Vermont Legislature SmartTranscripts:

[Rep. Emilie Kornheiser (Chair)]: Hello. We are here in ways and means. It is 01:15. Are going to spend a brief amount of time on budget adjustments with the tax department and legislative council. A number of years ago, this committee did a tremendous amount of really fairly boring work on telecommunications faxes to modernize them. The whole package was fairly revenue neutral. And there's a little bit in budget adjustment about a contractor, the Department of Taxes. And so before we get into it, given that probably not everyone remembers why did what we did. I was just going to ask Maria to spend five, ten minutes telling us about that long ago law that we passed. How old, I know. It's been long, long. It feels like a 100 years ago to me, Maria. Maybe it was just '2.

[Maria Royal (Legislative Counsel)]: 2024. Okay. Yes. So Maria Royal with Legislative Counsel. So yes, I'm going to do a quick ten minutes, maybe fifteen minutes, just to get you up to speed. A little reminder about what you did. In 2024, you enacted, the legislature enacted Act 145. And as the chair mentioned, this act modernized communications taxes and fees. So lots of different provisions in there pertaining to many different subjects. One of them concerned the telephone personal property tax, which was enacted in 1947, applies to the infrastructure of a telephone company. And what's significant about it is that it's centrally assessed at the state level, and it goes into the general fund. Any of the revenue goes into the general fund, so it doesn't go into the ed fund or anything like that. In fact, there's a specific exemption from the Ed Fund tax, state Ed tax, and the local tax. So one of the issues that came up, especially with the convergence of different technologies, like VoIP voice service over fiber, how to value is a time to update the statute or treat this property like we treat other commercial property of utilities, electric, so on. So in 2024, you've repealed the person to tell its own personal property tax. And I'll just mention the valuation, because you're going to talk about that a little bit. Under the still the existing law, that personal property is assessed at, I think, 2.37% of the net book value, so not fair market value. So the net book value is the cost of the asset, less depreciation. And one of the things that came up, at Department of Tax raised is that there isn't a floor, for that depreciations. And a lot of other instances with respect to commercial property, there's a a floor, like 10%, you know, value of property. So and then the only other thing I'll mention, in addition to that tax, there was an an alternative, option available to smaller telephone companies, where they could pay a percentage, I think, of their gross revenue in lieu of paying this 2.3% tax on the property. And if they opted, I think there are two smaller telephone companies, there's a threshold, to pay the tax here, then that also was in lieu of their income tax. So both of those provisions, were set to expire, in 2025. And instead, you created a new definition of communication property that applies to telephone, broadband, cable personal property. And you specified that it would be treated as real property and in the grand list as real property, so subject to both state and state. So

[Rep. Emilie Kornheiser (Chair)]: last

[Maria Royal (Legislative Counsel)]: year, originally in budget adjustment, which was un vetoed, but then in the big bill, you included language that pushed out the implementation date to this year, July 2026. And now there's in the Budget Adjustment Act, there is an ask for an appropriation, dollars 500,000 to the Department of Tax, to help coming up come up with a valuation model for all of this property, contract with a vendor. And you'll hear more from tax about where they are in that process and exactly what they expect to achieve. So that's kind of the broad overview. Is there anything else? No.

[Rep. Emilie Kornheiser (Chair)]: And, Kuni, I'm not looking to rehash all of what happened all those years ago before we passed this or relitigate it. Just wanted to have everyone have context for the fairly minor ask from the tax department.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Where is it going to

[Rep. James Masland (Member)]: be appropriate in terms of 500 ks?

[Maria Royal (Legislative Counsel)]: That's a great question, though. I think there's one thing for clarification, but you'll hear about that.

[Rep. James Masland (Member)]: And

[Rep. Emilie Kornheiser (Chair)]: I don't know if you know representative Page.

