Vermont Legislature SmartTranscripts:

[Emilie Kornheiser (Chair)]: Good afternoon to Still the Ways and Means Committee. It is 01:00 on May 1. We have not yet received H933 from the Senate. However, they have finished voting on it. And so in advance of us receiving it next week, Kirby Keaton and Chris Rutland are going to tell us what has happened. Kirby, the floor is yours. Thank you for all of your work over there and for coming back over here.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Problems. Kermit King, the City Council, yes, coming straight from the Senate floor to report the news almost instantly. Breaking news. First, to give you the large picture, there was a report from the Senate Finance Committee that amended your work. That went to appropriations. Appropriations did not make any changes. And then on the floor, the senators from Senate Finance had an additional change that they would like made. They made that on the floor. And then there was one further amendment on the floor from Senator White that makes a change. So, I'll walk through the Senate Finance stuff first and then I'll pull up the White amendment after that, if that's okay. So I have a chart here. All of this is just freshly posted to the committee page, hopefully. I don't know if Scott's had time yet.

[Scott (Committee staff)]: Yes, sir.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Scott's working on it. So I do have a chart. Again, this doesn't include the White Amendment, but it includes the others. So we'll start with what did Senate Finance do to H nine thirty three. There's a new section 4A that came from a request from the Department of Taxes to change some of the requirements for force management plans that are filed with PVR for current use. Under current law, the statutes interpreted to require every owner of a parcel to sign a forest management plan and to kind of streamline that PBR asks to change it so that either one of the owners or forester on behalf of an owner can sign the forest management plan. So that change was made.

[Emilie Kornheiser (Chair)]: And our house ag committee has actually already looked at that. Tech brought it to me sort of too late. They brought Anyway, I forgot about it. They wanted it here. We lost track of it.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: The next change they made was in what is now section 4B, which is another tax request to change the period for so property valuation when appeal is made from the BCA to PVR, there are certain other parties that could object to the appeal for technical reasons. And under current law, those parties have fourteen days to make the appeal. Of the PBR testified that because of mail being slower these days and some of the process that happens, that there have been times where a third party wanted to object to the appeal but didn't really have a chance because fourteen days wasn't long enough. So they asked to extend that to thirty days in statute. So Senate Finance agreed with that and made that change. In section 4c now, there is a repeal of the Grand List Content section from Act 73. You should be familiar with this. There was the contiguous parcel and mapping change that was made there. As you've worked on it, H95 has a repeal of that because it's being replaced for purposes of tax classifications to say something different and the contiguous parcel piece is kind of separately dealt with. So tax asked to also have that same repeal that exists in H-nine 55 as it exists now to be included in miscellaneous tax bill also. So it's the same repeal included in this bill. Section six has to do with concerns about PVRs taking over valuations for two way communications property. PVRs took over valuation of this in recent legislative sessions when the telephone personal property tax, which was a separate existing tax was repealed and brought into the typical property valuation system. PVR started taking this over. This was the first year in which they started to do work on that. If you recall, one thing that PVR had asked for in miscellaneous tax was to include penalty provisions that existed in current law, which weren't included when this change was made. During this initial process, PBR has sent out inventories. They're working with a contractor and they sent out inventories to many taxpayers to learn about this two way communication property that's out there. Apparently in this process, some radio stations and other one way communications providers received this inventory and we're not happy because they are not telephone companies, they do radio. The resolution that happened in Senate Finance was that a provision was added to those statutes, which basically restates the definitions that are already there, but making very clear that one way broadcast radio or television transmission equipment is not considered to be caught under this valuation process that exists for what's intended to be telephone company. So some clarifying language was added. And the effective date for both this and the new penalty provisions that PVR would ask to be added were extended out to 2027. Section 19 changes the SGO section. Do you remember this committee had a version addressing this federal change for a tax credit for contributions to students for scholarship granting organizations to say that Vermont is not going to participate in this. We are not going to submit a list of these organizations to the US Treasury and that means there won't be SGOs that could receive donations for the tax credit, for the federal tax credit. That was changed on the House floor with language that would have said that Vermont could opt in, but it would be the legislature making the annual determination as to whether to opt in and what and to identify the organizations that Vermont would send to the US Treasury. Senate Finance removed that and replaced it with a version By the way, of course I can pull up the actual statutory text for any of this. The version that they replaced it with was they took S-three 12, which was something that was passed out of Senate Education that would allow Vermont to participate and have the governor choose the organizations that qualified and to send that list to the US Treasury, but it added some further requirements for those organizations to meet, which were mostly around providing scholarships to language users to underprivileged students. And it also limited it to scholarships to students that were attending public schools or independent schools that were functioning as public schools. So that was what they started with. And then within the Senate Finance Committee, they took that base language and added more requirements for SGOs to follow, including reporting requirements, provision stating that the scholarships can't be offered in a discriminatory manner. And also adding a provision that the attorney general will be responsible for determining if any federal regulation, any federal law change or any court decision would make it so that any of the provisions relating to Vermont's further putting requirements on this, if any of those were invalidated at the federal level, Vermont would not participate in the program until the legislature has amended the law to address it.

[Representative Rebecca Holcombe (Member)]: Why are they restricted to women non profit organizations? The

[Kirby Keaton (Senate Finance staff/legislative counsel)]: federal law requires it to be a 501c3. So the the Senate language about non profits is pretty much redundant.

