Vermont Legislature SmartTranscripts:

[Sen. Ruth Hardy (Member)]: We are live. We are live. We have

[Sen. Ann Cummings (Chair)]: nine forty nine yield bill on for a possible vote. I'm gonna give us a chance to look at it. We just got it. Yeah.

[Sen. Scott Beck (Member)]: Yeah, we can pick up one for

[Sen. Ann Cummings (Chair)]: you. That's Julia and John. And if possible, think about it, could we move out seven ten? That's that utility road bill, road and transmission wire that we took testimony on on Friday. No one has come up in opposition other than Smith and turns out the place she was concerned about is not covered by this bill, that particular project. Okay. So we're gonna move on. We're going back to Friday.

[Sen. Thomas Chittenden (Vice Chair)]: On seventen, at some point, I thought I heard you say you might wanna send it to Natural Resources. Is that not what you're thinking?

[Sen. Ann Cummings (Chair)]: I'm talking to Natural Resources. Sorry. If we send anything, they would like You tell me, though? And I would like to send them the data mining because a lot of that is impact on natural resources. So that's the other one. I've been watching 07:10. It really is utility regulation. I've talked to senator Watson. Alerted you to the problem on Friday, but the road. Yeah.

[John Gray (Office of Legislative Counsel)]: This is the

[Sen. Ann Cummings (Chair)]: road, the transmission line. Makes

[Sen. Randy Brock (Member)]: sense. Coal mining, iron mining, data mining too.

[Sen. Ann Cummings (Chair)]: Oh, okay. Are you wanting to move that today? Possible. Okay.

[Sen. Christopher Mattos (Clerk)]: What are voting? Oh, okay.

[Kirby King (Office of Legislative Counsel)]: The yield bill. Okay. No. Ready for a motion?

[Sen. Ann Cummings (Chair)]: No. We're gonna make testimony before we have a motion. And right now, we're going back to last Friday, nine thirty three, which is the miscellaneous tax bill, which is the one that we have to get out of here. We have been told to get out of here this week. And we ran out of time. So, we have some slides to help us understand the denser sayings of this bill. Some of it's pretty straightforward and then there's a lot of coupling and decoupling with federal law and re coupling and other places that we're going to go. This needs to go with the budget because there is revenue in this bill that is spent in the budget. So they need to know that the revenue's coming or the budget is in trouble. So let's start. And I believe this is really, it's in the re and decoupling that we're going to pick up.

[Patrick (Joint Fiscal Office Analyst)]: Yeah, so Patrick here to join fiscal office. I guess we're gonna go through a couple of things. First is going to be something we saw all the way back in January. It's just a little explainer of how federal tax changes show up or don't show up on your Vermont state tax returns. We're also going to I'm gonna give a little context about why the House took some of the steps that they did to mitigate some of the revenue that would be lost under normal conformity. And then we'll go we'll go through each piece that is flowing through and what the expected impact for Vermont is. And then at the end, next time, we could just chat a little bit about how what you were just talking about, as it relates to the budget, and I mean, that whole construct between the two bills. Yeah. So just starting off, personal income tax code, we rely on form ten forty, which is an IRS form. It's basically just the math that you do every year to get up to what your total income is.

[Sen. Ann Cummings (Chair)]: The system's been doing it rather recently.

[Patrick (Joint Fiscal Office Analyst)]: Have been backdated, Mark, while it's been self driving. So yeah, you can see on here, you know, it's gonna include everything from your w two income, such salary, wages. It'll include your tips, dividends, capital gains. This is really just sort of a starting point building up to what's referred to as adjusted gross income. So if we're looking at the form here, you can see that everything from one through 10 feeds into this line 11a here, which is the starting point for Vermont Income Tax Code. So when you hear a phrase like something is above or below the line, it quite literally is a line on the form. So if the Fed were to make any changes affecting lines one through 10 here, that would be something considered above the line, which is something that would flow through to your Vermont tax return, because our starting point is right there on that line. These are all the provisions on the form that are considered below the line, stuff that happens after the calculation of ADI. Some of the provisions that were in HR one, that you might have heard of the tax and tax, the overtime, the expanded deduction for senior citizens, those are all things that are showing up here in that third line 13 b. So those are all below the line, past the point where the law starts its return. So we're just pulling that line 11 a, and we're not considering anything that's below here. So you'll see that a lot of the personal income tax provisions, things that you are filling out on your own forms, are really not being effective on the state level people want, because a lot of those things are happening below the line that do not flow through. And, again, I know you've seen this graphic before, but we start from that federal adjusted gross income. That's that line of length of pay. We do add a couple of things in Vermont that kind of grow bonus depreciation and interest from non Vermont state and local bonds. Those get added back. But then there are alterations to that amount, which get us, you know, including the standard deduction, personal exemptions, other exemptions that Vermont allows, which gets us to the taxable income amount. That taxable income amount is what we then flow through the income tax brackets with those are marginal rates. So it's a graduated bracket, the more and so when I say marginal, if you look at that comp rate of 8.75 on the single file schedule there, that 8.75% is only being applied on the income over the amount. So that's where the marginal effect of the brackets come in. So after you see through the brackets, you get your initial liability, but there are still more adjustments that Gulick does do for personal income taxes. These include nonrefundable credits and refundable credits. I just have a little highlight here because there's one personal income tax provision in HR one that is technically below the line, but because Vermont has a own state level credit that is a percent of the federal credit, even though it's below the line because we're basing it off them, that change flows through. So there are some exceptions, which is always great, to the above the line, below the line discussion, but, you know, what you'll see later on, but that is what that is in the the flow the workflow. That's where that shows up. So we go through all these subtractions and the rate schedule and the credits, and eventually that is where you end up with your your final amount tax liability. So that's just sort of the flow of personal income taxes. Second thing I wanna talk about is the flow of corporate income taxes. Again, we have a form here. The IRS form is eleven twenty. There's two components to that form. The first one is adding up everything that goes into what is considered income for a corporation. So there's the gross receipts and sales, gross profit, dividends, what have you. So all of these are building up to what total income for the corporation is. But you can see here that, again, our starting point is further down the the form. So we're pulling from line 28, and that's very that is within the section of this form that includes a lot of deductions. These include for deductions for things like rents, taxes, charitable contributions. So in this instance, this is why you'll see a lot of the HRL provisions that relate to corporations and businesses. A lot of those are flowing through, and a lot of what you'll see what you do see in the bill is reacting to, you know, what what flowed through, the the the change in revenue as a result of the policies in HR one. No corporate income tax discussions ever complete without me doing it. Just a quick reminder on single sales factor. So Vermont uses The US definition of taxable income for unitary groups within The US. Unitary group is gonna include the parent company, all of its controlled subs subsidiaries. One thing that the the US government doesn't have to account for is that they don't have to think about apportionment for business activity that's happening nationally. Right? It's the federal government. But when you get to the state level, every state will have a mechanism that accounts for the fact that, well, you are making money all over the country, we're gonna focus on the money that you are making by selling each of the state markets. So that's where the single sales factor portion of it comes in. So from the form we were looking at earlier, that federal taxable income, Y, I think it was '28, is our starting point. That's this bottom left quadrant here, and then what happens with that is we multiply that by the sales factor, and really, that's a relatively simple calculation of you take your total sales for the unitary group, this is sales non profit, Take those total sales and that becomes your denominator. And then you take all of those sales that your unitary group made, that they made into the state of Vermont, that becomes your denominator. By just dividing one by the other, you get sort of a ratio or apportionment factor, which says, okay, this portion of your total corporate profits, we're considering that taxable income in the state of the month. So, again, here are the marginal tax rates for this. Top marginal rate starts at $25,000 of, of income allocated to Vermont, at 8.5%. There is the minimum tax. Those brackets you see there in the corresponding minimum tax owed, relate to gross receipts, not gross receipts into the state, taxable income. So so that's a really quick one, Ruth. And I am trying to go a little fast because I know some of the time constraints, but definitely jump in with anything you need clarification on. The next thing I wanna talk about is why why are you seeing a lot of these provisions in this bill? How do we get to the point in what was sort of guiding the house's decision to make some of these proposals in the context of how it fits within the budget. So if you remember back in January, we had identified a list of things that flowed through to Vermont because they're considered above the line, And these are all each one of these bullets are something we're gonna go through in detail. But quickly, there's a deduction for domestic research and development expenses, limitation on business deduction, expensing of depreciable business assets, special depreciation loss for qualifying production property. There's foreign income changes. There are changes to prorated share rules, charitable deductions for corporations, qualified changes to, gains from qualified small business stock, and frankly, quite a few other sort of miscellaneous small pieces, that, you know, change at the federal level and would be you expect to go through. And then the one personal income piece that doesn't relate to businesses or corporations is that child and kind of care credit, the federal government and HR one did the policy raise. So that's something that we see flows through here. What's PIT's standpoint? Personal income. Personal income. Yeah. So you, back in January, saw a very different version of this table. When we looked at this in the January, I think that you probably would have looked at it and said, well, this doesn't really move the needle up or down one way or the other. And that was really our sort of first preliminary look at all these provisions, which frankly, there's kind of a bit of a dearth of the information out there for us to do our work on this. And we're still very early in the process in terms of revenue reporting both from other states and reports that the federal government does release. So one thing that really jumps out and one thing that ended up becoming a much bigger deal that we'll we'll spend some time talking about was that second line there, the full expensing for domestic R and E. We we saw from, again, you know, federal receipts reports that was coming through. We saw from other states how their corporate income collections were going and noticed that this was definitely looking like a bigger deal than we had initially thought. So using some of that updated information, we had did end up with a much larger number. And I think Chris may have mentioned this on Friday, but worked very closely with the tax department. These are considered consensus estimates for this. And so Sorry. What does R and D stand for? Oh, sorry. That's the research and experimental procedures expense deduction. Okay. So kind

