by Timothy McQuiston, Vermont Business Magazine As the Legislature enters the long stretch drive to the end of the biennium, likely in mid-May, Governor Scott and his administration are ramping up pressure on the Legislature to pass his big initiatives. This includes Scott's $100 million economic package. The House has passed its version of the $8.1 billion budget and it's now in the hands of the Senate. However, the House did not include any of the governor's economic package in its version, leaving it up to the Senate. The governor not only took issue with that this week, he noted that even if the Senate were to add in some or all of his package, it would mean some other programs would have to be cut (or taxes increased) to balance the budget.
The governor has vetoed state budgets twice before and he has made it clear that he does not support raising taxes, especially at a time of "unprecedented" budget surpluses and massive federal funding. Both he and Economic Development Commissioner Joan Goldstein made their cases for the development package at Scott's weekly media briefing on Tuesday (see below).
Also this week, Administration Secretary Kristin Clouser took a broader view of the differences between the House spending budget and the governor's proposals. She pointed out that while some of his other initiatives can be found in some bills, it is "challenging to see the full picture" with initiatives like for housing and workforce being located in several different bills.
She noted that while Scott and lawmakers agree broadly on some initiatives, like for child tax credits, the governor, she said, is looking more strategically. This goes for other programs like tax credits for nurses, child care workers and with veterans pensions, which are all intended to support recruitment and retention of the workforce.
In her "Dear Jane" letter (to Appropriations Chair Senator Jane Kitchel, see below), Clouser said of the housing issue:
"The Administration was both mystified and disappointed by the removal of $20 million from the Governor’s $70 million ARPA request for housing. Half of this reduction - $10 million – was directed to the Vermont Housing Finance Agency to establish a Missing Middle Income Home Ownership Development to support the development of new homes for purchase by working-class families. The data is clear: housing in this price range is virtually non-existent in Vermont. The other half of the reduction came from our successful Vermont Housing Investment Program (VHIP) to bring blighted and vacant rental units back online, and from grants to Vermont municipalities to support the development of affordable mixed-income rental housing. The House has stated the policy language behind these initiatives is travelling in other bills, but the House budget does not fund these investments. The best result would be to put the language and the funding in the budget, but at a minimum, the Administration asks the Senate to restore funding for these important initiatives."
Clouser also discussed the state employees pension reform, which would decrease the $2 billion unfunded obligation the state has going forward. Both sides agree that a significant investment needs to be made and that now is a good time to do it, as the state has the cash.
The administration and the House disagreed, however, on whether new state workers should have the option of taking the existing pension (benefit) plan or a defined contribution plan (more typical now and frequently includes a 401(k) or similar). The governor would prefer to give new employees an option to the existing pension plan, because of the longterm and growing obligation to the state financially. A 401(k)-type is riskier to the employee but also allows for potential greater growth and flexibility in investment.
Remarks from Governor Phil Scott and Economic Development Commissioner Joan Goldstein April 5, 2022
Governor Scott:
Good afternoon. Today I’m joined by Economic Development Commissioner Joan Goldstein, because I want to talk about the importance of making investments that will help strengthen and grow the economy in regions across the state.
This year, I proposed to the Legislature a $100 million package to help support our communities, spur growth, and make sure employers who were harmed by the pandemic can stay on their feet and support their employees.
For years, I’ve talked about the need to grow the economy and make Vermont more affordable.
The federal money, as well as significant budget surpluses, truly give us a once-in-a-lifetime opportunity to take transformative steps forward, which is why I keep talking about it.
This was a comprehensive package with initiatives working together to have the greatest impact.
A couple weeks ago we focused on housing, which we all know we need more of. But in order to accomplish that I’ve also proposed tens of millions for sewer, water and stormwater, which is necessary in order to build more housing in many of our downtowns and village centers.
Along with that, we need good paying jobs and strong, safe and vibrant communities as well, which is why we must also invest in economic development.
Commissioner Goldstein will go through the specifics of each, but my plan would devote $30 million for a Grand List Enhancement Program, which will help grow and develop areas of the state which need it most.
I’ve also asked for a $50 million Capital Investment program, to help small businesses and non-profits survive, recover and grow and increase economic activity across the state.