[Representative Rebecca Holcombe (Member)]: But a district could, So a district could set up an associated 501c3

[Kirby Keaton (Senate Finance staff/legislative counsel)]: to

[Representative Rebecca Holcombe (Member)]: see a scholarship grant

[Kirby Keaton (Senate Finance staff/legislative counsel)]: justification. Yes. And this might be one that's helpful for me to pull the language.

[Emilie Kornheiser (Chair)]: That would be great.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Do you want me just do it now?

[Emilie Kornheiser (Chair)]: How many more sections are there? How many more sections have changed?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: We're about halfway through.

[Emilie Kornheiser (Chair)]: Okay. Yes. And I'd like to see the language from the there was one more up there. Want see the language on here.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Do you switch the language now?

[Representative Rebecca Holcombe (Member)]: Yeah, sure.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: So I'll just walk through, make sure we're on the same page. I pulled up the Senate Finance Amendment, which is the committee's report that was passed on the Senate floor. And we're looking at page 17 of that. Section 19. So this says annually on December 1, you remember the federal deadline was January 1 to receive the list. Annually on December 1, the governor of Disney may elect to provide a list of organizations to satisfy federal law for purpose of making tax credit available. And then there's a provision stating it will be presumed that an organization listed in the previous year will be listed in subsequent years. This is to give some assurances to these organizations that they can collect donors and know that I've been recognized in the past. So if you donate to us, your donation will be available for the credit in the future. And then subsection B puts further requirements on it. The first requirement is simply that it has to follow the federal law, it's not additional. The second is that it's a nonprofit organization, which as we just said, is redundant with federal law. With the core mission of providing educational opportunities to economically underprivileged students through after school programs, summer programs, tutoring, and similar programs. Number three, all grants and scholarships provided by the organization are to students attending public schools or independent schools capable of receiving public tuition. And four, all grants and scholarships provided by the organization are for students to attend a program that is partnered with or approved by a public school or an independent school capable of receiving public tuition. This was an addition that Senate Finance made. So part of their concern was not only having the state be able to monitor and partially regulate the SGOs and their behavior, but there was concern over the programs themselves. So there's some things in here to try to get at making sure that the programs are legit. So one of those things that was added is that the program that's receiving the scholarship student has to be partnered with or approved by a public school. It does not define what that really means. So that's something that will be up to the schools to determine whether they'll grant approval. And then the next requirement that was added by Senate Finance was when determining whether to award a scholarship, the organization does not discriminate. And all of that is based off of employment law and what employers can't discriminate based on.

[Emilie Kornheiser (Chair)]: The first one, underprivileged, was that phrase? Economically underprivileged? Is that defined curvy?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: The way that this functionally works under SubQ is it's really about whether the organization has a core mission that says this. It's not any more than just looking at the documents creating the organization and seeing whether there's a statement that it has a core mission. If it does have a statement in there, it meets that requirement. Would say this is not very strict.

[Emilie Kornheiser (Chair)]: So if its core mission was economically disadvantaged students or poor students or students Do you see what I'm saying?

[Representative Rebecca Holcombe (Member)]: Like, can synonyms be acceptable?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: This is the kind of thing where under this structure, the governor or designee would interpret and decide whether the organization meets these things.

[Representative Rebecca Holcombe (Member)]: So there's so many questions about this. The first one is, when it says that the governor can elect to provide a list, does that mean the governor can also elect to exclude organizations from the list?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Well, that specific language goes to the governor may decide not to send a list. So for that year, would be no SGOs in which a taxpayer could donate to, for Vermont anyway, they could donate to another state's SGO. So the governor could choose to not provide a list is what that language goes to. To go to your second question, the governor's compiling the list and so it's implied that yes, the governor could leave any organization at all.

[Representative Rebecca Holcombe (Member)]: And then a follow-up question. Something that's pretty common in our neck of the woods is there are lot of homeschool parents who don't show up on the ADM, but they often elect to take courses and they participate in sports programs, things like that. This would exclude that unless you start counting all your varsity teams as after school programs. I'm looking at two, I haven't gotten to three yet.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: So number two again, it's really about the mission statement. It's not about anything more specific beyond that. But three goes to an actual requirement and then it's the students attending. So that would be up to interpretation in your example. Whether those homeschool students would be considered attending or not and that would be something I would consult with Beth about, about what constitutes attending a school.

[Representative Rebecca Holcombe (Member)]: Okay, and then if you approve this as a school district, one of the reasons that districts don't do this is because you assume liability when you start approving. So let's say you approve something, soccer club, and one of the coaches sexually assaults a minor. Does the fact that the school district just approved that program can induce liability for that independent school of counsel?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: That would be a legal question depending on the facts. But there would be a lot of factors that go into whether this school should be liable. I don't think that this alone would make them liable. That there could be other circumstances around it.

[Representative Rebecca Holcombe (Member)]: And five has not held in the state already.

[Emilie Kornheiser (Chair)]: What do you mean by held in the state? We haven't had this before. Tell them how operate.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: This case, you're not telling them how to operate. You're telling them that if you want to be listed as an SGO, you need to do this. It's The

[Representative Rebecca Holcombe (Member)]: SGO can't discriminate, but the receiving entity might discriminate.