[Sen. Scott Beck (Member)]: of R and D, but okay. Yeah.

[Patrick (Joint Fiscal Office Analyst)]: So R and D, lot of people people usually call up R and D. It's it's largely a very similar thing, but this isn't the deduction that's available for businesses as opposed to the credit, which could provide at the state level. So why does this matter? Fiscal year twenty six is the one we are currently in, and when when these numbers were updated, you had all already passed the BAA, which is meant to true up. So this this negative $21,000,000 that you see there was not accounted for, in the budget. You know? And, again, this table is showing you if we assume regular normal conformity just linked up to everything.

[Sen. Ann Cummings (Chair)]: So

[Patrick (Joint Fiscal Office Analyst)]: yeah. So and these figures were not accounted for in the consensus forecast. Right? Because what what the economists were working with at the time showed a more muted response to revenue. And also, the forecast is generated based on current law. And the decision whether to link up or decouple, is a an active decision, that the legislature makes.

[Sen. Ann Cummings (Chair)]: Patrick, what was your initial estimate for '26?

[Sen. Scott Beck (Member)]: Oh. Do you remember?

[Patrick (Joint Fiscal Office Analyst)]: I don't remember exactly, but it was in the low singles of millions.

[Sen. Ann Cummings (Chair)]: Yeah. Is that something like 2.5? Oh, wow.

[Patrick (Joint Fiscal Office Analyst)]: It sounds great. Something on that neighborhood.

[Sen. Ann Cummings (Chair)]: Yes. Small. Yes.

[Patrick (Joint Fiscal Office Analyst)]: But I've heard it referred to that. Yeah.

[Sen. Ann Cummings (Chair)]: 21 is not Yes. No.

[Patrick (Joint Fiscal Office Analyst)]: Yeah. And that's the fiscal year we're currently in. And even looking ahead, fiscal year '27, that's the year that the budget is currently being built for. And again, assuming full conformity, that $33,000,000 would need to be accounted for when building that budget.

[Sen. Ann Cummings (Chair)]: Now you see why they want this bill out of the court. Yeah.

[Patrick (Joint Fiscal Office Analyst)]: I think that's the full context of sort of why your colleagues in ways and means knew that or made the decision to make some of these choices. You know, I think I think a lot of it really did come down to the budget conversation and how, you know, Vermont has a balanced budget than it always has.

[Sen. Ann Cummings (Chair)]: Trust So me, we've been here until midnight for a million dollars. I've gone 33,000,000. So Maybe you're getting to a 100,000,000, but are you what will this do to those, you know, versus are we gonna talk about that at some point?

[Patrick (Joint Fiscal Office Analyst)]: Oh, yeah. I'm gonna go through I'm gonna go through every single Don't worry. And that's why I was a little being a little concerned with Charlotte about how much time you have, but

[Sen. Ann Cummings (Chair)]: We'll make time. Yeah.

[Patrick (Joint Fiscal Office Analyst)]: But no, we're gonna go through everything. It's just children, John. Yeah. So proposed language. There are several instances where your colleagues in the house decided that they were comfortable with linking Vermont up to the federal changes. This included and I'm going to explain what all these things are. That included the expansion of the child and benefit care credit, the implementation of business interest deduction, the expensing of depreciable assets, prorated share rules, charitable deductions, the deduction for research and experimental expenses for small businesses. So that's one area where they're deciding to make it up. But on the other hand, there is language in there that decouples from federal fees and office for larger businesses. And again, I'll I'll explain what that change is. There's also some language relating to the bonus depreciation for production property, qualified small business, stock, and then section two fifty deductions, which are those international provisions that I mentioned earlier. So those those two buckets there are the areas where this bill is directly reacting to HR one. You can see that there are additionally three other areas of tax you of tax use code that that has sent over to you that change. There is the increase in the cap of the downtown bills tax credit, which I know you've taken testimony already on this biannual. There is a increase in the state research and development credit. So it's difference in the deduction that was being altered at the federal level. That's increasing that deduction or sorry, that credit from 27% of the federal credit to 75% of the federal credit. And then lastly, another thing I believe you've taken testimony on this year was that payment assistance programs through BHFA. Mhmm. You know, the ability to sell tax credits was set to run out at the end of this year. What this does, it's reauthorizes that ability for BHFA to sell those credits. Yeah. Also looked

[Sen. Ann Cummings (Chair)]: at the downtown village tax credit. Mhmm.

[John Gray (Office of Legislative Counsel)]: Yep.

[Sen. Ann Cummings (Chair)]: So this is a half 1,000,000. Yep.

