A package of new tax credits and economic development incentives pitched by Gov. Phil Scott has drawn a mixed response from Democrats in Vermont’s Legislature.
The governor’s fiscal year 2021 budget proposal includes about $8 million in new tax credits and other incentives, such as $1 million in income tax breaks for recently graduated nurses, $3 million in cash to help Vermont’s largest employers make large capital investments, and the expansion of a tax credit program that helps revitalize rural downtowns.
While Democrats are open to some of the governor’s tax and economic development proposals, others, including the income tax incentive to help address the state’s nursing shortage, are unlikely to gain traction this year.
Writers of the state budget are approaching the proposals cautiously, noting that enacting them will mean the state has less revenue to work with as they put together Vermont’s spending package for the next fiscal year.
Rep. Kitty Toll, D-Danville, the chair of the House Appropriations Committee, said that the amount in tax breaks proposed by the governor will pose a challenge in the budgeting process.
“I think there will be some stumbling blocks with the number of tax credits that the governor has proposed,” Toll said.
“They’re not free,” said Sen. Jane Kitchel, D-Caledonia, the chair of the Senate Appropriations Committee.
“Those tax credits are a form of spending. They’re really a tax expenditure and we have to look at them as carefully and diligently, as though we were appropriating the money.”
The governor’s chief of staff, Jason Gibbs said that currently, Vermont only spends 1% of its total budget on economic development initiatives. If lawmakers want to grow Vermont’s economy, the administration’s $8 million package should be an “easy yes,” he said.
“We need a partner in the Legislature that’s willing to acknowledge that we have an economic crisis in many parts of Vermont and we’re going to have to make investments,” Gibbs said.
“And we’re going to have to say very clearly to industries that we want you to stay, we want you to grow we want you to create jobs, we want you to be part of an economic revitalization.”
Income tax incentives to attract nurses
Democrats have said they agree with the governor’s goal of increasing the number of nurses in Vermont.
But they have said that would rather offer tuition assistance, loan forgiveness, or methods of expanding Vermont’s nursing education programs, over income tax breaks.
“We’re very sympathetic of the need to solve the problem of the nursing shortage, but we don’t think that an income tax deduction is the way to do it,” Rep. Janet Ancel, D-Calais, the chair of the House Ways and Means Committee.
The governor’s proposal would provide 100% income tax exemptions for first year in-state nursing graduates, 70% for people two years out of school, and 50% those who graduated three years ago.
Rep. George Till, D-Jericho, a doctor who has been part of a group of lawmakers reviewing the governor’s proposal, said that after speaking with nurses, he believes state-funded loan assistance may be a better way to attract and retain them.
“The loan repayment is really high on their list of issues…I think when you ask people in the situation what would help, that is in the forefront of their minds,” he said. “They don’t really mention tax incentives.”
Till also said that 70% of nurses who graduate Vermont nursing schools already remain in-state after they graduate, which means that the tax credit would largely go to people who are already likely to stay.
Scott said Thursday that he is opening to working with Democrats on alternative proposals to attract more nurses to Vermont.
“As long as we agree to the goal, I think that’s a move in the right direction,” the governor said.
Tax credits for the clean energy sector
The Scott administration’s tax package includes about $1 million to incentivize clean energy companies to expand, hire more workers and innovate in Vermont.
The governor’s budget offers $500,000 in tax credits for companies that “promote research and development into clean energy” and $400,000 to eliminate corporate income taxes for companies that are working to make Vermont’s electric grid more efficient.
Gibbs said that the state wants to “put people to work” developing clean energy technology, and that the tax incentives send “a very clear signal to the clean energy economy” that Vermont wants to be a leader in the sector.
“The most effective way to send that signal to the manufacturers and innovators who are going to be the job creators of the future is to say that we want you to come here and do it, free from the corporate income tax,” he said.
Some Democrats have questioned whether the tax incentives are necessary to spur expansion in the clean energy sector.
“Their own track record demonstrates that they are successful,” said Sen. Chris Bray, D-Addison, who chairs the Senate Natural Resources Committee.
“It’s just hypothetical that if we subsidize them we’ll see more success sooner.”
Bray, whose committee will take testimony on the governor’s energy proposals, was skeptical that the tax credits for clean energy businesses would work.
“I haven’t seen much in the way of encouraging data that when you make these kind of tax expenditures that they really pay off,” he said.
“If a company is going to make investments they’re going to make investments because it’s good for their own bottom line.”
Exempting military pensions from income tax
For the fourth year in a row, the Scott administration is proposing to exempt military pensions from the income tax.
Gibbs said Vermont is losing tax revenue and potential workers because it is one of the few states that taxes the pensions. Removing the tax would cost Vermont $1.4 million in revenue.
“Many Vermonters know individuals in their personal lives who say ‘I would love to come back to Vermont or I would love to move to Vermont…but I can’t afford to do that because they’re going to tax my military pension,’” he said.
Gibbs added that retired military members are highly skilled, often retire in their forties, and are “exactly the type of people we want to recruit into our workforce.”
Kitchel said lawmakers have opposed the proposal because they have wanted to keep the state’s code progressive and based on income, rather than account for the “special characteristics” of taxpayers.
“The more you create special exclusions or groups…the more you move away from the progressivity of our tax system,” she said.
And she added that if the state loses revenue by enacting the exemption, other taxpayers will have to make up the difference, or budget writers will have to make cuts.
Cash incentives for the state’s biggest employers
One of the Scott administration’s largest new economic development programs would provide businesses with 100 or more employees with cash incentives if they make capital investments greater than $20 million.
The program is aimed at making Vermont’s business environment more competitive for large employers and keeping them in-state long-term.
“If they’re not upgrading their plant and equipment over time, they’re just going to contract their business here,” said Joan Goldstein, Vermont’s economic development commissioner.
In fiscal year 2021, the program would require $3 million of revenue. Goldstein declined to name specific businesses that could benefit from the program, but said there were about 100 companies in the state with more than 100 employees.
The proposal comes after the battery manufacturer Energizer closed its plant in Bennington where it employed about 100 workers, and replaced its Vermont operations at a plant in Wisconsin last October.
The program would allow businesses to benefit from the incentives as long as they retained 90% of their workers after they made their upgrades.
Sen. Michael Sirotkin, D-Chittenden, who chairs the Senate Economic Development Committee, said he is open to it. But he is concerned that it could lead to the state’s largest employers cutting some jobs.
“The way the program is structured is that they’re allowed to go down to 90% of their existing wage level, employment level. That can be the result of automation, capital improvements that take away jobs from Vermonters,” he said.
“I do like the idea that they will be investing large capital in Vermont as opposed to potentially other states but I do think that we can encourage them to keep jobs along the way.”
Sirotkin is supportive of a Scott administration proposal that would expand the Downtown and Village Center Tax Credit Program by $1.4 million next year. That program helps businesses revitalize old and historic commercial buildings.
“That’s been proven to leverage a lot of new construction and development in appropriate areas and it also has a long waiting list of applicants,” Sirotkin said.
“It’s a very popular program and we strongly support that expansion.”
