to pay such execution and *[the]* related charges and *[twelve percent interest, in the same manner as the tax voted by the district is assessed and collected]* shall add the debt to the following year's adopted budget pursuant to 24 V.S.A. § 1523(b).

Sec. 109. 16 V.S.A. § 706 is amended to read:

§ 706. FORMATION OF PLANNING COMMITTEE

When it appears to the boards of school directors of two or more school districts that a planning committee should be established to study the advisability of forming a union school district, or if petitioned to do so by five percent of the voters eligible to vote at the last annual or special school district meeting, each of the boards of school directors shall meet with the superintendent of schools for each participating district and with his advice establish a budget, and fix the number of persons who will serve on the planning committee, for the purpose of preparing the report required by this subchapter. Each participating district shall share in the budget, and as nearly as possible be represented on the planning committee, in that proportion which theaverage daily membership (as defined in *[16 V.S.A. § 3441]* section 4001 of this title) of the district bears to the total average daily membership of all school districts which participate in the study.

Sec. 110. 16 V.S.A. § 711b is amended to read:

§ 711b. ASSESSMENT AND *[COLLECTION OF TAXES]* PAYMENT TO

SUPPORT UNION SCHOOL DISTRICT

(a) *[The legislative branch of each member district shall, upon]* Upon receipt of the notice of the share in the union district expenses *[to be paid by the member district, assess upon the grand list of such member district, in addition to any tax previously voted thereon, a tax which, together with other anticipated revenue which will be used to pay the union school assessment, is sufficient to pay the member district's share in such expenses. The additional tax as so assessed shall be collected as are other taxes of such member district and be deposited in the account of the member school district]*, the share shall become a legal obligation of the member district without need for further vote of the member district electorate.

(b) Unless otherwise agreed by the voters of a union school district, amounts owed to the union school district:

(1) if derived from tax revenues shall be paid within 20 days of the day on which the taxes become payable; or

(2) if derived from *[general state aid]* payments made under section 4028 of this title:

(A) the amount so derived as a percentage of the total state aid shall not exceed the percentage that the school district's union school enrollment bears to the district's total enrollment; and

(B) each installment shall be paid within 20 days of the day state aid is received.

(c) *[If by the end of its fiscal year a member district has failed to collect and pay over to the treasurer of the union district a sum sufficient to pay the member's share of the expense of the union district, the legislative branch of the member district shall assess a special tax on the grand list of that member district, in an amount sufficient tomake up the unpaid balance of the share of that member district, which special tax shall be collected as are other taxes of the member district. Upon the collection of the proceeds of that special tax, it shall be paid over to the treasurer of the union district.]* If a union school district or joint contract district does not vote a budget by June 1, a member district shall pay amounts under subsection (b) of this section, equal to the most recently adopted union or joint contract budget, allocated according to the current year's apportionment. If the union or joint contract district subsequently votes a budget, a member district shall reconcile the difference in its next payment.

Sec. 111. 16 V.S.A. § 711d is amended to read:

§ 711d. IMPROVEMENTS, INDEBTEDNESS, BONDS, ABSENTEE VOTERS

Improvements may be made by a union school district for the purposes for which the district is established as provided in this subchapter, and indebtedness may be incurred for the improvements as provided by sections 1751 to 1785 of Title 24. Absentee voting in accordance with sections 121 to 147 of Title 17 shall be permitted on questions concerning bond issues of the union school district. The debt limit of the union school district shall be ten times the sum total of the education grand lists of the member districts composing the union, without diminution for any obligation incurred by a member district alone. The amount of indebtedness of a union school district incurred to finance any project approved under sections 3447 to 3456 of this title shall not be considered a part of the indebtedness of the union school district for purposes of determining its debt limit. Obligations incurred under sections 1751 to 1785 of Title 24, or as otherwise authorized in this subchapter by a union school district, shall be the joint and several obligations of the district and of each of the member districts composing it. However, as between the member districts, their share of such obligations shall be apportioned in the manner provided in this subchapter. Any joint or several liability incurred by a member district under the provisions of this subchapter shall not be considered in determining its debt limit for its own separate purposes.