Among the many initiatives is a $20 million business assistance program, to create loans for businesses – a Vermont version of the federal PPP program. This will focus on sectors hit hard by the pandemic, like hospitality, agriculture, and the arts.
I’ve also asked for expediated permitting for these investments, so we can put the money to work as fast as possible, which is important because the feds require us to spend it within a certain number of years.
Unfortunately, the House didn’t include this $100 million-dollar package in the budget they passed a week and a half ago, saying the Senate would cover economic development.
The problem is, just like with housing, they didn’t budget for it and spent the money on other things, which makes the House passed budget out of balance.
So, if the Senate decides to include these important investments in their budget, they’ll be forced to cut the House’s proposals.
To be clear, the Senate is working on an economic development bill, but like the housing bill they’re also working on, they’ve included provisions I’ve vetoed in the past.
So again, just as I said with housing, let’s put aside the areas of disagreement and pass clean bills that we can all support.
That’s what Vermonters expect from us, not the games we see in Washington.
With that, I’ll turn it over to Commissioner Goldstein.
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Commissioner Goldstein:
Good afternoon and thank you – as the Governor mentioned Vermont is face-to-face with the opportunity to infuse federal ARPA dollars into economic development projects throughout the state. In the Governor’s budget proposal, we laid out where we think more than $100 million dollars should be invested and will deliver great benefit to Vermonters, our communities, and the small businesses that are the heartbeat of our economy.
At this point in the legislative session -- the budget that passed the House included ZERO dollars for economic development initiatives. ZERO dollars to help Vermont employers and employees recover from the pandemic and grow in the years ahead. ZERO dollars to invest in the improvement of our towns. to aid in a strong recovery -- as well as recruit new workers and new businesses to our cities and towns in the future.
It is disappointing that out of over $100 million dollars in proposed economic development initiatives, ZERO dollars were allocated by the House – leaving the Senate with the tough job of deciding where to find the funding for these important programs.
As the Governor referenced, the budget proposal had 3 main areas utilizing ARPA funds and 2 utilizing general fund surplus:
- $50 million dollars for a Capital Investment Grant Program, which would bring additional funding to a program that is already underway. In the first wave of funding, which was $10.5 million dollars last legislative session, we saw over 100 applications and more than $90 million dollars in funding requests. The demand is there, and many of the projects are worthy of these recovery funds – with proposed investments in childcare facilities, performing arts venues, museums, food supply chain capacity and hospitality projects, as well as supporting small businesses like restaurants and breweries.
- Working in tandem with the Capital Investment program, we also called for a $30 million Grand List Enhancement Program. This program would support Vermont’s municipalities who need help to stabilize or expand their tax base and economic foundations. The data from our tax dept. shows that more than half of Vermont towns have seen their grand list decline or remain stagnant, as town and school budgets increase. This money will help facilitate development and redevelopment of commercial or mulyi unit residential sites in disadvantaged communities as well as promote business and job growth in these areas, which is necessary to increase grand list values. Increasing grand list value stands to benefit every Vermonter, both in our shared tax burden and the quality of life in our communities.
Another $20 million was proposed to continue to support businesses in need, as they emerge from the pandemic, through a Forgivable Loan Program. There are businesses still suffering from the cash constraints caused by the pandemic. To meet the needs of those businesses, the Vermont Economic Development Authority would offer a forgivable loan program designed much like the Paycheck Protection Program (PPP) but will offer more flexibility to better meet the existing needs of local businesses seeking additional working capital in the short term.
- And on the general fund asks: there is an unprecedented labor shortage out there…..any employer we talk to wants to know what we can do to help. Well the governor’s proposal asked for -$6mm for the new worker incentive ( locations need to compete for people) the ones that have places for residents to live and work will win. and - $8 million dollars to develop a recruitment marketing and relocation support network. The shortage of residents currently calling Vermont home impacts everything from tax rates and school funding -- to community infrastructure and business retention. We should be setting this network up now – so we are ready as new housing comes online, broadband rolls out, and businesses expand in the years ahead.
- And finally $6mm in Brownfields redevelopment funds.
