TIME
Policy committees in the Vermont House worked to finalize their FY2025 budget recommendations this week. These recommendations will inform the House Appropriations Committee as they craft their FY2025 budget proposal, which needs to pass out of the committee by March 22. Policy committees were significantly more constrained this year than in recent years as they worked through their recommendations. This is because federal dollars from COVID-era programs such as ARPA and CRF have been allocated and are no longer available to support the state budget.
The belt-tightening exercise comes at a time when budget pressures continue to grow and lawmakers face increasingly tough decisions on how to fund programs and services. Housing, public safety, health care, workforce and environmental protection are some of the areas legislators are working to fund.
The development of the FY2025 budget is happening in parallel with the conference committee on H.839, the FY2024 budget adjustment bill. Legislators from the House and Senate Appropriations committees are negotiating the final iteration of the mid-fiscal year spending adjustment, which will be sent to Governor Phil Scott for approval once the two chambers reach a deal. It is unclear what action the governor will take when he receives the bill.
Legislators are also working to identify potential new revenue sources. The House Ways and Means Committee passed a bill this week that would expand taxes and fees on telecommunications and the Senate Finance Committee is looking at a bill to assess a new tax on streaming services. More on this later.
EDUCATION SPENDING
H.850 has been fast-tracked through the legislative process and was signed by the governor on Thursday. This legislation repeals a tax cap that has been identified as a driver of increased education spending and tax burdens across the state. The five percent cap was meant to help more affluent districts make the transition under a new law which redistributes tax capacity to help high-needs districts that have been historically underfunded. But this transition mechanism created unintended consequences resulting in potentially soaring property taxes. H.850 moves this transition mechanism to a targeted approach that sends tax discounts to districts losing tax capacity under the new, more equitable system created by Act 127. Notably, less than two weeks before Town Meeting Day, H.850 also gives school districts the authority to revise their budgets and reschedule the vote for community approval. The bill includes $500,000 from the general fund to support the costs associated with rescheduling budget elections.
TELECOM TAXES
On Friday the House Ways and Means Committee voted 12-0 to advance H.657, a bill that would make numerous changes to Vermont’s telecommunication tax statutes. The bill increases the Universal Service Fund Charge, which appears on phone bills, by changing it from a 2.4 percent charge to a 72-cent monthly per-line fee. H.657 would include telecommunications property in the grand list, which would apply the property tax to these facilities. It would also impose fees on telecommunications equipment in state right-of-way corridors.
Two sections that were in the introduced version of H.657 were dropped from the bill before it was approved by the committee – the “cloud tax” and a new fee on communications providers that attach to utility poles. The pole attachment tax would have funded Vermont’s public access television stations, who already receive millions of dollars each year from a franchise fee on cable video service. The pole attachment and cloud tax language are both likely to reappear in separate bills.
Meanwhile, the Senate Finance Committee got a first look this week at a new draft of S.181, a bill that also seeks to provide additional revenue to the public access stations. While S.181 initially did include the pole attachment tax, the committee quickly decided to scrap that option after testimony from various stakeholders. The committee is now contemplating a tax on streaming services like Netflix and Hulu. Vermont has subjected streaming services to the sales tax since 2017, but the committee indicated they would like to assess an additional charge and use the revenue to fund public access television.
After the Senate Finance Committee reviewed the streaming tax language it became clear that there are some challenges with the proposal. Legislative Counsel based the legislation on a similar bill in Massachusetts that has been introduced two years in a row but has not passed out of committee. This could be due – in part – to the fact that the definitions included in the bill are overly broad and would capture a litany of products and services that the Senate Finance Committee did not anticipate including. Senate Finance Chair Ann Cummings, D-Washington told her committee that after discussing the proposal with Senate Appropriations Chair Jane Kitchel, D-Caledonia, any revenue from the bill would go to the General Fund instead of the special fund for the public access television stations. The public access stations would have to apply for general fund dollars like all other stakeholders.
FLAVORED TOBACCO
The House Ways and Means Committee on Friday also approved S.18, a bill that would ban the sale of any flavored tobacco substitute and e-liquid as well as menthol flavored tobacco products, including cigarettes, cigars, snuff on January 1, 2026. The bill had lingered in committee for weeks as lawmakers worked through how to balance the public health benefits of S.18 with the fact that the ban will result in a revenue loss of between $7.1 and $14.2 million by FY2027. As members of the House and Senate Appropriations committees struggle to put together one of the most challenging budgets since the pandemic, signing off on any legislation that reduces revenues is a challenging proposition.