Sec. 112. 16 V.S.A. § 722 is amended to read:

§ 722. UNIFIED UNION DISTRICTS

In the event a union school district is organized to operate grades kindergarten through 12 or grades one through 12 it shall be known as a unified union district. On the date the unified union district becomes operative, it shall supplant all other school districts within its borders, and they shall cease to exist. A unified union district shall be eligible for state aid. State aid shall be awarded to the unified union district in an amount equal to the sum of the amounts that would be due each of the member districts, as those districts existed on the date of formation of the unified union district, as if those districts were members of a union school district. The functions of the legislative branch of each pre-existing district in *[assessing a tax upon the grand list]* determining each taxpayer's local share property tax amount of such district to pay the member district's unified union school assessment shall be performed by the mayor and board of aldermen of a city, the board of selectmen of a town or the trustees of an incorporated district as the case may be.

Sec. 114. 16 V.S.A. § 2963(c)(1) is amended to read:

(1) Special education expenditures are allowable expenditures for special education, as defined by rule of the state board, less the following:

(A) revenue from federal aid for special education;

(B) mainstream service costs, as defined in section 2961(c)(1) of this title;

(C) extraordinary special education expenditures, as defined in section 2962 of this title;

(D) any transportation expenses already reimbursed;

(E) special education costs for a student eligible for aid under section 2963a of this title; and

Sec. 115. 16 V.S.A. § 2974 is amended to read:

§ 2974. SPECIAL EDUCATION PROGRAM *[AND]*; FISCAL REVIEW PANEL

* * *

(e) For the purpose of advising the commissioner and providing technical assistance to school districts, the state board shall appoint a fiscal review panel ofseven people who have expertise in the areas of data collection and finance, and in the fields of special education, business or health and human services. The panel, at the request of a district school board, shall work with the department of education to review spending patterns and provision of special education services in the district and provide advice to the school board and staff concerning cost control mechanisms and cost-effective practices. In addition, the panel shall make recommendations on what types of data to collect for purposes of the annual report required under subsection (a) of this section, and how the data should be analyzed.

Sec. 116. 16 V.S.A. § 2969(a) is amended to read:

(a) On or before August 15, December 15 and April 15 of each school year, the state treasurer shall withdraw from the education fund, based on warrant of the commissioner of finance and management, and shall forward to each school district, the amount of state assistance estimated in accordance with state board rules to be necessary to fund sections 2961 through *[2963]* 2963a of this title in the current fiscal period. The state board shall by rule ensure that the amount of such assistance shall be adjusted to compensate for any overpayments or underpayments determined, after review and acceptance of the reports submitted under section 2968 of this title, to have been made in previous periods. Notwithstanding the above, failure to submit the reports within the timelines established by subsection 2968(a) of this title shall result in the withholding of any payments until the report is filed.

Sec. 117. 16 V.S.A. § 4001(6) and (10) are amended to read:

(6) "Local education spending" means the amount of the school district budget, any assessment for a union school or joint contract school, and any amount added to pay a deficit pursuant to 24 V.S.A. § 1523(b) which is paid for by the school district from the general state support grant and from local share property tax revenues. Local education spending does not include any portion of the school budget paid for by any other sources such as endowments, parental fund raising, federal funds, nongovernmental grants or other state funds such as special education funds paid under chapter 101 of this title.

(10) ASchool district@ means a town school district, city school district,incorporated school district, interstate school district, *[joint contract school district,]* the member towns of a unified union district or an unorganized town or gore.

Sec. 117a. 16 V.S.A. § 4011(e) is added to read:

(e) In a school district which maintains a secondary school and offers grade 12 in that school, for each resident student attending the Vermont Academy of Science and Technology, the amount of the general state support grant for one equalized pupil shall be subtracted from payments made under this section. The amount of the general state support grant for that pupil shall be sent to the Vermont Academy of Science and Technology.

Sec. 118. 16 V.S.A. § 4028(b) is amended to read:

(b) Payments made for special education under chapter 101 of this title *[and]*, for technical education under chapter 37 of this title and for other categorical grants paid for support of education shall also be from the education fund.