[Emilie Kornheiser (Chair)]: Not if they're going to get the scholarship from SGO.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: In this case, is the SGO with the requirement that it does not discriminate when deciding to award. Now, I thought about maybe there's a program that's just for one gender. It's possible this could be read to say that you cannot give out scholarships for that.

[Representative Rebecca Holcombe (Member)]: Because

[Kirby Keaton (Senate Finance staff/legislative counsel)]: would be discriminatory if you don't accept applications from all genders.

[Emilie Kornheiser (Chair)]: Is there a six? Is there a six?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: It's not a six, but there's more. This is an additional reporting requirement that Senate Finance added. It says annually on or before January 15, each scholarship granting organization listed percentage of Section A to Section in the previous calendar year shall provide a report to the education committees relating to activity in the previous year. And so that report would include total amount provided in scholarships, total number of scholarships provided, the total number of scholarship recipients, a complete list of all after school, all the programs that scholarship recipients attended using scholarship funds. And the amount of scholarship funds received by each program. This is one of the parts that tries to get at learning about the actual programs themselves. Total number of individuals who made donations to the organization, including the zip code of each individual donor, the total amount of money received as donations, the total amount spent on administrative costs with a description of those administrative costs and accounting if any unspent funds currently held. And a list identifying all employees, officers, and board members of the organization that includes for every individual the name of the position held and compensation received.

[Emilie Kornheiser (Chair)]: Representative Ode.

[Representative Carol Ode (Member)]: No. I was going to add to what representative Holcombe said about liability. It if someone is harmed, they're not going to worry about whether someone can be held liable. They're gonna include everybody in a lawsuit. So I think it's a really I think it's a really good question. That's what I wanna say.

[Emilie Kornheiser (Chair)]: Students, I read right that senate finance and weighted weighted means are not receiving this report. Are we left out of the report? Is that going to go?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: I remember the specifics, but I think I was told education committees. I don't think that was a curvy decision. Sometimes if I'm not told, I have to guess, then ask if this is what they wanted. But think of that case, I was told education committees. I'll

[Emilie Kornheiser (Chair)]: try not to have my feelings be too hard. Can you be

[Representative Rebecca Holcombe (Member)]: a national singer or next week?

[Emilie Kornheiser (Chair)]: I think next week we're going to decide if we're going to go to a committee or if we're going to send it back a memo. Okay. Yes. I feel like that's something that could happen either case, probably.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: So we have a subsection D here that was in the Senate Education version of this. In the governor's discretion, the governor may audit an organization, so this is just producing some state law saying that the governor can do these audits. And there's also to have some state law saying that if the governor does not listen an organization, that the governor says it's not in compliance. The main purpose of this is to have some state law on the books so that if the governor's not following the federal law, well, the state doesn't really have, like can't force the governor to follow federal law. It's not a position to, but now you have a provisional state law that you can use to say, hey, you to make sure these are actually qualifying under federal

[Emilie Kornheiser (Chair)]: law. I'm trying

[Representative Rebecca Holcombe (Member)]: to understand how this would work because the governor's office is quite small and doesn't usually do audit functions, so is this coming out of the agency administration? Who did they imagine would be doing this work? And also who's collecting the information? These are programs that are approved by school districts, but funded independently of school districts, how do you audit it if you don't have any public records?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: I mean, the Department of Taxes audits entities and asks for information. We have the auditor's office here. This is something that could possibly be delegated, and I imagine would be. I don't think the governor themselves is going to be. So to answer your question, it would have to be determined. AOE, I don't

[Emilie Kornheiser (Chair)]: But when it says in statute, the governor, that could be absolutely any department.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: And when it comes to the listing at the beginning, it does say governor or designee. So it could be that this entire statute ends up being effectively implemented by AOE because the secretary of AOE becomes the designee. Or it could be agency administration. Be

[Representative Carol Ode (Member)]: I was Oh, sorry.

[Representative Rebecca Holcombe (Member)]: Can

[Emilie Kornheiser (Chair)]: you wait one moment, Representative Ode? Yes.

[Representative Rebecca Holcombe (Member)]: I guess I have a concern that Pat, I would have, and this is actually a similar concern I had to the decision to lower the reporting requirements and standards for grantees out of the after school line, is we often find ourselves in a position where we're not actually to, we're spending significant amounts of money, but we actually don't have the data to audit or evaluate. And this feels like the same thing. And other states have gone this way already, have incurred significant costs trying to audit this kind of program. But my concern about just saying the governor is we have no idea how much it would cost to actually do this work and it just sort of avoids looking at the mechanics of how to actually make sure this works.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: I don't know if this helps, but it is optional. They don't have to do audits.

[Representative Rebecca Holcombe (Member)]: If you have it in front of it, then the assumption is we're assuming that there is no audit, it can pass this massive transfer only.

[Emilie Kornheiser (Chair)]: I'm just seeking to understand what's in here first, but I totally understand where you're going from. There are lots of details unanswered here.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Subsection E here is new from Senate Finance, And this is what I described before. It's a system where if the Attorney General finds that any provision of this act is rendered invalid due to a federal act, federal agency rule or court of competent jurisdiction, Attorney General shall submit a written notice of the Invalidation the to Governor, the Speaker of the House, and the President pro tem of the Senate that the provision is invalid. Upon receipt of the notice provided, neither the Governor nor the Governor's designee shall provide a list of organizations to the US Treasury until the General Assembly is enacted legislation addressing via the validated provision. So this was the Senate's way of dealing with the fact that under the federal law, the IRS is required to issue regulations on this tax credit. That hasn't happened yet. So to address the unknown, for example, the IRS regulations have provisions that prevent states from placing further requirements on SGOs, that part of this would be invalidated. Vermont could still participate, just wouldn't have those extra requirements. But with this language, it means that Vermont would not participate until that's stressed.