I want to take a moment to highlight our Brownfields Revitalization fund program as proof of what these types of investments can do for our communities. Thus far, the program has committed $4.5 million dollars to aid in the cleanup and redevelopment of polluted land and buildings. The 14 projects to receive funding so far are anticipated to clean up 17 contaminated acres of land, create 490 jobs, 202 units of housing, and 80 new hotel rooms.
Think about what we could do if millions more are invested in economic development projects. Jobs, housing, new business, new green spaces, and revitalized communities could flourish.
I want to say it one more time. The general lack of development in Vermont over the years has led to our housing supply shortage and the inability to grow tax bases in so many of our towns. COVID has spent two years continuing to harm development and damaging the financial stability of some of our most important sectors including arts and culture, travel and tourism, agriculture and small locally owned businesses.
ARPA has given us the resources to bring historic development to every corner of the state, continue to ensure our business community has the support they need in the short term, and to confront this crisis with bold deliberate action. Let’s use these federal recovery funds as they were intended and return economic development initiatives to the state budget.
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March 31, 2022
Honorable Jane Kitchel
Chair, Senate Committee on Appropriations
Vermont State House
109 State Street
Montpelier, VT 05602
Dear Senator Kitchel:
I write with comments on H.740 – An act relating to making appropriations for the support of government. The Administration understands the work required to appropriate $8.1 billion and we appreciate the House budget reflects some of the Governor’s priorities. There are, however, essential initiatives not included that are necessary to ensure Vermonters see the maximum benefit of these historic funds. Several items, detailed below, require attention – and adequate investment – if the budget is going to receive the Governor’s support.
What follows is not an exhaustive list of every change the Administration would like to see, but it does represent our most pressing concerns with the House budget. As always, we look forward to working with your committee to provide further explanation.
Housing
The Governor and the Legislature seem to agree on Vermont’s need for more housing working Vermonters can afford. This is why the Administration was both mystified and disappointed by the removal of $20 million from the Governor’s $70 million ARPA request for housing. Half of this reduction - $10 million – was directed to the Vermont Housing Finance Agency to establish a Missing Middle Income Home Ownership Development to support the development of new homes for purchase by working-class families. The data is clear: housing in this price range is virtually non-existent in Vermont. The other half of the reduction came from our successful Vermont Housing Investment Program (VHIP) to bring blighted and vacant rental units back online, and from grants to Vermont municipalities to support the development of affordable mixed-income rental housing. The House has stated the policy language behind these initiatives is travelling in other bills, but the House budget does not fund these investments. The best result would be to put the language and the funding in the budget, but at a minimum, the Administration asks the Senate to restore funding for these important initiatives.
Economic Development
As you will recall during BAA discussions, the Administration raised significant concerns with the amount of ARPA being spent on short-term, programmatic initiatives and the impact of that spending on the five major ARPA spending categories agreed to last year:
• economic development;
• housing;
• climate change mitigation;
• water/sewer/wastewater infrastructure; and
• broadband.
As a result of BAA ARPA spending, the House was faced with an $85 million gap when contemplating the FY23 ARPA budget. Unfortunately, the House addressed that gap, at least in part, by cutting $100 million in ARPA economic growth investments for small businesses and rural communities who need these investments most.
Some of this money targeted COVID-impacted businesses, and a large component was directed to economically disadvantaged communities to help promote economic growth, housing, and job retention and creation. These investments are urgently needed to prevent further economic decline and stagnant grand list values - with an emphasis on the rural regions of our state that have been left behind over the past several decades. The Administration asks the Senate to restore this critical component of the Governor’s budget.
Tax Relief
In an era of skyrocketing costs of living, the Governor feels very strongly that the Legislature should consider his progressive tax relief proposals. The Governor’s recommendations benefit at least 25 percent of low- and middle-income resident taxpayers – purposefully prioritizing workforce expansion – via a suite of proposals. Making Vermont more attractive to young workers and families and helping more working families escape poverty are essential to the development of a workforce that will grow and support Vermont’s economy. Expanding two proven credits, the Earned Income Tax Credit and the Child and Dependent Care Credit, puts more money in the pockets of Vermont’s working-class families. Allowing all Vermonters to deduct student loan interest helps retain and attract young workers. Additionally, Vermont’s population is one of the oldest in our country and raising the income threshold that qualifies for the Social Security exemption by $30,000 will help to improve the quality of life for many more Vermont seniors. This relief is especially important at a time when inflation is hurting so many of these Vermonters. The Governor will only support a budget that responsibly alleviates the crisis of affordability, does not raise tax or fee rates, and provides adequate, targeted tax relief.
