Janet Ancel, a Calais Democrat and current chairwoman of the powerful House Ways and Means Committee, has three key priorities in mind for the imminent legislative session.
But for at least one looming worry, there’s little she can do aside from watching and waiting for the feds. Ancel wants to respond quickly to the outcome of fiscal cliff negotiations in Congress, saying that tax changes here will likely flow from decisions made in Washington.
“It’s not something we can really prepare for, because we don’t really know what it is that’s going to happen,” said Ancel in an interview. “Which is not to say that people aren’t looking at it and trying to track it.”
She said the most difficult January scenario for her committee, which covers state taxes and fees, would be pressure to come up with significant revenues to backfill federal cuts, or to fund the state’s health care exchange.
But there’s also a chance for increased revenue for the state from fiscal cliff discussions, if income tax deductions for high earners are eliminated or if the feds pass a tax on remote sellers, said Ancel. Still, she added, “We don’t want to collect more revenue than we need.”
The state is facing a $50 million to $70 million budget gap for fiscal year 2014, due to federal cuts, substantial retirement contributions, Irene recovery work, and lower-than-expected revenues, among other factors.
If sizeable federal budget cuts fall on programs like the Low-Income Home Energy Assistance Program (LIHEAP) or on Community Development Block Grants, it will fall to Ancel and other key money chairs, like the state’s two appropriation chairs, to figure out how to make up the difference.
Although Ancel wants to protect LIHEAP funding, she said it remained too early to suggest concrete ways of raising revenue, because of “too many moving pieces” now, with changes to income tax, a remote sellers sales tax, and payroll tax all in the air, each bearing consequences.
If reappointed as chair, Ancel will also do her best to mitigate a proposed 5 cent increase in the statewide property tax, a measure proposed by Tax Commissioner Mary Peterson to compensate for increased local education spending.
“We may be looking at a pretty sizeable increase in the base property tax rate,” said Ancel, who cited depressed property values from the recession and increased health care spending by school districts as key drivers of the increase. “We will do everything we can to keep that as low as possible, but our options are somewhat limited.”
The statewide property tax, now pegged at $1.38 per $100 of property value for nonresidential property, and 89 cents for homestead property, accounts for about half of the state’s education fund, which in turn pays for school district spending.
Vermont is the only state to collect a statewide property tax, with revenue estimated at $909 million for fiscal year 2012, making it the single largest source of state revenue.
Ancel said the last property tax increase came to 2 cents, explaining that for each cent of property tax rate increase, the state raises about $10 million in revenue. She reiterated that state government has no control over local education spending decisions.
Aside from responding to the fiscal cliff and property tax increases, Ancel will also think creatively about how to fund the state’s health care exchange, which she views as an important intermediary stage before the implementation of a single-payer system, possibly starting in 2017.
Although a recent report suggested payroll and income taxes could fund a more fully developed universal health care system, Ancel backed away from opining on those two options just yet, saying that she’d wait for the administration’s recommendations in January.
“Everything is on the table at the moment, until the administration makes a recommendation. And then we’ll look at that, and then look at other things, I suppose,” said Ancel. Poorer Vermonters are expected to pay more under the health care exchange, which will cost the state $15 million to $20 million per year to maintain after 2014.
Federal funding will cover the bulk of the construction and implementation of the exchange.
Other tax topics likely to come up include:
• Moving the state to an adjusted gross income (AGI) tax model, a politically controversial move which Ancel supports. Those who use many federal tax deductions, often higher earners, are likely to pay more in taxes on that model, said Ancel. “The politics around it can be difficult,” she said.
• A potential excise tax on heating fuels to fund thermal efficiency efforts. Ancel felt lukewarm towards that proposal, saying: “I would be concerned about a tax on home heating fuel, given the fact that it’s expensive, and this is a cold state, and people need it. … I would be very wary of something that added to people’s fuels bills at this point.”
Finance Commissioner Jim Reardon said potential new fees would be examined at the Secretary of State’s office, the Department of Agriculture, and the Department of Liquor Control, as part of a regular look at fees.
He couldn’t provide more detail, as he still has to vet concrete proposals with the governor. Agency fees are introduced to cover the cost of a service the agency provides, and aren’t intended to raise for wider state coffers.
Peterson said it remained too early to tell what could go into the administration’s miscellaneous tax bill.
It’s unclear whether transportation chairs will seek to increase revenue from transportation fees and taxes to help address a $250 million annual shortfall towards maintaining the state’s transportation infrastructure.
Earlier this week a tax reform study panel took a conservative stance towards new taxes, with lawmakers and experts recommending that the state keep the sales tax limited to goods, exempt cloud computing from taxation, and wait on congressional action on taxing online retailers.