2021 Final Vermont Legislative Update – May 2021 | Downs Rachlin Martin PLLC
[co-author: Jessica Griswold]
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Climate, Energy and Technology
The unemployment bill formerly known as S.10 – Business owners had their most challenging year in memory. Many hoped that the legislature, knowing this, would have sought to offset their challenges. Unfortunately leveling unemployment tax rates was considered by some to be too much help.
One of the most contentious negotiations of the session centered on the formula that determines the Unemployment Insurance Trust Fund balance. Recent years’ unemployment rates are entered into the calculation, and many experts felt that 2020 was an anomaly and should be removed from the formula given the pandemic. Without 2020 in the equation, the balance required would be $600 million, and with 2020 it would be $1 billion (by all accounts too much).
Due to the pandemic, the Fund decreased to a balance of $200 million. Even with removing 2020 from the calculation, businesses will still have to replace $400 million of unanticipated Trust Fund taxes over the next few years. Senator Sirotkin, D-Chittenden, deemed this a benefit to business owners since keeping 2020 in the calculation would result in businesses facing an $800 million deficit. In his view, the legislature was saving companies $400 million, and therefore, unemployment claimants should get something in the “deal.” He insisted on adding $25/week per recipient up to $100 million and made it clear that there would be no deal without this benefit. No deal meant that 2020, by default, was in the calculation.
The result was an amendment to S.62 found on page 1232 of the Senate Journal. These changes will result in employers paying a rate based on Schedule 3 next year and Schedule 4 for the following two years. Without this bill the rate would have been at Schedule 5 next year.
State taxing of 2021 Payroll Protection Program funds – Mid-session, the legislature passed H.315, which, among other things, exempted taxes on 2020 PPP but placed a state tax on 2021 PPP forgiven loans. With collective pressure from business advocates, in the closing days of the session, the legislature excluded 2021 PPP from state taxes, aligning it with federal treatment. It was surprising that it had to take a considerable effort to get this accomplished, particularly given that Sen. Leahy’s office weighed in to express that the federal government had never intended for these funds to be taxed.
State Economic Recovery Grants limp across the finish line –Businesses, particularly those in the hospitality sector, were hit hard this year. The Governor’s Executive Order severely curtailed their ability to earn a living and for the events industry – shut them down altogether.
In a meeting with the Vermont Lodging Association prior to the legislative session the Governor told the group that he couldn’t lift the order early and that was why they had to advocate in the legislature for additional economic recovery grants. It was a disappointment when the administration announced that businesses still faced over $500 million in unmet need but were proposing only $50 million for grants. The legislature then further cut this allocation to $20 million while leaving over $500 million in ARPA funds in reserve. The formula for distribution is also limiting but the many business advocates who suggested changes were unable to convince leaders in the administration and the legislature that their financial situations are dire.
Compounding these financial challenges, now that the state is reopening employers are experiencing drastic labor shortages which are limiting the ability of these small businesses to scale up to get back to full operations. It is a particularly tough time to be a small business owner.
The Agency of Commerce and Community Development will soon post applications for these business recovery grants. To qualify, businesses will have to have filed their 2020 taxes and show a tax loss. Grants will cover three months of limited fixed costs and will not exceed this tax loss. The first 30 days will be open to those who received no state or federal aid (such as EIDL or PPP grants) and will then be available to others who qualify. This program is expected to be oversubscribed, so people are encouraged to file as soon as possible. Information on this process can be found on the ACCD website here.
Economic development bill cut and pasted into budget – H.159 turned into the session’s Christmas tree bill for economic development. Originating as a stand-alone bill, the legislation funded a variety of economic development initiatives with one-time infusions of ARPA and general fund money. As the clock ran out on the session, most of the provisions were salvaged by being folded into the budget bill H.439.
H.159 sections moved into the budget bill include:
• $2 million for tourism and marketing.
• $800,000 to assist the technology-based business sector with federal grant writing.
• $1 million to UVM to complete the startup of the Office of Engagement.
• $75,000 to the Department of Labor for a study on the Postsecondary Adult Education and Training System.
• $1.5 million to ACCD for the Better Places Program.
• $300,000 to ACCD for a two-year contract with a foreign trade representative.
• $2 million to the Department for Children and Families for the Economic Micro Business Recovery Assistance for the COVID-19 Epidemic (EMBRACE).
• $150,000 to ACCD for BIPOC business development.
• $900,000 to the Entrepreneurs’ Seed Capital Fund for early stage investment.
• $10.58 million to ACCD for development of Priority Capital Investment grants
• $20 million to ACCD for development of Economic Recovery grants.
• $2 million for related instruction or on-the-job training costs for new apprentices.