[Patrick (Joint Fiscal Office Analyst)]: Yeah. Came to your committee from the Economic Development Committee, million. All, as you remember, passed along to SAC at $500,000 Okay. So we're gonna talk about all those things. Federal changes to the Child Dependent Care Credit. So HR one expanded the phase down of the federal CECC and increased the maximum reimbursement to 50% from 35%, and I have a chart either on the next slide or the slide after that shows you what the change in that phase down really means. So basically, if you it is income dependent, you'll see, but basically, when I say reimbursement rate, if you're of the, I guess, appropriate income level to qualify for this, for every dollar you spend on these eligible, care expenses, you'd be able to get 50% of the, back. So we do have a state level CDCC, and it's just set equal to 72% of the federal amount. It is refundable. And and because we just piggyback off federal definition of this credit, that's why it's below the line. It does go through to the model to make a change. Another example of that credit where that what happened if they changed it federally, and actually has happened in the past when they changed it federally, is the EITC, the earned income tax credit. But that's only for age six, right, for the state? The child tax credit is a different one. This is child dependent care credit. Oh. So this is specific to expenses you have for, you know, day care, things like that. Okay. Yeah. So, yeah, we have this on the books already. The last tax expenditure report estimated cost of $4,800,000,000 in foregone revenue, for fiscal year twenty six. That's the previous loss, so any changes, you'll see in any tables in this presentation will be additive to that amount. And, yeah, so the language in the bill would conform Vermont to those changes, done at the federal level. And this is just an illustration of how that phase down change, of what it looks like. You see the changes that were done as part of TCJA. They're in green. And then there's two colors, blue and orange. Orange refers to unmarried taxpayers. The blue refers to married. Previously, there was no distinction on filing status, so that's one change done federally that, you know, is coming through here. And you can see what these lines refer to are the reimbursement rates. So the percentage of your expenses that you can get back through this credit. So you can see it's a really low income level up to about 15,000, and you're going from 35% to 50% reimbursement rate. And then it just phases down over time. At all this white space between the blue line, the orange line, and the green line, those are expanded reimbursement rates. Second, was an amended limitation on business interest deduction that was part of HR one. So HR one expanded that limit to which corporations can deduct interest paid on loans for business purposes. And so the limit on business interest deduction is limited by the sum of its the sum of their business interest income. So that's one limitation. The floor floor plan financing interest, and this is something that I've learned for the first time I'm going through this, that refers to, mostly, it applies to car dealerships. They get the vehicles from the manufacturer on credit, and while it's on a lot there, they owe interest until they sell it and recoup it. So that's one limitation for that type of business on how much they can deduct. Or the third one, third limitation, is 30% of their adjusted taxable income. So what HR one did was it extended the amount of business interest paid that can be deducted from 30 to 50%. So you can deduct half now of the interest you're paying on loans for business purposes. This is not this is an area where the waiting needs made made this decision, the language, to conform the monothecal treatment. One reason for that decision was that the Department of Taxes actually came in to give their thoughts on the conversation of waking up and decoupling, and this is one provision that they had identified as would be really difficult to administer if the state were to decouple from federal treatment. That's business interest. The next provision had to do with the limitation on expensing for depreciable business assets. This is a provision that's really geared mostly towards small businesses. So what HR one does is it increases the maximum amount that a taxpayer may expense for the cost of qualifying of a qualifying depreciable business asset in lieu of recovering that cost through depreciation. So, basically, being able to take that expense upfront for those investments that you may make in a depreciable asset rather than spreading that cost over an amortization schedule. So what the bill did was it increased that limit for the amount that could be expensed from 1 to 2,500,000, and then that is one of those provisions that's Yeah. Gonna be indexed for inflation annually. This was another area where the tax department came in and said that if we were to decouple in this area, it would be a very challenging administrative task for them to implement. So they decided, or the Ways and Means Committee decided to pass out a language that conforms in this area, so that's what you have received. Pro rata share rules. H1 changes the treatment of controlled foreign corporation income. So just briefly what that is, a foreign corporation is a CFC if at least 50% of its voting power or value of stock is held by US shareholders. So each US shareholder must include in their gross income, so when they're filing out their tax return, their prorated share of the CFC passive income in that tax year. So basically, I own 20% of this controlled foreign corporation. I have to include 20 of that passive income on my return when paying when filing my taxes. So it basically, functionally, what this does is it is going to require people who have ownership in this type of with ownership in CLCs with this type of income to report more of their gross income. So it would be a revenue increase in that sense. Again, so this language is conforming to that change. HR one made a change to the charitable deductions for corporations. Previously, corporations could deduct charitable contributions limited by being up to 10% of their taxable income, so you could not take a deduction for these contributions in excess of that amount. And what HR one does is I've tried to think of a few ways of explaining this. I think the best one, for me anyway, is HL1 instituted a bit of a floor. Charitable contributions between 110% can be deducted, but that bottom 1% there, which, you know, when they're from zero to 10%, you could say it's just slicing up that bottom piece of it. So really, it's 9%, but with the floor. That's okay. So, yeah, this change reduces the amount that can be claimed by 1%. And the language that you've received from the House is conforming with that change. Okay, so the deduction for domestic research and experimental expenses. This is one of the provisions that received probably the most attention, because it is pretty complex. And the solution is not as simple as simply looking up, which is not. And again, going back to that that slide I showed you, assuming full conformity with everything, this is really the piece that when we updated the estimates with the tax department, this was a really big cost driver, contributing to that $21,300,000 revenue reduction we were estimating for fiscal year twenty six. Okay. Interim one changes how corporations calculate their R and E expenses, the deduction amount for that. So starting in 2022, Tax Cuts and Jobs Act had said these expenses were required to be amortized over a five year schedule. So just meaning that the benefit from the deduction could only be realized in an incremental schedule. Prior to Tax Cuts and Jobs Act, the treatment was you could take this the full amount of the deduction for those expenses in the year that they were incurred. What HR one is doing is it's going back to pre tax cut and Jobs Act treatment for this. You know, so functionally, what it's also doing is it's allowing you to fully expense upfront in the year that it's incurred, but it's also allowing any expense that you had incurred between 2022 and '25 to retroactively claim those deduction, claim those expenses for the deduction. So what it really was doing is it was front loading of when you look at it in context of revenue to the state, it was really front loading a lot of the cost of this deduction, which is really why you see those very large spikes in fiscal year twenty six and twenty seven. If you were to look at it in the super long term horizon, eventually, after all the organizations, smooths out, they probably need more about revenue neutral. But we have a lot of those front loaded costs that affect us in the very near term if you were to fully control. What did the house do? So the house decided to say, well, if you're a small business, and that's defined as having well, let's start with that. A small business is defined as it's defined federally as business with average annual gross receipts over the preceding three years of 31,000,000 or less. So what the language is doing is it's saying, if you can be defined as a small business like this, we will allow you to basically follow the HR1 treatment, is to fully, know, link up with their provision of being able to fully expense those, or fully deduct those expenses into here that they're picking curtain. For non small businesses, know, all those with the average gross receipts over 31,000,000, what this language is in effect doing is saying that you need to maintain your Tax Cut and Jobs Act treatment of amortizing those costs over a five year period.

[Sen. Thomas Chittenden (Vice Chair)]: Is that in perpetuity, or

[Sen. Scott Beck (Member)]: is that just for this five year period from 2022 to 2027?

[Patrick (Joint Fiscal Office Analyst)]: That is in perpetuity, so it's going as yeah. That's how so Kirby wrote out the whole section per statute, basically describing how these expenses would need to be amortized over by your schedule going forward. Two things here. One is conforming language for small businesses so they can fully adopt those expenses, in the year that they're incurred. And the other is for the non small businesses telling them that they have to maintain, basically, the the tax cut and jobs five year amortization schedule. So for those large corporations or, you know, defined as non small business, it's essentially a revenue neutral because they're just continuing their existing practice for the for those corporations or businesses that can be defined as small, that would be a revenue decrease.

[Julia Richter (Joint Fiscal Office)]: Okay.

[Patrick (Joint Fiscal Office Analyst)]: Okay. So the special depreciation allowance for qualified production property, essentially what this is is bonus depreciation. So for these, for eligible non residential properties that are, you know, for production, Any I forget what the so any change so the changes that here applies to the properties built for bond after July 9 01/19/2025, but before 01/01/2029. So for any buildings bought in that time window or production property, you can fully deduct the you can take the bonus depreciation. So basically, taking all the all the depreciation upfront rather than what you would do before is take that depreciation over a thirty nine year schedule. Vermont does this in other areas. So if you remember when I was talking about the flow through, when we're looking at the personal income tax slides, Vermont adds that bonus depreciation, other types of bonus depreciation, and does allow but at the same time allows regular depreciation. So this is basically in keeping with how Vermont treats other types of bonus depreciation, And it actually is something the tax department came into the police meeting committee and asked for that to decouple from. So what the language is doing is it's not allowing all of that depreciation being claimed upfront, but it is allowing them to still depreciate those assets over thirty nine year period. And, yeah, so the the language is decoupling Vermont from the federal treatment in that way.

[Sen. Scott Beck (Member)]: What is a qualified production property versus a non qualified production property?

