[V]ermont’s treasurer has endorsed a complex plan devised by the Senate to fill the state’s clean water funding gap, despite what senior lawmakers and the state’s chief economist say is increased risk to the general fund.
A plan approved by the Senate Tuesday morning shifts 6% of rooms and meals tax going into the general fund into a special fund for clean water. Lawmakers then intend to backfill the hole in the general fund with higher-than-expected revenue from income tax and corporate tax.
Vermont Treasurer Beth Pearce gave her seal of approval to the plan in an emailed statement.
“The criteria we identified in the 2017 Clean Water Report was that any existing resources used to pay for clean water must be predictable, reliable, and built into the base. I believe that the current Senate proposal meets these criteria,” she said.
However, the plan breaks some of the principles that Democratic leaders have preached during debate over Gov. Phil Scott’s spending proposals in recent years, such as to avoid budgeting based on unofficial revenue projections, and using surplus revenue to cover ongoing costs.
“It’s probably something I would be more reluctant to do if it wasn’t this particular issue,” said Rep. Janet Ancel, D-Calais, chair of the House Ways and Means Committee. “We’ve struggled to find a revenue source for water.”
Ancel noted that a number of proposals devised by her committee in the past two years have been rejected by the Senate. “So, if we can do it in a way that is works for the people who are writing the budget, I think it’s a good idea,” she said.
The Ways and Means chair said the Senate’s plan was preferable to Gov. Phil Scott’s proposal to redirect the estate tax from the general fund to clean water, because rooms and meals was a more reliable source. Scott’s plan received initial endorsement from the Environmental Protections Agency.
In order to close this year’s budget, the new plan would rely on a budgeting trick that allows legislators to shift $7 million of the current budget to clean water, and then use the projected revenue to repay wherever the spending is cut.
The idea currently under consideration would reduce about $7.1 million in funding to the Agency of Human Services in the current budget, but then deposit that same amount into the AHS “blue book” account — where federal receipts are typically held — as soon as the surplus revenue is bankable.
With surplus revenue expected to come in at $55 million or more this year, there is little concern about being able to fill the hole in fiscal 2020. However, the plan will increase pressure on the general fund in future years, when the economy cools down.
“If you use revenue growth from existing general fund sources you are relying on that growth continuing, which creates risk,” said Steve Klein, chief fiscal officer at the Legislature’s Joint Fiscal Office.
Klein said about $10-$15 million of the revenue increase would likely be ongoing. But he said the rooms and meals tax, which is being moved out of the general fund, was a less volatile funding source than corporate income tax, which is responsible for much of this year’s revenue spike.
Sen. Jane Kitchel, D-Caledonia, chair of Senate Appropriations, said the central question facing lawmakers was whether to raise a new tax in a year when unexpected revenues could cover essential costs.
And for this year, at least, legislators found themselves agreeing with Scott, who has argued that a new tax for clean water is unnecessary right now. (Scott’s spokesperson, Rebecca Kelley, said the governor didn’t have a position on the Senate plan as of midday Tuesday.)
Kitchel agreed that moving a chunk of rooms and meals tax revenue out of the general fund exposed the state to greater fiscal risk.
“Rooms in meals tends to be a very stable and what would come into the general fund tends to be much more driven by the economy in terms of the higher income people and how their incomes can be influenced by economic conditions,” Kitchel said.
“So that we know that we know that,” she added. “But in the future. I think it’s very clear that if it’s necessary, and the circumstances are different, that it’s necessary to raise revenues, then we would do it at the time when the situation would suggest that it was warranted.”
