[T]he House, for the second time this session, has passed a bill that would divert a portion of the rooms and meals tax to fund clean water.
The plan has now cleared both chambers. Gov. Phil Scott, who wanted lawmakers to use existing revenue for clean water funding, appears unlikely to oppose the plan.
Representatives voted 133-5 in favor of a bill, S.96, that would shift 6% of the rooms and meals tax that goes toward the general fund to clean water projects starting this October.
The proposal would divert $7.1 million toward the state’s clean water fund next year. Lawmakers intend to backfill the hole in the general fund with higher-than-expected revenue from income tax and corporate tax. In 2021, the full 6% of the tax would be devoted to clean water, and start to generate about $12 million for clean water each year.
Rep. Janet Ancel, D-Calais, acknowledged on the House floor Wednesday that S.96 had recently “left this body with a slightly different funding proposal.”
The House approved a plan earlier this month to divert 4% of the rooms and meals tax that currently goes to the education fund, backfilling the hole by removing the sales tax exemption on prewritten software accessed remotely. But the Senate Finance Committee nixed that plan, which faced strong opposition from the tech industry.
“What the Senate has sent back to us is a similar construct, but affecting the general fund rather than the education fund,” Ancel told her colleagues Wednesday.
Vermont remains under federal pressure to reduce phosphorus pollution in Lake Champlain and other bodies of water. Since the 2015 passage of Act 64, Vermont’s Clean Water Act, the state has used short-term sources — like appropriations from the capital bill — for the majority of its share of the funding.
Last year, the EPA gave Vermont a “provisional pass” on its Lake Champlain report card for not identifying a long-term clean water funding source.
When Scott pitched a proposal at the beginning of the session to divert part of the estate tax toward clean water, key lawmakers expressed concerns about creating a hole in the general fund.
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 new revenue that will become available next year.
Rep. Heidi Scheurmann, R-Stowe, rose to express qualified support for the plan on the floor. She said she approved using existing revenue to fund clean water, but did not want to see a proposal next year to raise the rooms and meals tax.
Rep. Scott Beck, R-St. Johnsbury, who sits on the Ways and Means Committee, said he voted against the proposal because the House had come up with a plan that would have “freed up” general fund revenues without hurting the ed fund.
Jon Groveman, water and policy director for Vermont Natural Resources Council, said in an interview Tuesday that he was “definitely happy and pleased” lawmakers had approved a dedicated clean water funding source this session. But he expressed concerns that diverting the rooms and meals tax would set the stage for future fights for clean water money in the annual budgeting process.
“The reason we always were focused on a new revenue source is because there’s not always a surplus and we did not want to divert money from other needed programs for clean water,” he said.
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, in an interview Tuesday.
Rebecca Kelley, spokesperson for Scott, said that while the governor needs to review the specifics of the funding proposal, he “has been clear” that he prefers funding clean water with existing revenue rather than creating a new tax.
“It appears we have some consensus on that approach with the latest proposal but, again, we just need to review the final details and how it interplays with the budget,” she said.
With the funding in S.96, combined with federal money, and other clean water funding sources, such as the capital bill and the transportation bill, the state is poised to spend around $50 million on water cleanup initiatives next year.
The bill also paves the way for the state Agency of Natural Resources to issue block grants to fund some clean water projects regionally.