[Patrick (Joint Fiscal Office Analyst)]: Some of the provisions I think were specific to production of agriculture, refining, and there was one other one, Chemical. Thank you. Those are core. Production. Those are yeah. So if they're engaged in those kinds of production, that that's what would clog. So you can think things like fertilizer, things like that. Those would be considered ineligible or qualified production property for this specific bonus depreciation provision. And nonqualified for everything else? Manufacturing facilities for anything besides chemical agriculture? Well, are some other types of bonus depreciation. So I don't want say no other types of properties, when qualified, but this is specific to those types of properties. So yes, a lot of other types of properties are still going to have to be depreciated on that thirty nine year schedule. Okay. So the exclusion on gains from qualified small business stock. HR one allows stock for corporations issued after 07/05/2025, and specifically, this is for corporations with aggregate gross assets below $75,000,000 to qualify as a qualified small business stock. What HR one does did was increase that cut off to be considered to be eligible for as a qualified small business stock from 50,000,000 to 75,000,000 in in aggregate gross assets. So making larger the type of business that would qualify for this. But also, it did make some changes to the schedule for which if you are an owner of this stock and you sell the stock, you can basically claim those capital gains tax free. They're not subject to taxation. So previously, if you held on to the stock for five years, you could fully exclude those gains from that sale of stock. What HR one does is that after three years of holding it, you can get 50% off, four years, 75% off, and then again, five years, it's you can fully exclude that the gains from sale of that stock. And then yeah. So the per issuer exclusion cap, from 10 to 15,000,000, this has to do with how many one person, could buy from a a corporation. You can can invest in multiple qualified small business stocks, but from any one particular one, it's it's limited by that amount.

[Sen. Ruth Hardy (Member)]: Can I ask about this? So Sure. This bullet, this line would decouple Vermont from federal treatment of this class doc, but would allow the Vermont Capital Leeds exclusion to apply. Decoupling it means that this the per issue exclusion would not apply to Vermont. Correct? And So The cap moving from 10 to 15,000,000.

[Patrick (Joint Fiscal Office Analyst)]: So the cap moving from 10 to 15,000,000 and then the 50 to 75,000,000, that's really more so a function of how much can you have in assets to qualify as this type of business to issue this type of stock, and then how much each issuer can purchase. Where we really start to sort of think about what the impact of the state is you know, is whether the gains from that stock is tax eligible. So that that's kind of where the the revenue rub comes into play on that.

[Sen. Ruth Hardy (Member)]: Okay. So decoupling it means that the the gains from gains from this federal tax change are not flowing through to.

[Patrick (Joint Fiscal Office Analyst)]: Yeah, I guess I should take a step back too on that piece. In So this instance, rather than freezing in time that previous treatment, Vermont's decoupled, the language decoupling for Vermont is disallowing the ability to exclude the capital gains from these types of stocks from your income tax calculation. So we're saying rather than the three, four, five year percentages of that that you can exclude, Vermont is saying you have to include all your capital gains from sales of Nissan in your AGI calculation.

[Sen. Ruth Hardy (Member)]: Okay. Yeah. But what allowed the Vermont capital gains exclusion to apply? So you include it in your AGI, but then

[Patrick (Joint Fiscal Office Analyst)]: Then you can then some of that amount, depending on how much you have, can't be put towards the capital gains exclusion. And I do know that Kirby is gonna wanna talk to you about some language for that, I think, tomorrow or Thursday.

[Kirby King (Office of Legislative Counsel)]: Yeah. Kirby King with state of council. There's a there was a house floor amendment to clarify sort of the Vermont's partial exclusion, the 40% exclusion. And after reviewing it again, what I drafted didn't go far enough. There's still ambiguity there, so it's something that I think that we should clean up. So we'll we'll talk further about how Vermont's exclusion applies. The short version is Vermont's 40% exclusion is not allowable for stock gains. So I removed the language express like, expressly for inventing it, but I did not account for what's in current law on the on about stock. Okay. So as it's written, it's it's ambiguous, but it seems like the five thou because there's two there's two exclusions for Romani. Have to choose one, either the first 5,000 or you could use the the 40%. The first 5,000 could be used for these gains under the language you have. The 40% gain, probably not because it's not.

[John Gray (Office of Legislative Counsel)]: Okay.

[Kirby King (Office of Legislative Counsel)]: The house did intend to allow that 40% exclusion.

[Sen. Scott Beck (Member)]: Okay.

[Patrick (Joint Fiscal Office Analyst)]: Okay. So, section two fifty deductions. HR one amended the IRS, the Internal Revenue Code section two fifty to adjust the amount of foreign derived deductible or foreign derived deduction eligible income, I've heard it referred to as today, the Mexican corporations can deduct from 3333.34% of net CFC tested income. They changed the deduction amount for per day to 33.34 percent, and then they also changed the deduction amount for net control, controlled foreign corporation tested income, net time, to 40%. So really what's going on here is a couple of different things. HR1 is expanding the base of this foreign income by removing some, by simplifying the math, I guess, is really a simple way of saying it. So they're expanding the base of the income amount. They're also reducing the amount that can be deducted for corporations, but at the same time, to offset some of those increases, right, because expanding the base or reducing the deduction would cause tax liability to go up. The federal government also expanded the credit corporations can receive for taxes paid to foreign countries. So, you know, previously, this type of income had been, you know, referred to as guilty, global low tax income, global intangible low tax income, and it's that intangible piece that was kind of the impetus for a lot of it. So, you know, at the time, the narrative was, well, these big corporations are setting up a subsidiary in Ireland, parking all their intellectual property there, and then the parent company is paying royalties over there. If you look at how the math of the equation actually goes out, it's really just foreign business activity. I and I think with these changes that they made in h r one, they were kind of admitting that, you know, this was never really actually targeted that intangible income, some things from, like, property or, you know, intellectual rights, intellectual property. So that that's the piece where they are sort of expanding the base. Right? And so with those different moving pieces of expanding the base, reducing the deduction, expanding the foreign tax credit, that was sort of the HR one response to sort of how they were administering foreign income for corporations. Now, when you look at this on the state level, again, the federal government does not have to worry about apportionment. So what they do to account for taxes paid elsewhere is they provide those credits for tax paid to corporations. Those credits do not flow through to Vermont. So basically, that's why you have state again, the schedule comes back to the discussion of why states have a portion of it, so why we have a single sales factor. Can't do, for corporations anyway, credits or, you know, taxes paid to other states or countries. And also, you know, when thinking about international taxes, are they taxes at the national level, internationally, or, you know, international equivalent to the state level. So that's why you rely on single sales factor for for looking at this. And so what the language is doing is it's accepting the expanded base. It's acknowledging that we don't have

[Sen. Ruth Hardy (Member)]: Can I stop you for just a second? I'm sorry, Vincent. Of course. What section of the bill is this in? Do you agree?

[Patrick (Joint Fiscal Office Analyst)]: It's in 63?

[Kirby King (Office of Legislative Counsel)]: It's in section 55, but there's all of the decoupling languages in 50 This would be the decoupling language, the subdivision that refers to 26 USC two fifty.

[John Gray (Office of Legislative Counsel)]: Alright, sorry, Pat. That was fine.

[Patrick (Joint Fiscal Office Analyst)]: So what the language is doing is it's removing the ability to deduct any of this income, because really what those deductions are doing is saying this type of income is receiving preferential treatment at the federal level, not treating it like regular business income. So that is what the language, or what the intent is, rather than relying on credits, like the federal government's able to do, rather than relying on deductions, like it's a federal law, let's just have the single sales factor do the apportionment for us on this. Okay, so how does that work? So in a sense, by removing the deductions, if you remember that equation I had earlier, you're increasing the federally defined net income calculation. But because we're requiring you to include that income, we're also gonna be providing what's called factor relief, which is the income or the sales that are associated with that income can be counted in the denominator for the impartial factor. I can hop back to that equation if that would be helpful.

[Sen. Ann Cummings (Chair)]: Let's keep going. Okay. I think it's gonna take a while to digest all of this, just get through it once. Patrick, report this on the floor. We can't just slide.

[Sen. Scott Beck (Member)]: Sit over the corner and not the center.

[Patrick (Joint Fiscal Office Analyst)]: Yeah, sure. I'm good at that. Okay.

[Sen. Ann Cummings (Chair)]: I feel like I usually report this and have difficulty sitting on the windowsill behind the chair.

[Patrick (Joint Fiscal Office Analyst)]: Well, you can have everything. So No, just you. We gotten through all of the most complicated sessions. So when we're done talking about link up, we're done talking about decoupling, the next few the next couple slides are just other areas of tax billing that this bill is adjusting.

[Sen. Ann Cummings (Chair)]: A little less dense.