Unfortunately, the House’s tax relief initiatives, which cost the same as the Governor’s proposal, only help an estimated 13 percent of resident taxpayers, in a less strategic and targeted way. Specifically, the House’s tax credit is only for those with children 6 and under, creating a cliff for families when their kids turn 7. The House proposal also fails seniors by only increasing the income thresholds for Vermont’s Social Security exemption by $5,000. It is our hope that the Senate Finance and Appropriations Committees will collaborate with the Administration to expand tax relief to more Vermonters and in a more strategic and progressive way.
State Employee Pension Reform
As the Governor has shared with both the Speaker and Pro Tem, and Commissioner Greshin shared with you, we can support the reforms in S.286, An act relating to amending various public pension and other postemployment benefits, with the addition of language that would allow for all new employees – regardless of classified or exempt status – to have a choice between a defined contribution or defined benefit plan and/or the inclusion of risk sharing provisions. Over the past two years, the Governor has consistently called for responsible structural changes to accompany any additional investment into the pension system. These changes are necessary to prevent waste of taxpayer dollars resulting from an unsustainable structural model. To be comfortable allocating the funding in the budget, the policy in S.286 must reflect a sustainable path forward.
Capital Expenditure Cash Fund
The Governor’s budget included a fiscally prudent proposal to reduce the state’s debt by using available General Fund revenue to pay for certain capital expenditures upfront, with cash. The proposal created a mechanism – the Capital Expenditure Cash Fund – which would allow the state to continue to shift long-term borrowing into upfront cash payments. This plan would reduce annual debt service costs and preserve borrowing capacity for “counter cyclical” stimulus investments when we really need it, like during a recession. The House neglected to include the $6 million transfer to seed this fund. In addition, instead of reducing borrowing by the amount that would have been used for BGS engineering staff, the House reallocated that sum to new borrowing. This amounts to a $3.9 million increase to the General Fund with no compensating reduction in debt issuance or debt service costs. The Administration and the Treasurer’s office developed the Capital Expenditure Cash Fund by thinking about how we could use our unexpected increase in revenues strategically to free up both borrowing capacity and spending capacity for future unanticipated expenditures. The Administration urges the Senate to implement this more responsible approach to state fiscal management and planning.
Substance Use Prevention
Somewhat unbelievably, the House’s proposed budget strips prevention funding, eliminating an upstream approach to more permanently prevent and address drug use and addiction. Specifically, the House budget eliminates funds for local substance use prevention efforts across the state. Vermont continues to face a crisis of addiction which has worsened during the pandemic. This is not the time to turn away from prevention.
DAIL – Long Term Care Oversight
Section E.329 allocates five positions created in Section E.100 to the Developmental Disabilities Services Division which ignores the reason DAIL asked for the positions – which is to provide better protection to our most vulnerable senior citizens. The Administration asks the Senate to strike Section E.329 from the bill and support full funding of our proposal to enhance long-term care facility oversight.
In addition to the specific concerns highlighted above, a broader concern is the number and size of appropriations travelling in other bills. Not all those bills have a home in H.740 and it is unclear how the pieces will fit together without making significant changes to the budget.
It is also important to reiterate that the Administration has emphasized its most acute concerns through the body of this letter. By no means is this an exhaustive list of every change the Administration would like to see. For example, the Administration continues to have concerns with reductions in funding for the VOREC community grant program, the removal of funding for relocation marketing and new/remote workers to help correct our demographic trajectory, and reductions in funding for CTE centers through the yield bill, to mention only a few.
The Administration, however, is ready to work with the Senate to create a budget that accommodates the Governor’s and the Legislature’s shared priorities in a way that maximizes the benefit to Vermonters and the value of these historic funds.
Sincerely, Kristin Clouser
Secretary, Agency of Administration