[Scott (Committee staff)]: So Kirby on line 10 there, I think because we just had this in the S327, the economic development bill, where it might need to be provision of section 19 of this act so it doesn't apply to the entire it was just a drafted convention that we just did in a different one. But that only is applying to this section of

[Kirby Keaton (Senate Finance staff/legislative counsel)]: That's a good point. No. It should say this section. Good point.

[Emilie Kornheiser (Chair)]: Representative Ode, I'm so sorry I didn't go back to you before.

[Representative Carol Ode (Member)]: Hey. It's okay. I I wondered if there was I'm curious about whether this is something that the state auditor would have could have in their list of assignments rather than the governor's office. That's the first thing I'm curious about. The second thing is a little while ago, Kirby, you said that they could always a Vermonter could always make a donation to a an out of state entity. And then that out of state entity would simply then, I think, were you thinking, could then make the grant to anyone they want to in any way they want? I'm wondering about that.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Yeah. Vermont would have no control over out of state SGOs. It would be up to that state's designating entity to decide whether they're listed for purposes of the federal tax credit.

[Representative Carol Ode (Member)]: Okay. So all of this sorry for interrupting. But all of this, anyone who who decides they want to do what they want to do will just forum shop. They'll find a an SGO in a state that has rules they like. Donate to that SGO, and that SGO will make the make the donation in the way that person wants. So I don't that's what I want to say.

[Emilie Kornheiser (Chair)]: You're responding to representative Ode, or is it the question okay. Go ahead.

[Representative Carol Ode (Member)]: Not a question. It's just I I all of this is just in a way beside the point, if you can do what you want by going to another state with your donation.

[Representative Rebecca Holcombe (Member)]: Just to try to figure out how this aligns with the federal language. And the federal language contemplates that these scholarships could be used to support special education at an independent school, to be able to support extracurricular activities at the independent school. And in theory, that could also apply to public schools. So does this put us in a situation where any school, public or private, that receives a tuition student could then charge up to that voucher for extracurricular activities, additional in school tutoring, special education, because that's the intent. Is there any reason that wouldn't be possible here? Well,

[Kirby Keaton (Senate Finance staff/legislative counsel)]: limits the scholarships to, so a pretty significant part of it is in the sub three.

[Representative Rebecca Holcombe (Member)]: So you're attending a public school, you could just charge if tuition student wants to participate in the sports program after school. And relatedly, it's Wait, wait. Let's wait for Kirby to answer.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Well, you're starting to make me think about ways to abuse what we have here. So let's walk through that. Organization has to have this core mission as we said that they could just say that, so that's not that helpful. That's the part that relates to the after school programs. The harder requirement, all grant scholarships provided have to be to students attending those types of schools. So that limits the student group, but it doesn't limit the programs or the type of tuition. All grant scholarships are for students to attend a program that is partnered. So this is the one that ends up being more limiting in an enforceable way. So it's for students to attend a program that is partnered with or approved by. So it's to attend a program. So anything falling outside of what could be interpreted as to attend a program would not be expenses that you could receive a scholarship for. I would say before Senate Finance added that provision, this was a lot squishier than how all the scholarships could be used.

[Representative Rebecca Holcombe (Member)]: And with respect to economic disparities, federal law says it's 300% of the average income in your area. So for example, if a town has a median income of $365,000 for a household, Would 300% be 300% of that in that town? But if the median income in another town is $60,000 it would be 300%.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: My understanding is those numbers are county based, but they do differ slightly based on counties within Vermont.

[Representative Rebecca Holcombe (Member)]: So Essex County would get smaller vouchers than Chittenden County?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: No, it's just the students receiving the scholarship would have to have a household income under that number. So a slightly wealthier student in Chittenden might receive one where if they lived in having the same income level, Rutland County And would that's part of the federal rules.

[Emilie Kornheiser (Chair)]: Super great. I think

[Chris Rutland (Joint Fiscal Office)]: I have my questions. And

[Emilie Kornheiser (Chair)]: does this once this is released, if this became law, other than this report that comes back to the legislature, we have then totally given sort of power over these tax decisions to the administration. Am I reading that right?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: The administration would be implementing this. And unless the legislature made further changes to the law, that would be your mechanism for adjusting it.

[Emilie Kornheiser (Chair)]: Have you taken us through the sections? Have you taken us through the section?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: I think so. Yep.

[Emilie Kornheiser (Chair)]: Will you show us the telephone thing? Radio tower.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Yeah.

[Emilie Kornheiser (Chair)]: He knew what I meant.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: This goes It was from

[Emilie Kornheiser (Chair)]: the telephone.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Yeah, you're right, you're right.

