[T]he Senate Finance Committee on Monday finally settled on a clean water funding proposal, avoiding the thorny challenge of identifying a new revenue source.
Instead, the plan redirects 6% of the rooms and meals tax revenue from the general fund and replaces it with money that is expected to fill state coffers by the end of the year — and continue to be a reliable funding source in future years.
The proposal, which passed out of committee in a unanimous vote, would dedicate $7.1 million toward clean water funding next year, when the state starts partially diverting the rooms and meals tax from the general fund — the final piece in the $50 million cost of water cleanup initiatives.
In 2021, the full six percent of tax would be devoted to clean water, and start to generate about $12 million for clean water each year.
“We can take about $7 million to avoid increases in taxes and use that to cover clean water funding with reasonable assurance that we can make that up,” Sen. Randy Brock, R-Franklin, a Senate Finance Committee member, said Monday evening.
Using the rooms and meals revenue to fund clean water will create a hole in the state’s general fund, a move that legislative leaders found troublesome when it was pitched by Gov. Phil Scott, who favored a shift in the estate tax.
But in a meeting on Monday, the Democratic leaders of the House and Senate budget and tax committees agreed that based on revenue projections, they were confident that the lost general fund money could be replaced by $7.5 million in new revenue that will become available next year.
Analysts say that revenue estimates for this year are $50 million higher than previously anticipated. And they project that $10 million to $15 million of this revenue is likely ongoing money that state will be able to rely on each year.
In previous years, however, budget writers have balked at budgeting based on projected revenue increases.
The Senate settled on a plan Monday after lawmakers struggled for months to reach an agreement on how to close the $7.5 million gap in funding for federally-mandated water cleanup projects.
In a letter last week, Vermont State Treasurer Beth Pearce urged lawmakers to find a “predictable, reliable, long-term funding source to pay for our clean water needs.”
Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, said that even though her clean water plan involves taking money from the general fund, it meets the criteria of a new “dedicated” clean water funding source.
“I don’t think anything says we have to raise a new tax,” Cummings said. “We just have to find enough money in a dedicated source to meet the need and I think that’s what we’re doing.”
Senators rejected a clean water plan from the House that redirected money from the education fund, and replaced it with a $6 million tax on “cloud” software stored online. The tech industry is vehemently opposed to the cloud tax. Senate President Pro Tem Tim Ashe recently declared he would not accept the software levy.
“Kill the cloud, keep the ed fund whole, take from the general fund, and put the money back from the new revenue,” Cummings said, outlining the plan.
Before passing its clean water proposal plan Monday, senators had considered generating the funds by increasing the rooms and meals tax from 9% to 10%, dedicating the extra one percent — an estimated $16.3 million — to water cleanup.
The proposal faced fierce pushback from the tourism industry last week. Representatives from the industry said increasing the tax would deter visitors and give Vermont the highest rooms and meals tax in the region.
While the Senate’s proposal solves Vermont’s clean water proposal next year, it sets lawmakers up for the same conversation about fiscal year 2021, when the state will likely need about $12 million in additional funding for clean water.
That money will come from the redirecting rooms and meals tax in fiscal year 2021. But while lawmakers are confident there will be $7.5 million in new, ongoing revenue to backfill the general fund in 2020, they aren’t certain the state will have $12 million annually.
Cummings said that lawmakers will probably start discussing how to raise additional money this year, as they finalize the tax legislation in the coming days.
“If the revenues don’t continue to grow, and they probably won’t over the lifespan of cleaning up the lake, we will have to find additional revenue,” Cummings said.