Miscellaneous tax bill federal tax link ups and TIF District language – The miscellaneous tax bill was one of the last bills agreed to at the end of the session, when the House asked for agreement to add their proposed property yield tax back into H.436 in exchange for an agreement to reserve $14 million of the Education Fund in the budget bill for OPEB pending the Pension Task Force’s actions this summer.
In the end, the bill included not only the House’s proposed property yield tax, but a repeal of language enacted in H.315 that makes Paycheck Protection Loan’s taxable, a link up to federal tax changes that expand the Earned Income Tax Credit and Child and Dependent Care Credit. The bill also includes provisions from S.33, that gives TIF districts a one year extension for debt incurrence and moves the Burlington Waterfront TIF District audit to October 1, 2021.
Property transfer tax fails despite language in two bills – H.437, a miscellaneous revenue bill previously passed by the House, contains a tax surcharge on the sale of property transferred above $1 million. Currently, properties sold in Vermont (with exceptions) pay a 1.25% transfer tax plus a 0.2% clean water surcharge. An additional 0.5% surcharge would be added to properties over $1 million. The bill also expands the sales tax exemption on manufacturing equipment and expands an affordable housing credit for manufactured homes. The bill, however, failed to advance out of the Senate.
Meanwhile, S.101, passed by the Senate, was being considered by the House Ways and Means Committee. The bill began with provisions 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. House committees stripped the tax credit and wastewater permit language from the bill, but added the property transfer tax and affordable housing credit language from H.437 – providing a potential path should the Senate not act.
Neither bill advanced to their respective floors, though an appropriation to help municipalities update their bylaws was included in the budget bill.
Rental registry bill held up in the last day – Objecting to a registry to monitor rental properties, the minority party in the House refused a procedural suspension of the rules on the last day of the session, which prevented S.79 from passing this year. This is an ambitious bill that included a new short-term rental registry requirement for those who operate unlicensed businesses renting out property on sites such as Airbnb or VRBO. There is no listing of these houses in the state, so there is no way to know their impact on the rental market. In many states, they find that an increase in the STR market drives up costs and limits the supply of longer-term rentals. This should be a genuine concern in Vermont, where we already see a shortage of affordable housing options. There are also no current provisions to ensure that STR operators conduct proper safety inspections and have appropriate insurance coverage. This bill is expected to move forward early next legislative session.
Banking bill requires study of annuities – S. 88, the insurance, banking and securities bill, requires a report and findings on the effect of raising the interest floor paid to people on forfeited annuities. Currently, under state law, a person surrendering an annuity would receive back what they’ve paid in (minus what they’ve received or loans taken against it) plus interest. The interest is calculated as the Federal Reserve Rate minus 1.25 percent, but no less than 1 percent. The 1 percent floor has kicked in due to low interest rates, the banking and securities industry is pulling back from providing annuities due to the poor economics of the product.
The bill also includes captive insurance housekeeping language, eliminates the combination non-bank license, permits home mortgage originators to work from home, increases the penalty to file a timely report, and simplifies and clarifies insurance confidentiality protections.
COVID relief bill becomes law without full support of governor –The legislature took several months at the beginning of the session to draft and pass a COVID relief bill in advance of the big budget bill. The bill, H.315, is a $100 million relief package that starts spending some of the $1 billion of American Rescue Plan Act money on its way to Vermont.
It was the inclusion of $59 million of the ARPA money, as well as the addition of language taxing forgiven Paycheck Protection Program loans, that caused the governor to allow the bill to become law without his signature. The bill appropriated money on many of Governor Phil Scott’s proposed initiatives including brownfield remediation, housing, and VOREC grants, but he did not support the use of any ARPA funds in the bill in advance of full federal guidance on the allowable uses of the funds and a comprehensive, multi-year infrastructure focused plan to spend the federal windfall.
The legislature addressed the governor’s concerns at the end of the session, swapping out some H.315 ARPA spending for General Fund appropriations in the budget, and repealing the PPP tax in H.436.
Big budget – Before adjourning the first ever fully remote session, the legislature passed a $7.35 billion state budget for FY22 with almost $600 million of federal COVID relief fund spending. Budget committee of conference deliberations were complicated by the Treasury’s release of the Interim Final Rule for ARPA spending. Concern that some of the federal aid spending in the budget was not clearly permitted under the new guidelines led the conferees to swap out ARPA spending in some areas, including higher education and housing, for General Fund money. The conferees also included language in the budget that allows $100 million of FY22 ARPA projects to be substituted with General Funds to the extent FY21 surplus funds are available at the end of the year.
Highlights of the budget include:
• Three percent increase to mental health, developmental disabilities and Choices for Care providers;
• $2.7 million General Fund dollars to Reach Up benefits;
• One-time General Fund used to shore up special funds including, Forests and Parks, Act 250 and Fire Safety;
• $190 million in housing investments including ARPA rental assistance;
• $54.5 million in climate action investments; and
• $150 million reserve for pensions from the General Fund and $14 million reserve for OPEB from the Education Fund pending the work of the Pension Task Force created in H.449.