[Emilie Kornheiser (Chair)]: It was a bill about telephones.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Anyway. Sorry. This statute uses communications property and the definition for that to determine the type of property that's subject to this kind of valuation. And so there is the definition that exists, which is tangible personal property used to enable real time two way electromagnetic transmission of information such as audio, video and data that is so fitted and attached to be part of a local, state, national or international communications network, as well as facilities that are part of a cable television system. And then the term includes wires. It includes of course is open ended, so it includes wires, cables, conduit, pipes, antennas, poles and wireless towers. And then there's this clarifying language. The term does not include property used solely for a one way broadcast radio or television transmission serving the general public and owned and operated by a licensed broadcaster. I would say my own legal interpretation is that, of course, this is not included in this definition. The plain language of this definition would exclude this type of stuff. This is to set people at ease and the anxiety was really around PVRs sending out inventories. It wasn't about legal definitions. But there you go.

[Emilie Kornheiser (Chair)]: Thank you. Let's go back to the section by section. Thank you.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Section 20 was the tax department request to push back the effective date for that Configurous parcels language with dealing with the mapping. We won't be ready yet.

[Emilie Kornheiser (Chair)]: What does the GIS office think?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: They did not testify. Maybe on their behalf. Don't know.

[Emilie Kornheiser (Chair)]: Then

[Kirby Keaton (Senate Finance staff/legislative counsel)]: we get to Section 55. Section 55 is the decoupling stuff, right? The coupling and decoupling. Nothing was really changed except that the floor amendment was pretty enormous in order to push back the effective date for just that change relating to qualified small business stock. We now have a section 55 as you have it except the change for qualified small business stock is removed the additional language we've added to make sure that it's very clear that the from us partial exemption for capital gains can be used for gains from qualified small business stock. That's all there. Then the finance have made that clarifying change that we intend to make on the House floor around that. But everything relating to qualified small business stock is now in section 55A by itself because its effective date is a year later. So you would have 55 take effect for Tax Year '25.

[Emilie Kornheiser (Chair)]: Oh, I get it.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: And Section 55A will take effect for Tax Year 2026. 55A is the Qualified Small Business Stock. The new section 55 does not include qualified small business stock anymore because when it becomes effective in tax year 2025, the other stuff left out. The reason for the change, as I understand it, was perceived unfairness around Oh, let me take a step back. Let's proceed with unfairness. And now let me give you the background to better explain that. The effective dates are the way they are for section 55 in these changes. Because HR1 made changes to the federal tax code, some of which became effective immediately for 2025, so tax year 2025. So in order for Vermont to couple and decouple the tax year to do that was 2025. This April, many Vermonters filed their 2025 taxes. That's been done. So, it was retroactive to how a lot of people have already paid. Came less of a it was less of a policy decision here, although I mean, is an applied policy decision, but it was also a practical decision of coupling and decoupling to the federal law. But that 2025 was the decision point in which you were making to couple or decouple from. But it meant retroactive and that has to do with the fact that federal changes happen and then there's the legislative session happens January. So that's kind of how that led to be. But it did mean that Vermont's response was going to have to be retroactive for some of these. So when it came to qualified small business stock, the argument was there were people who sold qualified small business stock in 2025 before you looked at this, before you considered coupling or decoupling and that was excluded from their taxes for 2025 already. So at this point, if you want to make Vermont tax apply retroactively, it would mean having those people amend their returns.

[Emilie Kornheiser (Chair)]: I think that's good manners, what they did. What the Senate did is good manners, yes. If tax policy can have matters. You have Emilie Post's granddaughter here.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: I want to speak with JFO, but their estimate on this was lower partially because of recognizing I feel like I can speak on this because I was part of those conversations recognizing that it was not going to be easy to go back and get the money anyway even if you made a retrospective. So, there was an assumption that even like on paper, you said that the tax is due, but whether the department would actually succeed in going back and getting all of that was a totally different unknown question. So, probably wise not to rely on that. So, when it came to the estimates, that factored in. So that was the change. Are there any questions about the 55A?

[Chris Rutland (Joint Fiscal Office)]: That's fun.

[Representative Rebecca Holcombe (Member)]: It's a good thing I had put

[Emilie Kornheiser (Chair)]: it back in where I love the effect of G. There you go.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Section 59, you had increased the amount of Downtown And Village Center tax credits by 1,000,000 annually and they wanted 500,000.

[Emilie Kornheiser (Chair)]: Did they spend that somewhere else?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: No. I don't think so anyway. When Senate Finance reduced the Downtown Phillips Center tax credit by $500,000 I don't think they spent it anywhere

[Chris Rutland (Joint Fiscal Office)]: else. Certain drug facilities. Some of their appropriations spent that in their above strokes.

[Emilie Kornheiser (Chair)]: Someone spent the money.

[Chris Rutland (Joint Fiscal Office)]: Oh, yeah.

[Emilie Kornheiser (Chair)]: Yes. I representative. Object, but I can look

[Scott (Committee staff)]: at it. That's the committee consensus.

[Emilie Kornheiser (Chair)]: Okay. Thanks. We'll figure that all out next week. Okay. Good. Yes. If that's the only change that they made, I could live with it. There are lots

[Representative Rebecca Holcombe (Member)]: of other changes, so we'll see.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: There's new section 63A and B here, which has to do with I think as you see, some of these are

[Emilie Kornheiser (Chair)]: John took us through the TIFF stuff.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: John took you

[Emilie Kornheiser (Chair)]: to Okay. Yesterday. So you don't even have to. Great.

[Representative Rebecca Holcombe (Member)]: I just found the two places.