[Patrick (Joint Fiscal Office Analyst)]: Yes. I will I I I hope so. So the first piece is the research and development credit. I know we touched and talked about this a little bit last Friday. So currently, what Vermont has on the state level is a research and development credit, which is equal to 27% of the federal credit. So that we're basically piggybacking on this federally defined calculation for what the amount is. But we're going a little bit further and saying that it's only for research and development, or if this is existent, right? The only expenses that are eligible are those that are done within the state of So it's an R and D credit for R and D activity within the state of Vermont. And I did send Charlotte the tax department's report of all the Vermont businesses that do allay this credit, so I think you should all have that. There are a lot of familiar names on there. So, what I guess just a quick little explanation of how this credit works. Basically, to claim it year after year, you're gonna have to show that you have increasing R and D investment over time. Uh-huh. Because the way it's calculated is, you take the base amount, which is defined as the average R and D spending in the previous four years per year amount. What is the difference between what you spent on R and D this year compared to that base amount, which is that average? So to continuously claim it, you need to be investing more money over time to get that incremental amount that you can claim. So it is not, it is a nonrefundable credit, so if you don't have the liability to offset, there's a ten year carryforward for the credit. And so what the language is doing here is saying, okay, instead of 27% of the federal amount for those Vermont specific R and D costs, we're saying you can based on what the you can get federal, you can actually have 75% of that. So it's gone from 27 to 75% of the the credit that you calculate based on federal moves for those Vermont investments. So I I I think last week, the 27 to 75% seemed like a huge jump when you look at how it sort of plays out both in sort of the tax liability and what corporations can offset. And when you think about the fact that it's really only the incremental amount, the dollar figure attached to it is not as stark as you might think with that significant change in the percentage. So I did leave off slides explaining the down payment assistance and the Downtown Village Tax Credit, because I know you've taken testimony on this, and probably don't need the reminder again.

[Sen. Ann Cummings (Chair)]: I think they are annual events. Yeah.

[Patrick (Joint Fiscal Office Analyst)]: So this is the table summarizing the net impact of all these different changes that we've kind of just raced through a little bit, but hopefully there's a lot of good information there. You can see that, again, we still are including a fiscal year twenty six revenue impact because, you know, a lot of the conforming changes are retroactive to tax year '25, tax year '25, get one year, fiscal year twenty six, so it's the, you know, the year that we're living. So I guess I'll pause here for a sec. One note that I think I failed to mention on the research and development credit increase is that the effective date for that is starting tax year '27, So it wouldn't affect fiscal year 'twenty seven, it would affect fiscal year 'twenty eight. But, you know, compared to that full conformity table we saw earlier, instead of a $21,000,000 decrease in fiscal year 'twenty six, we have a $3,960,000 revenue decrease. Instead of a, I think it was a $33,000,000 revenue decrease or downgrade for fiscal year 'twenty seven, we're actually showing a net positive of 14,250,000 with all of these different tax provisions put together. And I know Chris may want to talk about this a little bit more, but this this red nib you see here is built into that construct of the rooms transferred and the purchase and use transfer, and those different changes that are essentially trying to get a little more money into the fee fund while keeping the ad fund whole, what this is trying to accomplish is with that transfer of the insurance into the fund, keeping the general fund whole as well. And I guess last thing I'll just throw in on this slide is that when thinking about the budget for this year, really then what you would want us to do is combine that '26 and '27 number. So it's really more like a $10,000,000 revenue increase when considering, you know, this year's budget. But again, Chris can talk a little bit about that construct if you wanna Right. Refresher on that. And this last slide here, this is just from the fiscal note. So you you saw this on Friday. It's on the very first page, and it just summarizes all those different moving pieces together, and how the different provisions are coming from one fund and going to the other, and how the revenue provisions in this bill sort of build up to that.

[Sen. Scott Beck (Member)]: That's the question. Yes. Okay. Pat, so up 13,000,000 ish in FY twenty seven, up 4,000,000. There you go. What what type of corporation is going to look at this and it's going to, you know, gonna hurt their bottom line? What? In Vermont, out of Vermont. I mean, I know we can't name specific companies, but it's

[Patrick (Joint Fiscal Office Analyst)]: Well, I don't know. The tech department might know specifically. Yeah. Right. But but yeah. So, I mean, I think it's gonna be the larger corporations, you know, with with two things here. The international income, that's gonna definitely typically skew more towards, like, multinational corporations. Right? Okay. And then the other one is the requiring those businesses not defined as small business to continue amortizing their our their research and, development expenses. Okay. However, a note on that is that that is sort of continuing their current experience. Right? Requiring them to continue amortizing that's what they're doing today already. They might have to spend a little they might have to spend a little more time on their return, doing that calculation. But those are probably two pieces that I think would relate to larger larger businesses.

[Sen. Scott Beck (Member)]: What about the out of state, in state? Or it's been out of is that you know, I didn't say, like, you know, old foundry or something if they don't have any income corporate income tax liability in

[Patrick (Joint Fiscal Office Analyst)]: the state of Vermont. Does this even impact them at all? Likely not. If they're not I mean, really, it all depends on how much they're selling in state, right? Yeah. If they don't have, if they don't use Vermont as a customer base, you know, they might be, they might have a factory here and sell exclusively out of state and have no liability for any of these deductions to apply to the state of the law.

[Sen. Ann Cummings (Chair)]: Okay.

[Patrick (Joint Fiscal Office Analyst)]: They might still file a return here because a lot of corporations do file zero returns in the state just to be consistent and have alternatives.

[Sen. Scott Beck (Member)]: Okay, thank you.

[Sen. Randy Brock (Member)]: Do any of these provisions, or anything else you've seen, have any particular negative impact on Vermont?

[Patrick (Joint Fiscal Office Analyst)]: I would say, you know, I kinda go back, when I get questions like that, I kinda go back to thinking about the single sales factor and how that operates. You know, the Vermont corporate income tax code with that single sales factor is saying, we really don't care where you're based out of, but if you want access to the market in Vermont, then the portion of your income that's coming from that, we think you should be reporting to us as taxable income.

[Sen. Randy Brock (Member)]: The company has great sales someplace else, internationally or otherwise?

[Patrick (Joint Fiscal Office Analyst)]: I'm sorry, could you repeat that?

[Sen. Randy Brock (Member)]: Could a company that has very, very large sales elsewhere, either in The United States or outside The United States, find that Vermont is a particularly unfriendly place to do business because of the way our tax code is structured compared to other states?

[Patrick (Joint Fiscal Office Analyst)]: Well, I would say in the realm of, I I mean, I don't necessarily think that any of these provisions are going to affect a business' decision whether it's gonna be based here or not, you know, to have a physical presence. Because, again, if they're not selling into the Vermont market, they're not gonna have liability here. But, you know, at the same time, if you know, it's not a phenomenon we've seen where a a corporation has decided, Vermont's got these rules. We're just not gonna sell to Vermont's. You know, we haven't seen anything like that. Mhmm. You know, Apple still sells still sells its iPhones. Well, Steve, we'll

[Sen. Randy Brock (Member)]: recover expenses that I'm most concerned about where the sales are not great.

[Patrick (Joint Fiscal Office Analyst)]: While it's still not great, they're not going have the line up.

[Sen. Randy Brock (Member)]: Essentially, the business is operating here and incurring expenses. It's not necessarily adverse to them in general. Is that a fair statement?

[Patrick (Joint Fiscal Office Analyst)]: Our tax code? I guess I'd respond with that. I don't think so, if I'm understanding the question correctly. You could have your business based in Battleboro. You could have it based in the Bowl Of Massachusetts. And how Right? The tax code is structured is gonna affect you just the same if, you know, sales are the same legal location. Mhmm.

[Sen. Ann Cummings (Chair)]: So We used to if you had a plant here Mhmm. You used to get more heavily pets. Yep. And that's one of the reasons we changed it. Right. As I could believe, you were getting taxed for providing jobs and other benefits to Vermont. That was

[Patrick (Joint Fiscal Office Analyst)]: a clear instance where by not dinging you for having a physical footprint in the state, But that's basically what

[Sen. Randy Brock (Member)]: I'm getting at. There's nothing that you see here that gets us back into that situation again where something adverse has happened.