Contractor registry stalls – In a flurry of activity during the last days of the session, H.157 passed out of three senate committees and survived second reading with a 20-10 vote. However, the bill stalled before the final vote over the uncertainty of gaining approval from the House on a last-minute amendment exempting businesses that are already licensed or registered by the Office of Professional Regulation or the Department of Public Safety. The bill will remain in the final stages of passage when the legislature convenes next.
Under the bill, contractors conducting residential work worth $2,500 or more would be required to register, carry liability insurance and have a written contract. OPR will maintain the registry and a website accessible by the public for verification of contractor status.
Low-alcohol spirits will have to wait – Passed by both chambers, H.313 allows for the continued temporary sale of alcoholic beverages by delivery and curbside pickup, creates a new “stand-alone” third class license for establishments that only sell spirits, clarifies requirements for festival permits which are needed for any event that is open to the public and lowers third-class license fees for manufacturers of spirits.
The committee considered amendments to the bill including one that would have placed low-alcohol spirit beverages in the “vinous beverage category” for sales purposes with a maximum alcohol-by-volume of 12 percent. Ultimately, the committee did not include the amendment, opting to take more time with the issue during the next session. Another amendment allowing for direct-to-consumer sales of spirits also did not make it into the bill.
Climate, Energy and Technology
Communication Union Districts get their chance with broadband –The legislature passed H.360, which appropriates $150 million towards the goal of universal high-speed internet access, establishes the Vermont Community Broadband Board, and hires an Executive Director to carry out the task of achieving universal coverage. The Board is comprised of five members: two appointed by the Governor; one by the House Speaker; one by the Senate’s Committee on Committees; and one by the Vermont Communications Union District Association.
The principal debate on broadband during the session was the prioritization of CUDs at the expense of existing Incumbent Service Providers. A compromise was reached to allow ISPs to qualify for grants if they work with a municipality that does not have a CUD before June 1st, 2021, and the ISP serves no more than three counties. The ISP must also be working towards universal coverage in that region. The bill allows the Department of Public Service to spend $20 million on projects that are ready for immediate construction.
Investments in energy and climate – The budget bill contains multi-year funding priorities for ARPA including $250 million for climate change mitigation. Of that $250 million, a total of $50 million and $4.5 million in general fund (highlights below) was committed for FY 2022 for thermal efficiency including weatherization incentives, workforce development and to develop an ongoing, accessible financing model.
• Vermont Housing Finance Agency – To create and fund an ongoing low cost weatherization finance program. On-bill finance is being explored – $ 9 million.
• Office of Economic Opportunity – Low income homeowner weatherization – $ 4 million over two years.
• Efficiency Vermont for weatherization incentives – $ 5 million.
• Efficiency Vermont – Weatherization Workforce Development Initiatives and support expansion of Neighborworks Heat Squad program – $ 2 million.
• Clean Energy Development Fund including $10 million for community-scale renewable energy for low and moderate income Vermonters – total of $20 million.
• Vermont Housing and Conservation Board for conservation projects or Farm and Forest Viability projects – $10 million (GF if avail from 21yr end).
• Community Action Programs (CAPs) – Five financial and clean energy coaches for low and moderate income families – 1.5 million over three years.
• Agency of Commerce and Community Development for municipal energy and bylaws planning – $1 million.
• $100 million (expected) to implement the Climate Action Plan.
Transportation electrification – The transportation bill includes provisions to reduce greenhouse gas emissions in the transportation sector and expand the state’s fleet of electric vehicles and chargers.
• Allows up to $1 million for a pilot program for chargers at multi-unit affordable housing and multi-unit dwellings owned by a nonprofit.
• Creates a state goal to have a level 3 charging port available to the public within five miles of every interstate exit.
• Continues the public-private partnership between Agency of Transportation and Drive Electric Vermont to support the expansion of the PEV market in the State purchase and lease incentives.
• Includes $3 million in purchase and lease incentives for plug-in electric vehicles.
• Up to $1.25 million for purchase incentives under MileageSmart, which is the State’s used, high fuel-efficiency vehicle incentive program.
• Provides $375,000 in emissions repairs vouchers.
• Creates “Replace Your Ride” Program to incentivize Vermonters to remove older low-efficiency vehicles from operation and switch to modes of transportation that produce fewer greenhouse gas emissions. Authorizes up to $1.5 million for incentives of $3,000 for an income-qualified individual who removes a low efficiency vehicle from the fleet.
• Requires the State’s electric distribution utilities to offer PEV rates for public and private EVSE not later than June 30, 2024.