Sec. 119. 24 V.S.A. § 1523 is amended to read:

§ 1523. TAX BILLS; DUTIES OF *[SELECTMEN]* SELECTBOARDS AS TO A DEFICIT

(a) When a town *[or a town school district]* at the end of the fiscal year contemplated by section 1683 of this title has a deficit, unless the voters of said town *[or district]* have voted a special tax to make up said deficit or unless said deficit shall have been refunded pursuant to the provisions of chapter 53 of this title, the *[selectmen]* selectboard, when making up the next annual tax bill, shall add thereto a tax of five percent or such multiple of five in addition to the tax vote already authorized by law, to be levied upon the grand list of such town*[, or town district,]* as will provide sufficient revenue to liquidate such deficit.

(b) When a school district at the end of the fiscal year contemplated by section 1683 of this title has a deficit, the school board shall add an amount sufficient to pay the deficit to its next adopted budget and report the total to the commissioner of education for purposes of calculating local education spending.

(c) As used in this section, the following words have the following meanings unless the context clearly indicates the contrary: A "deficit" is the excess of the currentliabilities and liability reserves of the fund over its current assets; or, where the fund has also other resources and obligations, the excess of its obligations over its resources; "current assets" are those assets which are available or can be made readily available to meet the cost of operations or to pay current liabilities; "current liabilities" are those liabilities which are payable within a relatively short period of time, usually no longer than a year; a "fund" is a sum of money or other resource set aside for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations, and constituting an independent fiscal and accounting entity such as the general or school fund.

Sec. 120. SPECIAL EDUCATION FUNDING

(a) Notwithstanding the provisions of 16 V.S.A. chapter 101, the amount appropriated by the general assembly to provide state aid for special education shall be the lesser of 60 percent of actual statewide expenditures for that year or 60 percent of statewide expenditures counted for reimbursement purposes in the previous year and increased as follows:

(1) In fiscal year 2000, the increase shall be 5.5 percent of actual statewide expenditures in fiscal year 1999.

(2) In fiscal year 2001, the increase shall be 4.5 percent of statewide expenditures counted for reimbursement in fiscal year 2000.

(3) In fiscal year 2002 and each year thereafter, the increase shall be a percentage equal to the most recent price index for state and local government purchases of goods and services of statewide expenditures counted for reimbursement in the previous year.

(b) In fiscal year 2000, funds appropriated under 16 V.S.A. § 2967 shall be expended as follows:

(1) Each school district eligible to receive funds shall be placed into group A or group B as follows:

(A) Group A districts shall be those whose allowable special education costs, excluding all costs for any student who is eligible for extraordinary services reimbursement, increased by five percent or less between fiscal years 1999 and 2000.

(B) Group B districts shall be those whose allowable special education costs, excluding all costs for any student who is eligible for extraordinary services reimbursement, increased by more than five percent between fiscal years 1999 and 2000.

(2) One-half of one percent of the funds appropriated shall be used by the commissioner to reimburse districts under subsection (c) of this section.

(3) The commissioner shall subtract funds for statewide programs paid under 16 V.S.A. § 2967(b), and funds for training, program development and capacity building under subsections (c) and (d) of 16 V.S.A. § 2969.

(4) The commissioner shall pay 60 percent of special education costs in group A school districts. These funds shall be paid to the districts pursuant to the funding formulae in 16 V.S.A. chapter 101.

(5) Remaining funds shall be used to pay special education costs in group B school districts. These funds shall be paid to the districts pursuant to the funding formulae in 16 V.S.A. chapter 101.

(c) For expenses of fiscal year 2000, a school board which has experienced special education cost increases due to unusual circumstances beyond its control, inadequate capacity to provide services due to previous financial constraints, or another reason acceptable to the commissioner of education, may make a request to the commissioner for extra special education expenditures reimbursement. Upon receipt of a request, the commissioner shall consult with the fiscal review panel created in 16 V.S.A. § 2974 to determine if the appeal should be granted and if so, the amount that the commissioner will pay to the district. A decision of the commissioner shall be final.

Sec. 121. SCHOOL CHOICE; PLAN

(a) The general assembly finds:

(1) Approximately one-third of the school districts in Vermont, because they do not maintain a school at either the elementary or secondary level, or both, offer parents the ability to choose the school their children will attend at public expense.

(2) Although the effects of choice in the numerous states that have opened up opportunities to students and their parents through various kinds of public schoolchoice programs are not yet fully known, several preliminary conclusions can be drawn from that experience.