[Patrick (Joint Fiscal Office Analyst)]: No, I don't think so. And, you know, there there is a provisioning here, the research and development credit increase. You know, that is, again, very specific to expenses incurred in the state of Vermont. So if you're a Vermont based company and, you know, again, if you look at the list, a lot of the businesses on there are breweries.

[Sen. Ann Cummings (Chair)]: Mhmm.

[Patrick (Joint Fiscal Office Analyst)]: Right? By being based here and having that investment, you know, that is a provision that you'd see here that would benefit a company like that. I mean, it's a difficult question to answer because there's, you have a whole array of different types of corporations and businesses, all different corporation styles and locations. So this is really kind of touching a huge swath of different company types, which makes the question a little bit difficult to answer in an easy way. Well, that's everything I have prepared for today.

[Sen. Scott Beck (Member)]: Okay. What is the

[Sen. Ann Cummings (Chair)]: timeline on that still? They want it out by Friday because the money is featured in the budget. Our budget is supposed to have a Friday. And the budget can't come out until they know that we have voted out the money. Budgets That $10,000,000.

[Patrick (Joint Fiscal Office Analyst)]: You're now here on time. So that sounds like we could be gone by the April.

[Sen. Ann Cummings (Chair)]: They they expect the money that Patrick just showed you on the bottom line.

[Patrick (Joint Fiscal Office Analyst)]: Madam Chair, would you like Chris to talk about the budgets on staff a little bit?

[Sen. Randy Brock (Member)]: Sure. Chris from Joint Fiscal, we could

[Chris Rupe (Joint Fiscal Office)]: my colleagues can give you all a spreadsheet if you want, but, you know, I think at

[Patrick (Joint Fiscal Office Analyst)]: the end of the day,

[Chris Rupe (Joint Fiscal Office)]: the house passed a budget that relies on this revenue construct, so essentially being very colloquial now, that sort of pay for the $10,000,000 that then goes to the fund, and that then frees up some money elsewhere in the budget that has been spent. But to Senator Hardy's question, what is sort of convenient or inconvenient, depending on your perspective this session, is that the tax policy in miscellaneous tax bill is really the linchpin that holds the t bill, the budget, and the yield bill together. Because there is policy in there that affects all three major funds. So it is difficult to sort of solve the other bills without getting clarity on what the revenue policy is. So that's change

[Sen. Ann Cummings (Chair)]: to purchase and use and the percentage Precisely. And meals so that transportation has an additional 10,000,000 this year and ongoing. It's not

[Chris Rupe (Joint Fiscal Office)]: And that is something that this committee's gonna have to sort out in order to finalize the T bill also, because there are differences of opinion between those two community opinions.

[Sen. Ruth Hardy (Member)]: Yeah. And also, we usually have unit one on this tax bill, at least, to do other things with that, you know, you know, as a as a vehicle for other things that we won't have. I have

[Sen. Ann Cummings (Chair)]: expressed concern. Usually, this is the last bill to go. Yeah. But well, it's the next to the last. The budget is usually the last bill to go. When the budget's done, mean, that's what we do with the floor, and then we go home. The difference in timing, it allows for years mostly because there's other things that might prevent both of these bills from getting through and so the budget is going early, which means the tax bill is going early. I do not have another tax bill up there. I have expressed this concern to the powers that be, but I'm not sure what to do with that. I don't know. There may be another bill with the word tax on it coming over or coming to us from another committee.

[Sen. Thomas Chittenden (Vice Chair)]: I always had the impression I'm I'm fine with doing this latest tax out for all these reasons, but I always had the impression that finance had a lot of leeway in interpreting. That's why we had that robocalls bill and the feminine hygiene bill. We can do whatever we want with any of these bills. Is that how it is?

[Sen. Ann Cummings (Chair)]: Tax makes things germane. Yeah. Not there's not. Yeah. If if it has a tax in it, then almost anything

[Sen. Thomas Chittenden (Vice Chair)]: None of those bills have a tax?

[Sen. Ann Cummings (Chair)]: None of those bills that I saw have tax in the title.

[Patrick (Joint Fiscal Office Analyst)]: Has to be

[Chris Rupe (Joint Fiscal Office)]: in the paper.

[Sen. Ruth Hardy (Member)]: Yeah. Well, I mean, it has to be in Tax or fee. Yeah. I mentioned a statute, but it's

[Sen. Ann Cummings (Chair)]: That is the one concern with doing this. On the other hand

[Sen. Thomas Chittenden (Vice Chair)]: As long as it's okay, we could

[Patrick (Joint Fiscal Office Analyst)]: get through germane ness instead of what we wanted. Trying to get creative here.

[Sen. Ann Cummings (Chair)]: Yes. You know what challenges the germaneness, we're good to go.

[Kirby King (Office of Legislative Counsel)]: Would you It's

[Sen. Ann Cummings (Chair)]: a challenge.

[Kirby King (Office of Legislative Counsel)]: Sorry to interrupt. Kirby King, city council. Would would you like to spend a moment I'm supposed to come in on Thursday with public on miscellaneous tax. Are there things that I have some technical things I'd to

[John Gray (Office of Legislative Counsel)]: go over with you. Okay.

[Patrick (Joint Fiscal Office Analyst)]: But I

[Kirby King (Office of Legislative Counsel)]: don't have any other requests directly from the committee about things you would like to see at that time. So if you'd like to if you know of anything that you would likely want to see language on Thursday, I'm taking requests.

[Sen. Ann Cummings (Chair)]: A lot of this is what's said to me. Pack department housekeeping. Changing dates from April to January. Records kept relating to deeds and scholarship granting organizations. Basically says this is that federal tax credit. We had a proposal, the 1,700 you could take on taxes. We have to opt in or opt out. This basically says we're out for this year, but we can change our mind next year. The concern the reason we didn't do it was because the rules hadn't been set yet, and it was kind of concern about what they might say about how much leeway we had, and this would kick it the can down the road till next year. I have

[Sen. Ruth Hardy (Member)]: a question for, I think, Chris. For. You mentioned a spreadsheet that ties the, I think, four bills together.

[Chris Rupe (Joint Fiscal Office)]: No. It's just those two, about how the what we talked about on that sheet.

[Sen. Ruth Hardy (Member)]: Oh, it's just a chart.

[Chris Rupe (Joint Fiscal Office)]: How that fee how that fee spreadsheet.

[John Gray (Office of Legislative Counsel)]: No. It it's online. It evolves at once.

[Chris Rupe (Joint Fiscal Office)]: To make it the model. The what we have is I could show you on one of the appropriations spreadsheet where the number comes in on the budget construct from this bill. But at the I sort of gave you the verbal explanation that it's because this sort of pays for that $10,000,000 that can sit in the T fund. This then frees up, like,

[Sen. Ruth Hardy (Member)]: the majority of the And yield bill also takes into consideration the changes in the miscellaneous tax bill?

[Chris Rupe (Joint Fiscal Office)]: Yes. What you need to resolve is, like,

[Patrick (Joint Fiscal Office Analyst)]: what are what is the flow of

[Chris Rupe (Joint Fiscal Office)]: the non property tax revenue heading into the Whatever. End fund in order to calculate the yields, and you also need to have sort of a decision made on whether money is coming in or out of the Ed Fund as part of that comp's your

[Patrick (Joint Fiscal Office Analyst)]: offer.

[Sen. Ruth Hardy (Member)]: How does

[Chris Rupe (Joint Fiscal Office)]: Because if you go in a different direction, then the new bill needs to get done.

[Sen. Ruth Hardy (Member)]: Okay. And get and then there's the major education bill that's coming

[John Gray (Office of Legislative Counsel)]: over that has quite a bit of And that

[Sen. Ruth Hardy (Member)]: is finance. Yep. I mean, it's year it's in the future, but is there That bill is not part of the equation of this table address. I

[Chris Rupe (Joint Fiscal Office)]: don't think of that bill as one of the threads in my mind. I sort of think about the money bills and how they're all intersected, and it's because of that shift of the meals in rooms and the purchasing rooms, and what direction you all decide to go on this will influence what goes on with the yield, build, the table, the budget, and thus.

