The legislature was in overdrive this past week as they raced to meet crossover deadlines. The results were surprising. A couple bills that appeared to either not have legs or lacked meaningful change now appear to be positioned to move forward.
House Energy and Technology voted out their broadband committee bill this week despite repeated concerns being voiced by the State Treasurer and the Vermont Economic Development Authority (VEDA) about the financial backing of the funding proposed in the bill and the potential impact on the state's already damaged credit rating. VEDA (and its lenders) consider broadband a risky investment that doesn't have any real assets that can be used as collateral. As such VEDA and the Treasurer are advising 20% off all funds appropriated through VEDA broadband loans be allocated to a loan loss reserve fund in order to protect both the institution and the state. Additionally, it doesn't seem likely that these infrastructure investments will generate much private funding so the VEDA loan may have to cover the full cost of the buildout project. This would mean that for every dollar spent on actual fiber buildout, taxpayers would need to spend $1.20. This is a problem.
Don't get us wrong, broadband is critically important to the future of our state. Possibly the most important thing. But this approach doesn't make sense. Plus, if we keep spending $3,000 per household to get people connected it's going to take ten years with the current level of spending to get us to universal coverage. Time to rethink... (more to come on this soon)
Senate Economic Development advanced a bill this week that would create project-based tax-increment financing districts (TIFs). These smaller TIFs are meant to be utilized by small towns where a larger TIF district (often an industrial park) doesn't make sense. Projects would be capped at 15 and $5M each. There is some concern from the state Auditor that there is little accountability around these types of investments and because they use the Education Fund as a financing mechanism they actually transfer the cost of financing these projects onto other towns. With this small of investment however it seems unlikely that there is significant risk to the Education Fund and (in theory at least) the projects pay for themselves over time by increasing grand list values. Regardless of the politics behind it, smaller TIFs make this funding mechanism more accessible to a broader range of towns.
A similar bill under development in the House called the "Better Places" bill which would create Neighborhood Development Areas (NDAs), which amount to public spaces like parks that are intended to create economic activity around them. These areas would be eligible for streamlined permit applications, downtown tax credits, and exclusion from land gains taxes. Grants between $5k and $50k may be awarded by the Department of Housing and Community Development to municipalities and nonprofits. The problem? There is no money appropriated to fund these projects. Legislators are relying on private philanthropy and crowd funding to support these projects.
This bill also adds the $1M requested by the State's Tourism and Marketing division (stay tuned on this, we will come back to it in future emails), $1.75M for the downtown tax credit program, $1.3M for micro and minority owned businesses, and $2M for technology transfer programs. The largest investment, however, is $20M in appropriations for the state colleges and associated workforce development programs.
House Ways & Means reviewed a piece of legislation on Wednesday that would allow districts who were forced to merge under Act 46 to still receive merger incentives from the state. This is something that the Agency of Education (somewhat surprisingly) supports. There was lukewarm response from the Committee, but enough interest remains to try to smooth out some of the tax implications for towns forced to merge. It seems likely this may be tacked onto a miscellaneous education bill or the education spending bill.
The House Education Committee reviewed school budget votes from town meeting day. The big surprise perhaps is that 92 out of 94 budgets passed, however this is likely due to much more restrained spending proposals from school boards this year. Overall education spending is only expected to increase 1.3% in FY22 and some districts might actually see their property tax rates drop. Part of the reason for the decrease is that many large school districts were able to roll over unused one-time funds from FY21 so it is unlikely that this flat level of spending will persist to FY23. Regardless, it is still a welcome change for taxpayers coming out of a pandemic economy.
There were also concerns raised from technical education centers around fluctuations in enrollments and the associated revenue calculations. They are asking for similar hold-harmless provisions that are offered to school districts, but this might not solve the underlying problem. This is particularly concerning given testimony a couple weeks ago around overlap (and also gaps) in the programs and services offered by tech centers and the Vermont State College (VSC) system. This leads into another topic that surfaced recently, which is the consolidation of the entire VSC system into a new institution (possibly called the Vermont State University).
We had the opportunity to interview (through Vote for Vermont) David Coates, Ret. Managing Partner of KPMG, about Vermont’s outstanding liabilities associated with Vermont’s Pension Plan and related Health Care benefits. David is no stranger to CFV as this is a topic that we have been following for several years. He told us that since his last time on the show when the outstanding combined liabilities were at $4.5B the liabilities have increased by $1B to a staggering $5.6B.
State Treasurer, Beth Pearce, has proposed a plan that will bring the state back to the previous year levels. She has provided several options for legislators to consider. David supports the Treasurer's actions as he believes we should deal with the art of the possible rather than the impossible, and take a step in the right direction. There was talk for a while about having the state offer new hires a defined contribution plans instead of the current defined benefit plan. That was something that the unions strongly opposed and it is not a part of the Treasurer's current proposal.
One of the problems facing the State is meeting the maximum payment due each year based on the amount of outstanding liabilities for the Pension plans (essentially the interest payment). This year the amount is $200M and next year it will climb to $300M, and that is right off the top of the state’s revenue stream. There is a lot of blame to go around over decade or so but finally the decision-makers realize they have to do something. One recommended action is to lower the anticipated rate of return over the long term from the current rate of 7% to perhaps 6.25% (or at least a more realistic return estimate).
The House Government Operations Committee had the State’s actuaries in to present to the Committee. A good step towards understanding the complexity of this issue. There is an oversight group being implemented and with the right expertise will be able to continue down a productive path for taxpayers, teachers and employees. CFV will keep tracking this issue and keeping you informed.