• Commits to fare-free public transit in FY 2022.
Energy storage bill – Energy storage is increasingly deployed in conjunction with renewable energy and to help control the balance of supply and demand on the electric grid. A bill that provides regulatory and taxation structure for the burgeoning use of energy storage in the state’s electric system made it to the finish line. H.431 includes statutory definitions of energy storage and aggregation and clarifies that development of energy storage facilities are governed under Title 30 section 248 similar to other electric generation facilities.
The bill defines when energy storage facilities must apply for a Certificate of Public Good. Small facilities under 100 kw energy storage do not need a CPG. The mid-tier for systems 100 kw to 1 megawatt would go through a simplified application process. The third tier for systems above one megawatt would require a full CPG application. The Public Utility Commission is directed to implement rules that govern the installation and operation of energy storage facilities.
A new taxation scheme for energy storage facilities of 600 kwh or larger was created to provide clarity and transparency to the development process. The new plan levies a uniform capacity tax of 50 cents per kwh, and a municipal property tax of 25 cents per kwh, for plants larger than 600 kwh. The provision is similar to tax treatment for solar installations and was supported by developers, utilities and the Vermont League of Cities and Towns who testified that without the plan, taxation of energy storage would be difficult and inconsistent amongst municipalities.
This year in education – This year in education was marked by students learning remotely, a focus on planning for learning recovery, and on the large amounts of federal money coming to schools.
Close to $400 million has been directly allocated to Vermont schools from Elementary and Secondary Schools Emergency Relief (ESSER). An additional $40 million is allocated to the Agency of Education for statewide uses. The legislature decided it would not try to directly control the schools’ portions of ESSER, as it did with the state agency’s portion, but would instead try to induce schools to act in ways that align with the administration’s and legislature’s objectives. Two such bills sought to assess and improve schools’ physical plants and improve literacy.
School facilities and radon testing mandate – A bill to assess public school facilities and move towards state support of school buildings through bonding or other funding has been a longstanding priority of the Superintendents Associations and other public school stakeholder groups. Vermont is one of the only states with no state-sponsored ongoing support for its public schools’ physical plant. And many school buildings have suffered from deferred maintenance.
The bill appropriates $2.5 million to AOE for a school facilities inventory and conditions assessment to inform AOE of statewide school facilities needs and costs.
Late in the game legislators added a requirement for radon testing for all public and approved independent schools who have not completed a test in the last five years. Legislators rationalized the unfunded mandate because public schools have ample ESSER funds coming to them. Independent schools do not receive ESSER.
A new Renewable and Efficiency Heating Systems Grant Program to be administered by Efficiency Vermont was created in the bill for public and approved independent schools with funding source to be decided in the 2022 legislative session.
PCBs in schools – The legislature added a requirement in the budget bill for all schools built or renovated before 1980 to test for PCB (Polychlorinated Biphenyls) levels by no later than 2024. PCBs were widely used in construction for caulking and other masonry materials through the 1970s. The bill allocates $4.5 million in the Environmental Contingency Fund for the Department of Environmental Conservation for testing, and an additional $500,000 to the Department of Health.
Schools and other stakeholders had little time to react to the proposal as it was only discussed briefly in the waning days of the session. While some legislators were adamant that all schools should be tested for PCBs within one year, with or without a school response plan in place if they test high, the timeline was eventually extended to 2024. Department of Environmental Conservation officials testified that PCB testing and remediation are expensive, complex and iterative processes requiring ongoing communications with the involved communities.
The mandate was included in response to the discovery of high levels of PCBs at Burlington High School and the subsequent need to abandon use of the building. DEC broadly estimates that statewide remediation will cost tens of millions of dollars. The legislature will return to the subject of PCBs in the 2022 session to discuss school response. By then some testing will be completed providing a data sample of how extensive and expensive the problem may be.
Improving literacy – Literacy outcomes are considered a cornerstone of general education and special education. Act 28 provides $3 million and technical support to supervisory unions to improve literacy outcomes and encourages schools to use their ESSER funds for this work. The bill also encourages addressing COVID-related learning loss through summer learning and comprehensive afterschool programs. The state should ensure that these programs are addressing students’ academic, social, and emotional needs and the disproportionate impact of the coronavirus on at-risk student populations.
Integrative services in schools – H.106 creates a pilot program and provides $3 million for public schools to become “community schools” that incorporate integrated services to address out-of-school barriers for students who struggle. Community schools may provide access to services such as medical and dental care, mental health services, or access to counselors who can assist with basic needs such as housing or transportation.
The bill also creates a task force that will recommend a funding source for universal school lunch to provide free lunch to all public school students. Grants to incentivize schools to buy locally produced foods were also included in the bill.