[Sen. Ruth Hardy (Member)]: Okay. One thing I I asked Herbie and Pattern separately about was the renter credit and the what is it called? The municipal it's not a credit,

[Sen. Ann Cummings (Chair)]: but it's a Oh, the municipal. The the 45,000 Yeah. Dollars. What is it called? Circuit breaker.

[Sen. Ruth Hardy (Member)]: Yes. And and and the two of them, the renter's credit, I'm wondering when the last time that was changed because I think it's quite low. And and also when was the last time the circuit breaker was changed?

[Kirby King (Office of Legislative Counsel)]: Yeah. This this is John Gray's area. And from what I recall, just working in taxes for a while

[Patrick (Joint Fiscal Office Analyst)]: in the state, it's it was five or six years ago that that

[Kirby King (Office of Legislative Counsel)]: renter credit was revisited. Now I don't recall whether the amounts were changed.

[Sen. Ann Cummings (Chair)]: That on on the averages.

[Sen. Ruth Hardy (Member)]: I tried to look it up in the statute, and it was really confusing. So I did you have my email, doc?

[Patrick (Joint Fiscal Office Analyst)]: I did. I I had a chance to

[John Gray (Office of Legislative Counsel)]: Yeah.

[Patrick (Joint Fiscal Office Analyst)]: No. I'm I'm sorry.

[Sen. Ruth Hardy (Member)]: Super no. It's it's okay. Okay. Largely because that is an issue, but, you know, as rents have increased substantially in the state and the renter credit has stayed essentially the same. We didn't look at this in our conversation last year, but I heard from a constituent who recently moved to Vermont, another state that has a renter credit, and they told me their rent was significantly lower in the other state, and the renter credit that they got was higher. So they moved to Vermont, and their rent is higher, and the renter credit is lower. So that is making it much more expensive for renters. So I wondered if we could take a look at that. That might be in the context of the the yield bill more because it's on property.

[Chris Rupe (Joint Fiscal Office)]: It's it's a general fund. It's a general fund.

[Sen. Ruth Hardy (Member)]: Okay. It's a general fund. So Yeah.

[Sen. Ann Cummings (Chair)]: I'm sorry. That's some

[Patrick (Joint Fiscal Office Analyst)]: It's a

[Kirby King (Office of Legislative Counsel)]: general fund, but it's but it's connected in place.

[Sen. Ruth Hardy (Member)]: Okay. And then the circuit breaker, you know, we talked about the increasing municipal taxes and the and I know there's a lot of conversations about the pilot funds and how those all work and everything, but I don't think that the circuit breaker has been changed in a long time either. So as municipal tests have gone up, we haven't done FTR.

[Sen. Ann Cummings (Chair)]: I've tried several years ago. What it will do is it will increase your local revenue because it cash what Isn't

[Sen. Ruth Hardy (Member)]: there a general fund offset? So, it's again, it's a general fund. I mean, I'm not saying

[Julia Richter (Joint Fiscal Office)]: I just wanted to I wanted to know

[Sen. Ruth Hardy (Member)]: a little bit more about these in the context of, you know, of quote unquote affordability issues. Like, these are both impacting people on as as their their education and municipal property taxes are going up. Tell me. I live in Montpelier.

[Sen. Ann Cummings (Chair)]: But we are the third highest in the state, back to where we were react 60. I think those are all good things. I'd like to look at them. Unfortunately, they're all gonna impact the general fund,

[Sen. Ruth Hardy (Member)]: which is pretty much Well, it sounds like all of this is impacting potentially impacting the general fund. Just figured,

[Sen. Ann Cummings (Chair)]: again, the house has all day. They did it in concert with the budget. Once we realized that we were going to lose the 13,000,000 and it had been in, I think it hadn't been adjusted for a budget adjustment. Think the governor used it because it hadn't been deducted in the July forecast. It was in the budget, and they had to take x million out or find a way to put No.

[Sen. Ruth Hardy (Member)]: I understand how we got here. I just Yeah. I just don't want us to be forced into just concurring when we might have other things. And then we are there were some tax issues that we talked about earlier this session that I assumed we would get back to when we talked about the miss miscellaneous tax bill. I had two or not, but that was before this construct

[Sen. Ann Cummings (Chair)]: or I knew about it. This is not your usual miscellaneous tax bill. Which are not in usual times either. And normally, this would be going out May 10 if we were going home May 15 or later. But I I do know. I think that means it's they are going to be voted sooner, I don't know if the tax bill is. But high earner, wealth tax. I don't know the details of that. There's a study in

[Patrick (Joint Fiscal Office Analyst)]: I can help you with that.

[Sen. Ann Cummings (Chair)]: This one? Or

[Kirby King (Office of Legislative Counsel)]: There's waste means tomorrow. I'll be going through the dental committee bill with them relating to the Vermont investment proceeds tax concept of wealth proceeds, we went through that in here, because it was part of SB two eighty two also, and also part of that is creating a new personal income tax bracket, a new higher marginal rate of 13.3 on incomes over $5.60 ish thousand, which is for for married jointly. So so those are the two things they're looking at that came out of some compromise over some floor amendments on miscellaneous tax.

[Sen. Ann Cummings (Chair)]: Okay.

[Kirby King (Office of Legislative Counsel)]: No idea at this late stage of the session what that is other than to look at it.

[Patrick (Joint Fiscal Office Analyst)]: It's a committee it's a committee draft.

[Kirby King (Office of Legislative Counsel)]: It's a committee draft. So they're gonna look at it is all I can say.

[Sen. Ann Cummings (Chair)]: Because when the ten year tax study came over, my understanding was that is what they were doing because they couldn't get the votes to raise any income taxes. Think the tenure tax study is a standard thing right now. It is, but it all it looks at how we line up with other states, regionally, nationally, so it gives us some helpful information. I just saved, and I don't know if I could save it. One recent study where Vermont had the third highest tax tax burden in the country, only behind California and New York. And I'm if I can figure a way to send that to everyone, I will. But I think that's what they were trying to get. And I don't know if we can work on it once we get the time. Work on what? Well, I'm concerned that our highest our high tax bracket, is one of the highest in the country, starts at 300,000 for Oh, isn't that kind of what they're looking at? Yeah. They're looking at is changing that? Because yeah. We when we did respond to the tax cut and jobs act, we we took out that no. We did that when we did the blue ribbon tax study. We took out the fifth bracket because it was extremely high in the country at that time, and the thought was it was CPS from being competitive, and we combined that, but it's now, since incomes and costs have gone up 300,000, it's comfortable but not extremely wealthy and it breaks in a lot of professionals that we need in order to set up and grow businesses or doctors, doctors and nurses, you know, any kind of coupling financially. It's hitting professionals, especially when no income tax in New Hampshire is next door. So

[Chris Rupe (Joint Fiscal Office)]: So millionaire tax starts at

[Sen. Scott Beck (Member)]: 325,000.

[Sen. Ann Cummings (Chair)]: Can I ask Chris take another question?

[Sen. Ruth Hardy (Member)]: So looking at this table

[Chris Rupe (Joint Fiscal Office)]: Do have the fiscal note?

[Sen. Ruth Hardy (Member)]: Yeah. The the the net fiscal impact of the bill down at the bottom, the three point o eight and two point o seven in general fund, that is included in the big bill.

[Patrick (Joint Fiscal Office Analyst)]: Yeah.

[Sen. Ruth Hardy (Member)]: They they use that rep.

[Sen. Scott Beck (Member)]: That's all reflected, yeah.

[Sen. Ruth Hardy (Member)]: Okay, and the education fund is used in the yield bill. And then the T bill is the one where our transportation committee and this have differences of the figure.

[Sen. Scott Beck (Member)]: Correct, So

[Chris Rupe (Joint Fiscal Office)]: the House's version of every, the House's version of all these bills lines up to what's in the House miscellaneous ads bill. Senate obviously is not the House, so that's why your decisions all sort of intersect with the same.

[Julia Richter (Joint Fiscal Office)]: Yeah, okay.

[Chris Rupe (Joint Fiscal Office)]: And you're asking if there's extra money on the bottom line. Regrettably, there's not.

