GOODBYE FOR NOW…
The Vermont legislature adjourned early in the morning on Saturday, May 11. Adjournment capped a week of marathon floor sessions as lawmakers hustled to finish their work and go home on time. Legislators have returned to their districts and legislative staff are preparing the finalized bills to be sent to Governor Phil Scott. The legislature generally sends bills to the governor in batches after adjournment, giving the administration time to review everything before the governor decides how to proceed. Once the governor receives a bill, he has five days, not including Sunday, to act. He can either sign a bill into law, let it become law without his signature, or veto it.
The House and Senate will return to Montpelier on June 17 for a veto override session. The governor is expected to veto a number of bills. He has indicated he will likely veto the annual property tax “Yield Bill,” which sets property tax rates for the upcoming fiscal year. Scott says the bill does not address structural changes to the education funding system, a step he says is necessary to fundamentally fix soaring property tax rates. More on this later. There are a handful of other bills the governor may veto, and with Democratic supermajorities in both the House and Senate, lawmakers have the numbers to override.
Property tax rates were the overarching theme of the 2024 legislative session. Governor Scott set the stage with a December, 2023 letter warning that property taxes would increase by an average of 20 percent if the legislature did not act to address the issue. The other fiscal challenge facing lawmakers when they returned to the statehouse in January 2024 was the end of the unprecedented federal funding that poured into the state to address the COVID-19 pandemic. Since the middle of 2020 Vermont has received billions of dollars in federal aid that otherwise would not have materialized. FY2025 is the first budget cycle since the beginning of the pandemic that could not rely on federal COVID dollars.
Housing, a stated priority for Governor Scott and Democratic leaders in the legislature, was also a major theme. The administration and legislature, and indeed the House and Senate, had varying views on how to address the issue. Lawmakers also worked extensively on the incredibly complicated and delicate overlap of the unhoused, mental health, substance abuse and public safety.
Flood recovery and resilience was another major policy discussion this year. Lawmakers returned to a capital city in January that had been battered by the July 2023 flood, along with its twin city of Barre and many other Vermont communities. Montpelier businesses were still shuttered and legislators had to stay in dorms at the former arts college because the hotel was closed and housing was in short supply. The budget writing committees prioritized flood recovery in the FY2024 budget adjustment bill and the FY2025 budget, offering a lifeline to communities struck by catastrophe. Lawmakers also passed a number of bills designed to look at resiliency, not an easy proposition in a state where many communities were established on rivers that snake through steep mountain valleys.
At the beginning of the session, Governor Scott urged lawmakers to focus on housing, affordability (property taxes being front and center) and public safety. From there the debate swirled about whether to invest more in housing or reform Act 250; whether to cut spending or increase taxes to support services in hopes of reducing cost elsewhere; how to address substance misuse, mental health and temporary housing; along with other perspectives and philosophies about how to address these core concerns.
By Town Meeting Day, the focus returned to property taxes as legislators and the governor’s office eyed school budget votes as a referendum on how to approach property tax relief. About a third of school budgets failed, a higher rate than usual, and Governor Scott again called for structural reform to the state education finance system. Democratic lawmakers pushed for reducing the property tax burden by adding additional revenue sources like a new tax on short-term-rentals and software services to pay for education funding.
The week of crossover, the House Ways and Means committee approved a tax package that included and increases in the corporate income tax and property transfer tax and adjusted tax brackets to generate more revenue from the highest earners. The proposals passed the House, but ran into opposition in the Senate. The Senate passed a tax on streaming services, but this proposal ran into opposition in the House.
As March drew to a close and signs of springtime began to appear, Governor Scott, the House and the Senate seemed so far apart on so many issues that it was hard to believe the legislative session could end on time. Then the state got some help from an unlikely (and unrepeatable) source.
The solar eclipse on April 8 brought an unprecedented influx of tourists to Vermont, which lay in the path of totality. As the date approached and weather forecasts solidified it became clear that Vermont would be one of the few places along the path of totality that would not be overcast, further increasing the number of visitors. By May, lawmakers understood the revenue generated during the eclipse would help address a variety of issues in the state budget, making it easier to balance and reach agreement.
From there, the end was in sight. The House and Senate had to reconcile many bills, with the more contentious debates coming on the Yield Bill, housing and consumer data privacy. A number of longtime legislators announced they will not be returning and speculation is now starting to swirl about additional retirements and most of all whether former Governor Howard Dean will challenge Phil Scott for the state’s top job in November. Lawmakers will now have some down time for a few weeks but the work isn’t done yet and we can expect a few more fireworks in June.
YIELD BILL
As the Vermont Legislature wrapped up its intense 2024 session shortly after 2 a.m. on Saturday, May 11, a significant focus was placed on the passage of the annual yield bill. This legislation, pivotal in setting tax rates to fund school budgets, was illustrative of a session marked by tough decisions in a climate of fiscal scarcity.
This year, the yield bill was far from routine. With statewide increases in property taxes causing numerous school budgets to fail, the legislature introduced several tax measures to address the financial strain. Notably, the bill removes the sales tax exemption for software accessed remotely, a change meant to generate an estimated $15 million annually for the Education Fund. The bill also implements a 3% surcharge on short-term rentals. This move is expected to contribute approximately $12 million in its first year.