(3) Despite relatively low use of choice in most districts with interdistrict choice programs, the benefits extend well beyond those students who select schools in other districts. The fact that students and their parents were offered the choice of schools and selected the school in their district of residence is an important statement of support for the schools selected and invests parents in the schools their children attend.

(4) One benefit of Act 60's equalization effects is that it will give all schools in Vermont the ability to be schools of choice. Imbalances in resources should no longer be a barrier to implementation of school choice because students will have a substantially equal opportunity to receive a quality education in any community in Vermont.

(5) There are complexities associated with school choice programs that should be studied and resolved prior to the implementation of a statewide school choice system. Such complexities include how special education services will be provided and funded; whether or how transportation will be provided; whether choice legislation should be mandatory or enabling for school districts; whether school districts could adopt policies restricting admissions and, if so, on what basis; whether school choice should include choice of independent schools; and whether choice options should be available at both the elementary and secondary levels.

(6) Some of these questions can be resolved through homegrown ingenuity and further experimentation in Vermont through exchange programs or other innovations. Others will require careful study of the experience of choice programs in other states. Nonetheless, these questions are subject to resolution within a reasonable time and should not act as a barrier to enacting and implementing statewide public school choice in Vermont.

(b) Therefore the general assembly adopts the following policies:

(1) The general assembly shall establish public school choice for Vermont children in grades 9 through 12 and their parents in school year 2001-2002.

(2) The shift from the current system to a statewide public school choice system should begin with incentives for exchange programs and intensive study of methods to remove any barriers to the implementation of a public school choice system in Vermont and then continue with enabling legislative authority for all schools by the 2001-2002 school year.

(3) In any year, a sending school district board may restrict the number of students who enroll outside the district under this section, excluding those who enrolled outside the district in previous years under this section, to five percent of the students enrolled in the school in the previous year.

(c) By January 15, 1999, the State Board of Education shall present to the general assembly a plan, with a timetable, for implementing a system of public school choice in Vermont. The plan shall:

(1) Identify any statutory impediments and recommend statutory changes necessary to authorize and implement a system of public school choice in school year 2001-2002;

(2) Make specific recommendations for provision of special education and transportation services;

(3) Propose model policies for schools;

(4) Make specific recommendations with respect to the funding of students whose parents select public schools outside their district of residence;

(5) Make specific recommendations as to whether public school choice should be expanded to the elementary level in addition to the secondary level; and

(6) Identify educational impact on districts of residence.

Sec. 121a. TECHNICAL EDUCATION; PILOT PROJECTS

(a) Effective July 1, 1998, the Commissioner of Education is authorized to designate up to three pilot projects, in collaboration with the Chancellor of the Vermont State Colleges and the co-chairs of the Human Resources Investment Council, for the purpose of demonstrating exemplary K-16 programs at the regional technical centers. A regional collaborative made up of at least a regional advisory board, a workforce investment board, a school-to-work regional partnership and aschool board which operates a technical center may apply for pilot designation. Designation shall be for three years, subject to continued funding by the general assembly.

(b) The commissioner shall select pilot projects based on a regional approach to technical education that:

(1) demonstrates Career Academy Programs in at least two clusters;

(2) demonstrates linkages to the local labor market;

(3) demonstrates partnerships with the Vermont State Colleges, the University of Vermont, and other post-secondary institutions as appropriate, and the local workforce investment board;

(4) in conjunction with the Vermont State Colleges, the University of Vermont, and other post-secondary institutions as appropriate, coordinates efforts to identify and determine workforce education and training needs of the local community and outlines an action plan to meet local needs as identified;

(5) coordinates with other pilot sites; and

(6) in conjunction with the Vermont State Colleges, the University of Vermont, other post-secondary institutions, as appropriate, the local workforce investment board, and the regional economic development corporation, promotes the delivery of integrated secondary/post-secondary programs which meet local labor market needs.

(c) The commission shall award up to $150,000.00 per year to each pilot site. The award shall be in addition to other state aid received. Expenditure of these funds shall be subject to approval of a budget by the Commissioner of Education after consultation with the Chancellor of the Vermont State Colleges.

(d) Annually, on or before January 15, the Commissioner of Education, the Chancellor of the Vermont State Colleges, and the co-chairs of the Human Resources Investment Council shall submit a report on the status of each pilot project.