[Maria Royal (Legislative Counsel)]: She joined our committee this year.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Nice to meet you. Andrew Stein, chief operating officer with the Department of Taxes. So to answer that question about where it comes from, it's the pilot fund. So initially, there was a 150 k appropriation from the pilot fund for this work. And when we moved this forward, our thinking was, oh, we can use an administrative mechanism to just move the 150 ks forward. When we were talking with Finance and Management, Commissioner Gresham said, well, the appropriation, use notwithstanding language, etcetera, etcetera. Why don't we bring the full ask back to the committee or back to the legislature and be transparent about everything? And we said, sounds great if that's your preference. So that's why we're here. So the 150 k is all we need this year to make the first payment to the vendor. We actually structured the contract around that 150 ks where the first set of deliverables is based on that 150 ks. The 500 ks is gonna be spent out over three or four years. And right now, that vendor is making progress, making headway on building out an inventory of all telecommunications property for the state, which we didn't have before, and assigning values and building creating depreciation models, things like that. So this work has been done elsewhere in the country, so not reinventing the wheel. But we don't have that expertise in house at the tax department, so we're working with valuation expert on that. And so the idea was, let's just ask for the money all upfront and make it so that it can be carried forward, and we can just pay this project as we go over the course of the next three to four years. And I know I might be going backwards, but can you just briefly describe to us the types of property? Are we talking about the buildings with the switching systems? Are we talking about the cable that's underground and also overhead? It's it's a good it's a good question. I'm not an expert in the exact type of property. We're talking about pretty much all telecommunications property. Let me see. I thought I had a note somewhere in my list of notes about the type of property.

[Rep. James Masland (Member)]: I

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: can circle back to you on the exact property classifications. I don't think all the classifications have been ironed out, but we're talking about towers and lines, things like that. Yeah,

[Rep. Emilie Kornheiser (Chair)]: no, that's exactly right. So it's any property or facilities that are part of a communications network. And the statute specifies that the term includes wires, cables, conduit, pipes, antennas, tolls, wireless towers. And I'll just mention that it says includes because there was definitely room for the department to maybe include additional property that seemed appropriate.

[Rep. Woodman Page (Member)]: Yeah,

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: so it includes wireless communication sites. I'm not an expert in telecommunications property,

[Rep. Emilie Kornheiser (Chair)]: Either of me. It's what the firm has

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: been hired. Exactly.

[Rep. Woodman Page (Member)]: Yeah. Man. Jeff, so it's my understanding that currently these whether it's Comcast or some other group, sends us into the town their depreciated value for whatever they have in town. So this is going to be a more uniform approach to that across the state? Is that what?

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Yeah. It is gonna be a uniform approach. And it also, a benefit of this approach that was flagged for me by our property valuation team is that the municipalities will be able to assess this property in a uniform way. So the municipal taxes will apply in a uniform way to all of this property.

[Rep. Woodman Page (Member)]: Right. But we won't be assessing it. We'll get this uniform assessment from tax department, from the That's right. Yeah.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: The state of Vermont is handling that. Thanks.

[Rep. Emilie Kornheiser (Chair)]: As part of the complex properties being taken over by state value of the complex properties, like what if you do dams or something. You. President Yeah. Mesland?

[Rep. James Masland (Member)]: Yeah, thank you. The discussion

[Rep. Emilie Kornheiser (Chair)]: last year, the scuttlebutt from the telecommunication districts, the easy fiber and the set, the other kind of things. It's just to assure that everybody was gonna be treated the same. And this is what this does. Yep. It'll stuff. We'll get valued by a competent outside firm, it's probably gonna be valued the same way, so that's good. Thank you.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: It's similar to the utility valuation work that would Very good.

[Rep. Emilie Kornheiser (Chair)]: Any other questions on this one? And then you have a couple other things in budget adjustments?

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Yeah. We have a few other things in the budget adjustments. So while I'm here so that this doesn't come back to you all, figure I can bring those up.

[Rep. Emilie Kornheiser (Chair)]: Did you have something? I'm sorry.

[Maria Royal (Legislative Counsel)]: I'm kind of thinking it's a dumb question.

[Rep. Emilie Kornheiser (Chair)]: I'm sorry. I'm ask it because you're here. I'm trying to

[Maria Royal (Legislative Counsel)]: figure out what happens when you have Comcast and you have, say, EC Fiber and they've both got fiber in

[Rep. Emilie Kornheiser (Chair)]: the same town. How do you handle like, how is that assessed?

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: It's a it's a good question, and that is something that I would defer to our vendor and our property valuation review division on. So if there are specific

[Rep. Emilie Kornheiser (Chair)]: That'd be the third time today someone's been really excited about Jill coming in on that property valuation report. This is exciting to see us last week. It's got this random list of stuff.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: She might not be able to answer that specific question, which is why yeah.

[Rep. Emilie Kornheiser (Chair)]: You. No problem. I can email it. Save all the trouble. I think we've really all exemplified the reason that we need this contractor.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Yes. And really, I'm here to talk about the budget element of it. That's my wheelhouse in terms of, yeah, valuing this property out there others. So also in the Budget Adjustment Act this year, there's two other requests that we have. One is for the renter credit, bumping that up from 9 and a half million to 11,000,000. And the other is for the homeowner rebate, and that's reducing it by 1 and a half million. So those net each other.

