Agency of Education to begin rulemaking on school-district reserve-account standards with a target completion date

The House Ways & Means Committee discussed proposed statutory language that would require the Agency of Education to complete rulemaking to adopt recommended reserve-account standards for school districts by a target deadline.

John Gray, counsel from the Office of Elected Senate Counsel, presented draft language that would amend prior 2024 rulemaking authority and replace an "initiate by" clause with a firm completion deadline. Gray summarized the proposed direction for rulemaking: the Agency of Education, in partnership with the Vermont Association of School Business Officials, would complete rulemaking to update district quality standards to include recommended reserve fund-account standards by Dec. 31, 2026.

Gray read the draft’s core directives: the agency would be required to (1) prescribe minimum (and potentially maximum) reserve-balance levels while considering revenue predictability, expenditure volatility, exposure to one-time expenses and credit-rating impacts; (2) specify acceptable conditions that warrant use of reserve funds and define the period within which funds may be used; (3) establish best practices for replenishing a depleted reserve fund, including recommended sources and timeframes for replenishment; and (4) identify conditions that could justify deviation from broadly applicable standards.

"On or before December 31, AOE in partnership with BASCO shall complete rulemaking to update the district quality standards to include recommended reserve fund account standards," Gray said, summarizing the draft language. He noted the date could be adjusted but the intent was to give AOE a clear target.

Kelly Murphy, Education Finance Director, and Cassandra Ryan, Chief Financial Officer for AOE Finance, told the committee that the agency has been charged with initiating formal rulemaking and will align new reserve-account language with the district quality standards already in rulemaking. Ryan said AOE has requested existing district fund-balance policies and will work with districts to standardize reporting so the data the agency collects ties back to audit records.

"We want to make sure that all the districts are reporting consistently because we did see in the form that we use that it's not consistent across the board," Murphy said, describing variation in how districts categorize fund balances and reserve accounts.

Members asked whether the Uniform Chart of Accounts already contains codes for different reserve types and whether budget submissions to AOE include mechanisms for districts to explain deviations from a future standard. AOE staff said they will review the chart of accounts, consult with legal counsel and the Secretary of State’s office on rulemaking steps, and return with more specific definitional language and an updated timeline. Committee members urged the agency to provide those clarifications quickly ahead of crossover.

AOE outlined a tentative timeline for completing the work: consultation and legal review from roughly February through June; drafting of review standards and legal review in July–August; and initiating formal rulemaking in August. Staff said timing may be adjusted depending on how the statutory language is finalized and on consultation outcomes.

The committee did not take a formal vote on the proposed statutory language during this session; AOE agreed to follow up with revised language, data definitions, and additional materials for the committee’s consideration.