Vermont Legislative Replace Week 17 | Downs Rachlin Martin PLLC

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Vermont Legislative Update Week 17 | Downs Rachlin Martin PLLC

[co-author: Jessica Griswold]

Legislative Chess

It’s the time of year when the legislature plays chess. Sometimes it even plays speed chess, with programs, initiatives, and tax code changes flying in and out of bills as they move back and forth between chambers. Each chamber attempts to position its priorities to its best advantage, sometimes by holding the other chamber’s priorities as hostage.

A House committee may remove a section of a bill that its Senate counterpart spent months discussing. And vice versa. A committee may also attach one of these pieces to a different bill, using it as a “vehicle” to shore up its chances of survival. In non-COVID times, legislators play a version of three-dimensional chess, with players sitting on different floors in the Statehouse working their own individual chess boards.

When a bill goes to conference committee, the opponents finally sit across from each other and the gamesmanship gives way to final decisions.

Bill provisions that are of existential importance to an association or company can be deleted at the blink of an eye. What may seem like a callous disregard for the work that went into those bills – the days of testimony and hours of committee deliberation, the effect it has on individual lives and businesses – it is not personal. It’s likely just positioning in the game of legislative chess.

Vermont Legislative Update Quick Links

Business

General Government

Energy & Technology

Environment

Education

Business

Unemployment insurance – The House Commerce and Economic Development Committee passed an unemployment insurance bill, S.10, on a vote of 8-2-1. The committee removed 2020 from the UI Trust Fund calculation and removed the Senate’s proposed $50 dependency benefit. There is no rate freeze, so employers will pay UI taxes using Schedule 3 next year and Schedule 4 for two years.

Committee Chair Michael Marcotte, R-Coventry, summarized his committee’s changes by saying that eliminating 2020 is not a benefit to employers. It is an adjustment to the UI Trust Fund formula due to the anomaly created by the pandemic. He added that the trust fund is in a $300 million hole, and this has to be repaid by employers. To dig a deeper hole by adding a dependency benefit is unwise at this time. He also felt that childcare issues are best considered by the House Human Services Committee.

Some still believe that employers are getting a better “deal.” Employers who struggled through this pandemic are still responsible for replenishing this $300 million through no fault of theirs. Employers are not benefiting from this change. To say otherwise is disingenuous.

2021 PPP Taxability – Senate Finance has added language to H.436 in Section 25 that repeals taxes on 2021 forgiven PPP loans.

Guidelines for bridge grants for “gap” businesses – Among eligibility requirements for bridge grants for “gap businesses, a company will have had to show a tax loss in 2020. That loss will be the ceiling for the grant it may receive. Further guidelines can be found here.

Economic recovery grants – The Senate is poised to pass limiting language for further recovery grants for businesses in H.159. As with bridge grants for “gap” businesses, to be eligible a business will need to demonstrate a 2020 tax loss. The Senate Economic Development Committee considered the grant formula this week. Sen. Clarkson, D-Windsor, and Sen. Ram, D-Chittenden, wanted more targeted and increased funding for lodging, wedding and events businesses since they were the hardest hit. Sen. Sirotkin, D-Chittenden, said this could be considered in the conference committee.

There is more than $500 million in unmet need since the government’s enforced curtailment of business activities, but the Senate has only allocated $20 million for recovery grants. The health of Vermont’s hospitality sector now lies with decisions that the House will make.

Economic development – The Senate Economic Development, Housing and General Affairs Committee has given initial approval to H.159, an omnibus economic development bill. The bill has become this session’s Christmas tree for economic development provisions. Two significant additions were added this week: a Capital Investment Grants program and economic recovery grants for businesses. Capital Investment Grants are for projects intended to be “transformational” to a region. The $11 million program would be capped at $500,000 per project, prompting concerns from committee members that the awards would not be large enough to have the kind of impacts that are envisioned. Twenty-million dollars would be earmarked for economic recovery grants distributed by the Agency of Commerce and Community Development. As ACCD develops a model for grant eligibility, business groups have expressed concern that the tax-return-based formula will exclude many businesses still suffering due to COVID-19.

Municipal Bylaws Modernization – S.101 began as a bill to encourage housing development by incentivizing municipalities to update planning bylaws, extending a downtown and village center tax credit program to neighborhood development areas, and eliminating a requirement of duplicative and costly state wastewater connection permits. This week, citing the need for more testimony, the section on wastewater permits was removed by the House Natural Resources, Fish, and Wildlife Committee, and the House Ways and Means Committee abruptly removed language expanding the tax credit program. Language that currently exists in H.437 that is being considered by the Senate Committee on Finance – a new property transfer tax surcharge on home sales greater than $1 million and a manufactured home credit – was added to S.101 as an alternate path for the language in case the Senate committee does not approve H.437.

Contractor registry – A bill to create a contractor registry, H.157, has been taken up by the Senate Economic Development, Housing and General Affairs Committee. Passed by the House after contentious debate, the bill calls for the modest step of registration for the state’s currently-unregulated builder and contracting profession. Any contractor who performs a residential building or renovation project that will exceed $3,500 in time and materials must register with the state every two years. A written contract and maintenance of liability insurance are also required. Representatives of the Vermont Attorney General’s office, the Office of Professional Regulation and the Vermont Licensed Plumbers Association all testified in support of the legislation. The committee will continue taking testimony next week.

Tax increment financing districts – The House Ways and Means Committee continued consideration this week of S.33, a bill relating to tax increment financing districts. Advocates spoke in favor of giving TIF’s a three-year extension due to the effects of the pandemic. Development has been slowed by increased material expenses, a shortage of contractors, and potential changes in building use and design due to societal changes caused by the pandemic. The federal government recognized the need to allow time for project completion as reflected by the lengthy timeline for ARPA spending.