Sec. 122. APPROPRIATION

(a) The amount of $1,000,000.00 is appropriated from the general fund in fiscal year 1999 to the PILOT Special Fund established by Sec. 89 of No. 60 of the Acts of 1997.

(b) The amount of $16,000.00 is appropriated from the general fund in fiscal year 1999 to the Governor's office for the purpose of paying per diem and expenses to the Blue Ribbon Commission created in Sec. 104 of this act and for other expenses related to the work of the Commission.

(c) The amount of $50,000.00 is appropriated from the general fund to the fiscal review panel established under 16 V.S.A. § 2974(e) in fiscal year 1998.

(d) The amount of $450,000.00 is appropriated from the education fund to the commissioner of education for the purpose of awarding grants to pilot technical education projects under Sec. 121a of this act.

(e) There is hereby created a municipal local option tax special fund, which shall be administered by the Commissioner of Taxes for collection and payment of local option taxes authorized by 24 V.S.A. § 138. The Department of Taxes is appropriated $300,000.00 from the special fund for local option tax program start-up costs. The Commissioner of Finance and Management shall have the authority to anticipate receipts.

(f) There is appropriated from the Education Fund to the Department of Education the amount of $250,000.00 in fiscal year 1999 to establish a contingency fund for use in that fiscal year. A school district may apply to the Commissioner of Education for assistance under this section if the district made incorrect statewide, base year, education tax rate assumptions in building its fiscal year 1999 budget; and the district discovered the assumptions were incorrect after it was too late to correct the information contained in the material presented to the school district electorate. The Commissioner, in his or her discretion, may award funds under this section to eligible school districts demonstrating undue hardship as a result.

(g) Notwithstanding the provisions of subchapter 4 of chapter 123 of Title 32, in fiscal year 1999 payments in lieu of taxes under subchapter 4 of chapter 123 of Title 32 shall be calculated in addition to, and without regard to, specific appropriations for Montpelier and state correctional facilities; and no payments shall be made under subchapter 4 of chapter 123 on account of agency of natural resources land. Payments in lieu of taxes on account of agency of natural resources land in fiscal year 1999 shallinstead be paid only from specific appropriations for that purpose.

Sec. 123. EFFECTIVE DATES

(a) Secs. 7 through 15, 16(a) through (d) and (f), and 17 (statewide property tax and income sensitivity adjustment amendments) shall take effect January 1, 1998. Secs. 16(e) and (g) and 16a shall take effect January 1, 1999.

(b) Sec. 18 (transition rules for determining July 1998 income sensitivity payment) shall be effective January 1, 1998.

(c) Secs. 21 through 26 (PILOT) shall be effective July 1, 1997.

(d) Sec. 27a (minimum business entity tax) shall apply to taxable years beginning on and after January 1, 1998.

(e) Sec. 47 (tax stabilization agreements) shall be effective from passage.

(f) The economic advancement incentives provided in Sec. 48 of this act, establishing subchapter 11E of chapter 151 of Title 32, shall take effect for tax years beginning on and after January 1, 1998, except that those provisions of 32 V.S.A. § 5930a, providing additional functions to the Vermont economic progress council, shall take effect from passage.

(g) Secs. 49 through 54 (other economic advancement tax incentives) shall take effect July 1, 1998.

(h) Sec. 58 (tax increment financing districts; removal of June 10, 1997 grandfather date) shall be effective June 26, 1997.

(i) Sec. 67 (40 percent cap adjustment) shall be effective January 1, 1998.

(j) Sec. 68 (dedication of revenue to education fund) shall be effective July 1, 1998.

(k) Sec. 69 (homestead tax liens) shall apply to homestead education property taxes assessed and due on or after April 1, 1999.

(l) Sec. 70 (dates for state payments of education funds to municipalities) shall take effect July 1, 1999.

(m) Secs. 71 through 77 (cash flow provisions) of this act shall take effect January 1, 1999.

(n) Sec. 110 of this act, relating to payment of funds to support a union schooldistrict, and Sec. 112, relating to unified union school districts, shall take effect on July 1, 1999.

(o) Sec. 104, relating to a Blue Ribbon Commission on Special Education Costs, and Sec. 115, relating to a fiscal review panel, shall take effect on passage.

Approved: March 11, 1998