Sec. 1. 20-A MRSA §15603, sub-§26-A, ¶F, as amended by PL 1995, c. 665, Pt. J, §2, is further amended to read:

F. If for any fiscal year, the total amount appropriated for the State's share of the total allocation is less than the amount specified in the certified funding level for that year, then all subsidizable costs except as noted in subparagraphs (1) and (2) are reduced by a percentage of the original cost amounts. The reduction percentage is the smallest percentage that results in a state share of the total allocation that does not exceed the amount appropriated for this purpose, except that the reduction percentage that would ordinarily be used for operating and program costs must be reduced for the purpose of computing state subsidy for transportation operating costs as defined in subsection 29. The reduction percentage ordinarily used for transportation operating costs must be reduced by the amount necessary to provide additional state subsidy equal to $4,500,000 for this category of costs. The statewide adjustment factor under section 15654, subsection 1, paragraph B must be adjusted by an amount sufficient to provide this additional funding for program costs. The following subsidizable costs may not be reduced:

(1) Principal and interest on approved school construction costs; and

(2) Approved lease costs. ; and

(3)__Special education costs.

Sec. 2. 20-A MRSA §15612, sub-§6, ¶B, as amended by PL 1989, c. 554, §1, is further amended to read:

B. The funds for the adjustment shall must be limited to the amount appropriated by the Legislature for that purpose at least 50% of the school administrative unit's actual special education cost. Unexpended funds may be used to fund the out-of-district placement provisions under subsection 11.

Sec. 3. Department to create property tax reduction formula. The Department of Education shall develop a formula that converts a special education cost reimbursement to a school district into a property tax reduction for the property owners of the municipalities served by that school district. In developing the formula, the department may seek the assistance of the Department of Administrative and Financial Services, Bureau of