[Rep. Emilie Kornheiser (Chair)]: Which is just a coincidence.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: It is a coincidence.

[Rep. Emilie Kornheiser (Chair)]: We've just been talking about correlation and causation a lot today, and so I just want to be clear that that was actually the same number.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: It is a coincidence. Yes, it is generally a coincidence. If you think about lower income people in the state, though, a lot more of them are renting than are homeowners, so that might factor into

[Rep. Emilie Kornheiser (Chair)]: this. But just that the numbers are the same

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: as Yes, a that's right. Total coincidence. Say again, what's the What's going up by one and a half? Going down by 1.1. So the homeowner rebate, and that is why don't I I'll I'll give you an overview of both of these quickly. Does that sound good? So the renter credit is increasing because the program is indexed for inflation, both the credit amounts and income thresholds. And according to the Vermont State Housing Authority, up to 1,000 renting households will be losing their subsidies, Section eight subsidies, between now and the 2025. And I would defer to the housing authorities on that. We've had some questions about what's going on there, and that's more again, that's their wheelhouse. But our analysts, Jake Feldman, is in contact with them about what's going on when we estimate the need for this appropriation. And if you all will remember in the last legislative session, the administration and legislature supported an expansion of the renter credit eligibility. And for a number of years, we were coming in below the 9 and a half million appropriation for the renter credit. And that followed a restructuring from the renter rebate to the renter credit back in fiscal year twenty twenty one. And so when when those eligibility thresholds changed, that also increased the amount. And last year, we found it increased the amount a bit more than was estimated. It came in 750,000 higher, so that's also adding pressure to the renter credit for this year. And that that did create an issue late in the tax season. We were able to work with finance and management to figure it out, but it was we we ran out of money for the renter credit last year. And then we were able to tap into other appropriations that still have funding or we're looking like they ran out of surpluses through administrative mechanisms. So small transfers to be able to continue to issue issue renter credits through the end of the year. So that's that's to make sure we have enough money for that program. And then the homeowner rebate, what that is is that is the general fund appropriation to the municipalities to make them whole for property tax credits. So that's making them whole for the circuit breaker, those with incomes less than 47,000. And that's a big cliff. I think you all are aware of that. There's a proposal to replace the property tax credit in this way. Yeah, so that is not indexed to inflation. Incomes have been rising and people have been, for lack of a better phrase, falling off that cliff financially. So that's what that represents. And then there are three reversions, one for 2,200,000.0 related to our operating costs last year. And our budget and I'm happy to come back. I typically come in every year to give you an overview of our budget, but 90% of our budget is salaries and benefits and IT. And last year, we had unexpected vacancy savings above what we budgeted for vacancy savings, driven primarily from our compliance division, which is a really difficult to recruit for area. And we were excited about the gains that we're making in that space. We have a new audit manager who shifted over from the IRS earlier this year. We're really excited about her.

[Rep. Emilie Kornheiser (Chair)]: The state level hiring being so good lately is an unexpected benefit of a very bad situation.

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Yeah. So that was something. And then our IT costs for a number of reasons, everything from the timing of different IT projects like our scanning project. We had budgeted for one phase finishing in a fiscal year. And although it finished at the end of a fiscal year, the invoice for that didn't come until the following fiscal year. So there's these timing things with regard to some IT expenses last year that were lower than anticipated. And so we were able to alleviate some pressure on the general fund by absorbing some IT expenses that would normally be in the general fund and our IT fund because of those other downs. And frankly, we were trying to be good partners throughout the rest of the state government because general fund money is so tight. So that's why we have a much bigger surplus there. Homeowner rebates, same reason they're coming down. It's the story last year. Came in well below forecast. And use tax reimbursement, that's just the difference between an estimate which the budget is based on and what the actuals are, and that use tax reimbursement reimburses municipalities for the cost of the current use program. So there's the ed fund portion and the general fund portion, and this is the general fund portion, and it was off by about 1%. So that's what that is. So that's what those three reversions are.

[Rep. Emilie Kornheiser (Chair)]: Any questions?

[Andrew Stein (Department of Taxes, Chief Operating Officer)]: Great. Thank you. Appreciate it.

[Rep. Emilie Kornheiser (Chair)]: Five minutes before we're picking up proposed consultation, since I don't think Jason is through yet. So we're going to take a five minute break.