[Emilie Kornheiser (Chair)]: No, he was actually just getting in front of this. Okay. So

[Kirby Keaton (Senate Finance staff/legislative counsel)]: this is the thing John talked about.

[Emilie Kornheiser (Chair)]: We had some clarifying emails back and forth with other news office and John, And I'll share those with people when I catch up with my email. There might be more clarification needed there. So

[Kirby Keaton (Senate Finance staff/legislative counsel)]: that brings us through what Senate Finance did. There was another four amendment that

[Chris Rutland (Joint Fiscal Office)]: passed. What?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: It's like, man, the ones I wrote.

[Representative Rebecca Holcombe (Member)]: Yeah. So they have too many

[Kirby Keaton (Senate Finance staff/legislative counsel)]: more that didn't make it.

[Emilie Kornheiser (Chair)]: Were there more amendments in the senate on this bill or more amendments in the house

[Chris Rutland (Joint Fiscal Office)]: on this bill?

[Emilie Kornheiser (Chair)]: Because we had a lot of amendments in the house that maybe you've forgotten.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: As far as amendment requests go, many of which are not public,

[Emilie Kornheiser (Chair)]: by the way.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Total requests, more insane. But the house had a fair amount. So you win. That's how I would judge. So here's one that did pass today. If you remember, there were some deleted sections. We took one of the deleted sections, 50, and made a change to the local option tags. There was a request, so I'll back and give you the background. So under current law, 75% of local option tax revenue that's collected is returned back to the municipality that it came from on the Local Option Tax. And the other 25% is used by the Pilot Special Fund things the pilot special fund pays for for. The biggest things being the state, the pilot building payments and the pilot A and R land stuff. Last year, there was a change that came into effect to increase this ratio from 70 to 75. Also, I think it was two sessions ago that it was passed, there was that change to make it quite a bit easier for a municipality to adopt a new Local Option Tax because the charter change requirement was removed from the law. There's your background. There was a request that came on the Senate floor to change this allotment to 80%. 80%.

[Emilie Kornheiser (Chair)]: I think the lock has changed.

[Scott (Committee staff)]: So that

[Kirby Keaton (Senate Finance staff/legislative counsel)]: was the request. And then I don't know if you want the full story, we'll just jump to the conclusion. This is what they ended up as. Instead of just changing that ratio that this number to 80, there's language that says provided that an additional 5% of the taxes collected shall be paid on a quarterly basis to the municipality, which they reflected in the fiscal years that at the close of the immediately fiscal year, the commissioner of taxes determined that the balance of the pilot special fund was in excess of 18,000,000 at that time. So at the end of the fiscal year, all of the allotment for the municipalities would have been paid. The expenses on the pilot special fund would have been paid. One thing to note is that in a different Senate bill, there is currently a construct and Chris, stop me if I get anything wrong. There's a construct that the way I think of it is that it scoops out of the pilot special fund 75% of the funds were Town Highway Aid.

[Chris Rutland (Joint Fiscal Office)]: 75% of the operating surplus every year.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Of the operating surplus at the end the

[Emilie Kornheiser (Chair)]: It's different than the balance.

[Chris Rutland (Joint Fiscal Office)]: Yes. Great. And

[Emilie Kornheiser (Chair)]: that's the transportation bill?

[Scott (Committee staff)]: Big problem.

[Emilie Kornheiser (Chair)]: Oh, it's in the budget. I lost that.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: That's a thing to keep in mind with this 18,000,000 language because that would be another thing that would happen before you look at whether there's 18,000,000 surplus. This would

[Representative Rebecca Holcombe (Member)]: be That's a popular fund this year.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: So to help you wrap your heads around it, all of those things will be taken out of the final special fund each year again. And then if after taking that last 75% out, if there's still nonetheless 18,000,000, then the commissioner of taxes would say, okay, you did it. It happens for the next fiscal year.

[Emilie Kornheiser (Chair)]: Outside the building. So maybe for some folks.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: For the next fiscal year, if that event happens, which being on a practical level not very likely, really. Want to make sure that the committee understands that context, right? If it does happen, that for the next fiscal year, the allotment given to municipalities would be 80% instead of 75% for that year. And then the whole thing would happen again next year to determine if there's still an 18,000,000 surplus. None of this prevents the appropriations committees from taking money out of that fund, which would in essence make it even less likely that it would ever hit 18,000,000.

[Emilie Kornheiser (Chair)]: Anyone have any questions about this other than from Chris? Okay. Super fun. Thank you. Is there more?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Was there more, Chris? I don't think so. Those are the amendments that were passed, right?

[Representative Rebecca Holcombe (Member)]: It was never offered.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: That was their problem.

[Scott (Committee staff)]: Maybe he wants to talk about this as well.

[Emilie Kornheiser (Chair)]: Indeed, we do. We'd love that.

[Scott (Committee staff)]: Yeah, where's the Cummings memo and stuff, though?

[Kirby Keaton (Senate Finance staff/legislative counsel)]: The Cummings amendment was the 55A, the back to date for qualified policies.

[Scott (Committee staff)]: Be right back.

[Representative Rebecca Holcombe (Member)]: I'll be here.

[Emilie Kornheiser (Chair)]: Do you want to give your chair to Chris? I have a traffic jam around these parts. Wild Friday.

[Scott (Committee staff)]: Hello, everyone.