Additionally, the bill uses $44 million from the Education Fund and $25 million in one-time surplus funds from the general fund to further buy down property taxes. The final version of the bill will see an average education property tax bill increase by 13.8% this year across the state. In December 2023, property taxes were initially predicted to rise an average of 18.5% this year.
The bill also establishes the Commission on the Future of Public Education, which is tasked with issuing an interim report on cost containment strategies by December 2024, prior to the next legislative session. A final set of recommendations for a comprehensive reform of the state’s education system is expected the following year.
As the yield bill now heads to Governor Scott, it faces uncertainty. He has indicated a willingness to veto it, pointing to a lack meaningful cost containment measures. And while the bill passed both bodies easily (93-44 in the House, 18-8 in the Senate), it also fell short of the numbers needed to override the governor’s potential veto, when the legislature reconvenes June 17 for the veto override session.
TAXES THAT PASSED IN 2024
- Property tax – A 13.8 percent increase in the average homestead and non-homestead property tax bill compared to the prior year.
- Cloud Tax – A tax on prewritten software accessed remotely estimated to raise $14.7 million for the education fund to buy down property tax rates.
- Short-term rental tax – A three percent surcharge on short-term rentals estimated to raise $11.8 million for the education fund to buy down property tax rates.
- Property Transfer Tax – An increase in the property transfer tax rate on year-round secondary residences without a landlord certificate from 1.25 percent to 3.4 percent and increased exemptions that lower the tax for property used as a principal residence. This is estimated to generate $15.7 million. The revenues are directed towards housing initiatives.
- Securities Fees – Increases to fees on issuers of securities and investment companies, estimated to generate $19.4 million annually mainly directed to the general fund.
- Universal Service Fund (USF) – Repeal of the 2.4% Universal Service Charge for landline, postpaid wireless, and interconnected VoIP consumers and replaces it with a $0.72 monthly charge per access line. The change is expected to raise $7.96 million in total, $3.01 million in new additional annual revenue. USF is used to support E911, the 988 suicide crisis and lifeline and other programs.
TAXES THAT PASSED ONE CHAMBER ONLY
- Corporate tax – The House passed a bill to increase the corporate income tax top marginal tax rate from 8.5 percent to 10 percent of corporate net income attributable to Vermont, estimated to generate $17.7 million annually. The bill also proposed to add back some federal deductions (GILTI and FDII) that would increase reported net income to Vermont for those corporations with those types of income, estimated to raise approximately $15.3 million annually. The funding was to be used to expand Medicaid and invest in the judiciary.
- Personal Income Tax (“the Wealth Tax”) – The House passed a bill to add a new top marginal income tax bracket for tax filers at a rate of 11.75 percent on Vermont taxable income above $410,650 for single filers and $500,000 for married filing jointly filers, for example. This would increase personal income tax revenue by $74.9 million annually. The revenue was to be used for housing initiatives.
- Streaming tax – The Senate passed a bill to tax streaming services at 5 percent of a streaming provider’s gross revenues derived from video streaming services in Vermont. The streaming tax was estimated to raise $6 to $7.6 million in general fund revenue, a portion of which went to the Secretary of State to administer a grant program to fund the operational costs of the 24 Access Management Organizations (AMOs) in Vermont.
H.121 (DATA PRIVACY)
H.121, the privacy bill, turned out to be one of the most contentious bills of the 2024 legislative session. The final details of the bill fell into place in the final hours before adjournment. Early in the session, the House Commerce Committee brought forward a Connecticut-style privacy bill, but through the course of their work took direction from national consumer interest groups and largely dismissed concerns from the local business community about complexity and interoperability.
When the bill reached the Senate, the Senate Economic Development Committee worked to bring H.121 more in line with what has been done in other states, with a real focus on Connecticut’s law, aiming for regional consistency. As adjournment approached however, it became clear that the House Commerce and Economic Development Committee would not accept this approach, and they amended S.289, a bill aimed at protecting children from social media, to include the House-passed privacy bill. Members of the House committee made clear that they were upset about exemptions provided for health care providers, and that the Senate had struck the so-called “private right of action” (PRA) which allows trial attorneys to file class-action lawsuits against businesses they believe have violated the law.
The Senate had opted to study the need for a PRA, leaving the Attorney General responsible for enforcing the law. In the final hours of the session, the Senate agreed to include a delayed PRA, and accepted the House’s underlying bill. It remains unclear whether Governor Scott will veto H.121. When asked about it during his weekly press conference, he raised concerns about the impact to Vermont businesses as they face double-digit property tax hikes.
H.687
In an attempt to curb Vermont’s housing crisis the legislature passed H.687 which aims to reform Act 250. The bill creates a new Land Use Review Board and outlines their power including reviewing applications for new Tier 1A and Tier 1B jurisdictions. H.687 sets up future legislative action on the development of a new tiering system for Act 250 including Tiers 1A, 1B, 2 and 3. H.687 still leaves the Environmental Court in place for appeals for the time being. H.687 exempts the construction of up to 75 housing units in designated Town Centers, Growth Centers or Designated Neighborhood Development Areas from Act 250 through July 1, 2028. H.687 also makes clarifications to municipal bylaw regulations that Act 47 (S.100) of 2023 attempted to address last year.
H.687 also reestablished the “Road Rule” which brings development of a road longer than 800 feet, or total driveway and road development of 2,000 feet under Act 250 jurisdiction. It also strengthens regulations around Forest Blocks and fragmentation caused by development.