The committee has not yet decided whether TIF Districts will be able to use the proceeds of debt to pay for debt service interest payments for a period of up to five years.

A pilot for project-based TIFs that would have benefited smaller municipalities was previously stripped out by the House Commerce Committee.

Generall Government

Revenue bill – The Senate Finance Committee continued consideration this week of H.437, the revenue bill, but pulled up short of voting the bill out on Friday. As passed by the House, the bill includes three changes: a 1.75% property transfer tax surcharge on properties worth more than $1 million, clarifications for the sales tax exemption on manufacturing machinery, and an affordable housing credit for manufactured homes. Fiscal Analyst Graham Campbell told the committee the bill is expected to increase overall state revenues by $950,000 in FY 2022, $600,000 in FY 2023 and $250,000 in FY 2024. This impact would be split between the General Fund and Education Fund. The committee paused on their consideration of the bill when they discovered that the House Ways and Means Committee had also added the property transfer tax and the manufactured home credit to S.101.

Miscellaneous tax bill – The Senate Finance Committee is ready to vote out H.436, the Miscellaneous Tax bill, tomorrow afternoon. With a straw poll, the committee agreed unanimously to repeal language that makes Paycheck Protection Loans taxable. With the change, Vermont would follow federal tax law. The committee also agreed to link up State law to federal tax changes that expand the Earned Income Tax Credit and Child and Dependent Care Credit. The Joint Fiscal Office suggested that the lost tax revenue from the federal linkups could be paid for by ARPA funds due to recent Treasury guidance.

Post-pandemic Statehouse procedures – The House Rules Committee reviewed a draft resolution to extend the state of emergency and approve remote voting through May 22, 2021 and any subsequent 2021 veto session. The resolution would authorize the committee to adopt procedures for the House to meet, debate, and vote remotely or in a hybrid manner as pandemic-related circumstances require. Members generally support the resolution’s intent and will continue to prioritize public health and safety as their top concerns as they consider next steps.

Pension reform – The Senate passed H.449, an act relating to the membership and duties of the Vermont Pension Investment Commission and the creation of the Pension Benefits, Design, and Funding Task Force, in concurrence with the latest House proposal of amendment on Thursday. The bill proposes governance changes and best practices to address the state’s $5.6 billion unfunded public pension liabilities that resulted from underfunding, inaccurate return projections, low fund performance, demographic shifts, and healthcare and other retirement costs.

Energy & Technology

Broadband deployment – The Senate Finance Committee unanimously supported a strike-all amendment to H.360, a bill to expand broadband deployment, on Wednesday evening. The committee amendment proposes to reorganize the House bill’s Vermont Community Broadband Authority as a three-member Board and expand grant program eligibility to include small communications carriers in addition to communications union districts. The Senate Appropriations Committee moved to strike the bill’s appropriations section—after confirming that the $100 million ARPA appropriation is included in Sec. G of H.439, the “Big Bill”—and voted unanimously in favor of the bill as amended.

ENVIRONMENT

Water infrastructure – Department of Environmental Conservation Commissioner Peter Walke presented an overview of the state’s $1.9 billion “universe of need for water infrastructure” to the Senate Natural Resources Committee this week. Walke distinguished two of the largest areas of need – wastewater repairs and upgrades ($490 million) and drinking water repairs and upgrades ($374 million) – as already having some existing funding sources and aligning with the anticipated guidelines for the pending American Jobs Act. Other identified areas, such as stormwater-impaired waterways, mobile home park water and wastewater repairs and work on state-owned and privately-owned dams, are, as of yet, unfunded and were included in the governor’s proposal for federal ARPA spending.

The estimated cost of complying with the state’s 3-acre stormwater regulations is $260 million based on 5,320 total acres and an average retrofit cost of $50,000 per acre. This includes a mix of public and private lands. The funds allocated in the governor’s ARPA proposal would provide engineering support for 3-acre sites to help landowners anticipate construction costs and design projects to meet DEC requirements.

Education

Public tuition for religious schools – The thorny and complex issue of public tuition for religious schools returned to the Senate Education Committee this week. Legislative counsel Jim DesMarais walked legislators through legal principles and analysis of tuition for private religious schools, laying out the sometimes-conflicting case law and constitutional issues. A recent article drew lawmakers’ attention to the fact that Agency of Education guidance to school districts had been quietly rescinded, leaving a gray area. The guidance explained how districts may provide tuition for religious schools by requiring schools to submit certification that public funds were not used for religious instruction or worship. The committee was told that AOE had withdrawn the guidance at the request of the State Board of Education to help settle active litigation.

The Senate has asked for input from the attorney general on legal options, which may provide some clarity about next steps for legislation. On the other hand, committee chair Brian Campion D-Bennington, said the subject matter is so complex that the Judiciary Committee ought to look at it, and it might be better handled in a summer study committee.

Radon testing in schools – The Senate has approved H.426, a bill to address public school facilities and construction issues across the state. The bill appropriates $4 million to conduct an assessment of school facility needs and costs. An independent third-party contractor will help schools coordinate pandemic-related health and safety facilities improvements. One-million dollars is available to supplement funding needs for schools to undertake improvements. The Senate added a new requirement for schools to conduct radon testing and report results to employees and students. Senators said that timing for the unfunded mandate was right because schools are receiving federal funding through ESSER.

The bill contains a new grant program for renewable and efficient heating systems for public and approved independent schools, with the funding source to be decided during the 2022 session.