[Chris Rutland (Joint Fiscal Office)]: Chris Rutland, Joint Fiscal. The good news is Kirby did such a great job with it side by side that I have very little to add to the discussion. Seeing as how the bill passed the floor an hour ago, we'll update the fiscal note over the weekend to show an as passed by the Senate, but there was really no none of the changes that happened through floor amendments were very fiscally material to what came out of senate finance. So you can still go off of the senate finance fiscal note, which I'll walk through real quick. I'm only gonna talk about the things that really changed, and the most significant thing that changed from a fiscal perspective was section 59 with that downtown and village center tax credit. You all passed this bill out, expanding that credit by $1,000,000 from 3,000,000 to 4,000,000. The senate expanded it by only half $1,000,000. So that essentially lowered the cost, for lack of a better word, lowered the cost of the bill by half $1,000,000 to the general fund. And my understanding is they had pre the Senate Finance had previously passed out a $500,000 expansion of the credit in a different bill, and I think they did this to be consistent with prior actions that they took. And just to reiterate what I said from the cheap seats, the senate appropriations budget construct does stem that half million dollars. That is really the only substantive change this week was a result of that. The change from the Cummings amendment related to the qualified small business stock and the delay, we weren't booking revenue for that in FY twenty six anyway for all the reasons Kirby mentioned. So we don't expect that is gonna have any sort of change. See, I did just wanna mention on the topic of the pilot fund. I will bring up one other document that I'll send to Scott to share to to post later. But I shared this with Senate Finance, and I figured I should share it with you too.

[Scott (Committee staff)]: Everybody The say that okay?

[Chris Rutland (Joint Fiscal Office)]: Alright. So the Senate Transportation Committee voted out a T bill that had two things related to the pilot fund. One was a $3,000,000 one time appropriation out of the pilot fund to AOT to be routed through the Town Highway Aid Program, which exists in current law and sends money out to every town in Vermont based on road mileage. So you see that, that $3,000,000. There is another thing that the Senate Transportation Committee put that has to do with the annual surplus in the fund by taking 75% of what is left over every year after the pilot payments are made and after the reappraisal payments in B-one hundred thirty nine are made, should the legislature continue that practice in the future. Whatever's left over in the year from what came in, 75% of that balance would go to a new special fund that would fund transportation aid to towns. 25% of the annual surplus would remain in the pilot's fund. So, that gray bar that goes across highlights that. And that construct here that we have for FY '27, this reflects everything that the Senate had done up to that point. And if our projections shake out, we expect that there'd be a little less than $150,000 available in FY '27 for this. And that could grow over time as more towns have local option taxes. And it could also change based on future expenditure decisions of the legislature, as you all know. But 25% of the annual surplus would remain in the fund and drop down to the fund balance. 75% would still go would actually go out to towns every year, but it would be appropriated through there's a whole bunch of language

[Kirby Keaton (Senate Finance staff/legislative counsel)]: How do think

[Emilie Kornheiser (Chair)]: it go to the Municipal Transportation Special Fund instead of just to the Great Highway Aid

[Chris Rutland (Joint Fiscal Office)]: question. So, this special fund would essentially be an intermediary that would hold this money, and then funds would be appropriated out of it in the annual budget every year as supplemental to what the formulas and statutes say towns should get through town highway aid. Was designed doesn't supplant. Thank you. Exactly. Was designed so those of you who have been around for a little while know that the town highway aid formula has an inflator built into statute, and it's funded out of the T Fund. Whenever the legislature has decided to provide extra funding, there's typically verbiage that goes along with it that says that the extra funding won't be factored it won't elevate the base for the future inflator. So, this would be sort of an extra level of funding on top of that. And the legislature could decide out of the money that goes into that special fund, how much of it does it make sense to route through the formula town highway aid? How much of it might make sense to go to structures or class two grants? If you don't have a lot of money coming through here, it doesn't make sense to put money into structures and class two because it doesn't have much You need a lot of money to pay for one grant to a town. But if you have money that comes in that gets routed through Town Highway 8, it goes everywhere. It goes to every town based on their share of the state's mileage.

[Emilie Kornheiser (Chair)]: So out of the $143,250 for FY '27, how much of that would say Battle Broken?

[Chris Rutland (Joint Fiscal Office)]: I could give you

[Emilie Kornheiser (Chair)]: That's very ballpark.

[Chris Rutland (Joint Fiscal Office)]: It'd be very little, small thousands.

[Kirby Keaton (Senate Finance staff/legislative counsel)]: Okay.

[Chris Rutland (Joint Fiscal Office)]: Very small thousands. Why I wanted to mention this to you guys is both the $3,000,000 one time appropriation and the stuff in the gray bar about scooping that 75% of the surplus every year came out of Senate Transportation and their version of the T bill. Senate appropriations then took that out of the T bill and put it in the big bill. So because it is really an appropriations matter to be decided between the two appropriations committees. So, this language that you have not seen yet, you are not going to see in the miscellaneous tax bill. You're gonna see it show up in the big bill that's coming over from the Senate. So, I wanted to mention that to give you all a little bit of context about this amendment. That, you know, there is a construct in place on the senate side. You all obviously have not decided what you wanna do about it. That would give more money to towns through the pilot fund on an ongoing basis, and it would benefit all the towns and not just the towns that have local option tax. What the senator White's amendment does is it speaks to the fund balance. Not the annual cash flow. It speaks to what is in the fund at the end of

[Kirby Keaton (Senate Finance staff/legislative counsel)]: the year.

[Chris Rutland (Joint Fiscal Office)]: And what it is.

[Emilie Kornheiser (Chair)]: What you have on your bottom row.

[Chris Rutland (Joint Fiscal Office)]: Exactly. And these are the projections based on sort of what we know right now of what we think the fund balance will look like for the next two upcoming years.

[Emilie Kornheiser (Chair)]: And senator Waszazak on the Transportation Committee?

[Chris Rutland (Joint Fiscal Office)]: He is, vice chair.

[Emilie Kornheiser (Chair)]: And the language in the white amendment was 18,000,000?

[Chris Rutland (Joint Fiscal Office)]: 18,000,000. Okay. Thanks. So, I don't know when the fund will hit 18,000,000. I often get that question a lot. And my not sarcastic, but totally serious answer is, I don't know. It depends on future legislatures, because it really depends on how many additional towns adopt local option taxes in the future.

[Emilie Kornheiser (Chair)]: And Which towns? So, the charter change passes, that's very different.

[Chris Rutland (Joint Fiscal Office)]: A 100%. If Marlborough's got one on short term rentals, that's a very different picture or on rooms rather. So, it's very, very specific. It's hard for us to make any kind of projection till after town meeting, and the legislature ultimately decides how the pilot fund is used. So, it's up to you all when that would hit. And I just want to reiterate that there was some concern raised. There was a lot of concern raised among your counterparts in the other body about if you went immediately to eightytwenty, that would really start to spend down the fund balance of the pilot special fund, and that could create some issues moving forward.

[Emilie Kornheiser (Chair)]: In paying the pilot payments.

[Chris Rutland (Joint Fiscal Office)]: Yes. Yes. And where folks landed was I sort of think of this as almost like a dividend payment, where it's like you stay at 75.25, but if the fund hits a certain surplus, a portion of that surplus is then returned to the towns sort of at a one time extra payment for the upcoming year, then it gets reevaluated every year, but that way the surplus doesn't get to a certain point one way or the other.

[Emilie Kornheiser (Chair)]: Very elegant.

[Scott (Committee staff)]: Chris, the top line, the $16,650,000 is that including the pilots that we just voted on?

[Chris Rutland (Joint Fiscal Office)]: It does. Main difference is between the '27 number and the '28 is that there's obviously some organic growth in the revenue base in the forecast, which we all know has lots of caveats around with the broader economy. But FY '27 is the first full fiscal year of the new towns going live, and you get eleven months of revenue in the first full fiscal year due to the timing delays of so FY '28 shows a full year.

[Scott (Committee staff)]: Second question is the transportation infrastructure bond. There's going to be 2,200,000 taken out of that for local transportation or local highway aid. Yeah, that

[Chris Rutland (Joint Fiscal Office)]: was removed on the Senate side. Okay. Alright.

[Scott (Committee staff)]: So that's where the 3,000,000 is taking the place of that, But not in the years two or three, but

[Chris Rutland (Joint Fiscal Office)]: just in year one. There is a there is a different construct on the senate side where they were still moving money from the TIM fund over to the T fund, but rather than putting it all into 1,700,000 of it or whatever that the house had constructed, there's this different construct on the senate side where $3,000,000 would be coming in from the pilot fund. Since the pilot fund ended FY '25 with a $15,000,000 surplus, it's come down a little bit with some one time drawdowns, but it's not yet clear whether this $30,000,000 would be a continuing thing moving forward, but it's a one half appropriation in the budget

[Scott (Committee staff)]: right now. Just for one last question on this, this does not anticipate the municipal grandma stabilization fund having any additional withdrawals from the pilot fund.

[Chris Rutland (Joint Fiscal Office)]: It doesn't anticipate any additional appropriations, but the 12,592 line includes the expected spend down of the initial $1,000,000 appropriation. So that is another thing that And that municipal brand list stabilization program, I don't have all the words memorized, but I'm pretty sure the last time I looked at it, that comes ahead of the year end construct that is on the credit bar.

[Scott (Committee staff)]: With this construct, you'll never hit 18 men. Ever.

[Chris Rutland (Joint Fiscal Office)]: It is up to future decisions of the legislature. I know.

[Emilie Kornheiser (Chair)]: Yeah. Any other questions for Chris? Have very good weekends. Thank you everyone for the week. I think we're gonna have a fairly busy week next week.

[Representative Rebecca Holcombe (Member)]: Madam chair, yes, it would seem that way. I'm wondering if there's any way we can come back on Monday, get started on this thing. It's quite complicated and I I know I'm not the only one around the table. I need to, this was just the first run through for these changes. I'm gonna study them over the weekend. By Monday, I'll be ready to ask questions and make changes. So I just I don't think we

[Emilie Kornheiser (Chair)]: can meet this Monday, but you could talk to staff this Monday and make appointments to talk to staff this Monday to get clarity for yourself, and then we can all run through it again as a group on Tuesday.

[Representative Rebecca Holcombe (Member)]: Oh, good idea. K. Alright. Great. Do I need to be here and do that?

[Emilie Kornheiser (Chair)]: No. We could

[Scott (Committee staff)]: use it

[Emilie Kornheiser (Chair)]: on the telephone, the Zoom, Teams even if you're really feeling it.