[Sen. Ruth Hardy (Member)]: Yeah, well, figured there wasn't, but it's always good

[Sen. Ann Cummings (Chair)]: to ask. I don't know what will end up in transparency. Know the chair would like a version of the governor's take 10 bill take basically the purchase and use, which is primarily automobiles. Take it out of the education fund at the rate of $10,000,000 a year, and I think they'd get a 10,000,000 from the general fund this year, so it wouldn't impact. But by next year, we'd be up to 20,000,000 out of the Ed fund, and after five years, we'd be up to $50,000,000 holes in the Ed fund. I see no foreseeable way of filling that hole And right I'm very concerned about, with all the changes going on in education, trying to do something that drastic. So the proposal here is we change the percentages. It's the $10,000,000 loss to the general fund, is being made up by this decoupling that's in this bill, which allows transportation to get $10,000,000 in additional purchase and use tax. It's on automobile, so there's a logic to it, that's ongoing money, and it doesn't take $50,000,000 away from education over next forty I five

[Sen. Randy Brock (Member)]: think the counterargument perhaps is though that it takes more money out of taxpayers' pockets. It's just

[Sen. Ann Cummings (Chair)]: a question of which pocket. Well, the money that's being raised is decoupling it, so it's corporate, probably not Vermont based corporate.

[Sen. Randy Brock (Member)]: That would be one thing What's to really the effect of that on both the average of honor if there is such a thing? What's the effect on Vermont's It's ability to compete and to do business and to live.

[Sen. Ann Cummings (Chair)]: If you just decide how to sell it, you go.

[Chris Rupe (Joint Fiscal Office)]: Chair, I do have posted on the committee page under today's date, under my name, is a very short slide deck that compares the Governor's construct with the purchase and use tax to what is in the houses. Well, what's in the miscellaneous tax bill and what came out of the house. I can update that once something comes out of Senate Transportation this week to reflect what they do. But my understanding is they are in leaning in a direction based on what I've seen in committee that is closer to where the governor's proposal was rather than the house's proposal. But in all of these constructs, in f y twenty seven, the Ed fund doesn't lose $10,000,000. It's just a matter of, like, what happens in the out years, and it's a matter of what this committee and the agrees to do. So that's why this is sort of an open decision point that needs to get resolved so that Yield Tilt can get resolved. And I'm gonna move us on because John and Can Julie

[Patrick (Joint Fiscal Office Analyst)]: I ask a quick question?

[Sen. Ann Cummings (Chair)]: Yes.

[Kirby King (Office of Legislative Counsel)]: I don't wanna keep those guys for sure. We talked about the qualified small business talk

[John Gray (Office of Legislative Counsel)]: earlier and talked about adds,

[Kirby King (Office of Legislative Counsel)]: Okay. And we talked about how there's the house board amendment that I need to fix my own. Yes. We'll see.

[Chris Rupe (Joint Fiscal Office)]: Would you

[Sen. Ann Cummings (Chair)]: that to us.

[Kirby King (Office of Legislative Counsel)]: The the would you like me to bring you something on Thursday that would be closer to the house instead of?

[John Gray (Office of Legislative Counsel)]: Yeah. Is that the okay.

[Sen. Ann Cummings (Chair)]: Yep. That would be helpful. It's. Okay. So we're going to John and Julia. I don't know who's coming first. Me. But we have this on for possible votes, so you all better do a really good job. Sean, is it raining at night?

[John Gray (Office of Legislative Counsel)]: No. It's been Spell that what you're talking about.

[Sen. Ann Cummings (Chair)]: There are two or three umbrellas that have been in that closet for at least ten years.

[Sen. Scott Beck (Member)]: I'll

[John Gray (Office of Legislative Counsel)]: spit to know that I didn't use something that was available.

[Sen. Ann Cummings (Chair)]: If anyone needs an umbrella, I have a brand new big umbrella, but it's in the shop in my car.

[John Gray (Office of Legislative Counsel)]: Completely large umbrella. It covers 10 people.

[Sen. Scott Beck (Member)]: It's got to be the mattress. Get a whole lot

[Sen. Ann Cummings (Chair)]: of lines on the wall right there. She can

[Sen. Randy Brock (Member)]: lift it off your shoulders. Yeah.

[Sen. Ann Cummings (Chair)]: Okay. We're gonna start losing people shortly, so let's move this Let's do it. Okay. Let's do it.

[John Gray (Office of Legislative Counsel)]: So I am still John Gray with the Office of Legislative Council, and we are looking at the Neal bill, which is very exciting.

[Sen. Ann Cummings (Chair)]: We've had a very exciting afternoon.

[John Gray (Office of Legislative Counsel)]: Oh, yeah? I've seen flickers of some of the things that have come up with it. And I'll leave it at that. Okay. Here's the yield bill.

[Sen. Ruth Hardy (Member)]: It's a

[Sen. Ann Cummings (Chair)]: clean bill, right? Yes. Good.

[John Gray (Office of Legislative Counsel)]: Okay. Yield bill, you know the sorts of things that are typically included in this. There are some technical changes for cleanup and finance measures that I'll come to, but the first two sections speak to the approach to FY27 tax. So just to foreshadow what you're gonna see later, half of the 104,900,000 available from the general fund transfer is being applied as proposed here, which results in a property owner equivalent yield of 9,170, income yield of 12,576, and a non homestead rate of 1.698. The remainder of that balance, which is 52,450,000, is reserved in the FY '28. You guys are familiar with this language, don't think I have to belabor it, but the commissioner of taxes is just under one letter, he's gonna make some assumptions in setting the yields, and this is directing the commissioner to make these assumptions related to the reserve, 52,450,000, so that next year's recommendation reflects that 52.45, and I will let Gulick explain the fun things about what it actually means. So jumping past the traditional yield pieces, have some cleanup changes. The first of these is section three. This is amending the chapter that covers the property tax credit, and this is cleanup for the statewide adjustment. Do you guys need orientation on the statewide adjustment, or can I just say what this is trying to do?

[Sen. Ann Cummings (Chair)]: Say what it's trying

[Sen. Scott Beck (Member)]: to do.

[John Gray (Office of Legislative Counsel)]: Okay, so basically, in the absence of this, what this proposal does is when the statewide adjustment was introduced, it was meant to be mathematically neutral, right? It's just meant to affect the presentation of property tax bills so that the amount of variation you attribute to the CLA is reduced, basically. The statement of adjustment is supposed to reduce that attributable variation.

[Sen. Ann Cummings (Chair)]: Yes.

[John Gray (Office of Legislative Counsel)]: And so changes were made throughout the education property tax chapter to offset, to produce that mathematical neutrality in the denominator and numerator, but in the property tax credit chapter, one of the things that hadn't been addressed is the relationship between the income yield and the property yield. So in the essence of this, the calculation of property tax credits was thrown off, you had changes on the property side of the equation, but not on the income side of the equation, and so what this does is it just insulates that chapter from this essentially, and it results in the calculation you would have pre introduction of statewide adjustment, and it doesn't have any effect on the presentation of tax bills either, so this doesn't undo anything the statewide adjustment is meant to do, it just insulates the chapter so that the calculations align, your property tax credits come out correctly. That is the That was it.

[Sen. Ann Cummings (Chair)]: Feels like we believe we've saved, but Sure. Yep. Julie says that's

[Patrick (Joint Fiscal Office Analyst)]: what

[Sen. Ann Cummings (Chair)]: it Julie says that's what it does.

[John Gray (Office of Legislative Counsel)]: I also said that's what happened.

[Sen. Ann Cummings (Chair)]: And you say that. It cheek crunches the numbers. Sure. Sure.

[John Gray (Office of Legislative Counsel)]: That's good. I like that. Okay, on page three, you guys are already familiar with these provisions. You've seen one exactly like this for the City Of Berry recently. We've The investment last year for the overpayment in FY 'sixteen through 'twenty, I think that's attributable to a software issue is my understanding that has now been resolved, at least that's the claim. So this is hopefully the last refund from the Ed Fund for 150,576. It's appropriate from the Add Fund to the Department of Taxes in FY '27 for payment to the City of Barrie to compensate for those overpayments in FY '21 through '24. Section five, this looks way more complicated than it is. Your Census Block Grant, so this is in Title 16. When the statute that was created that provided for these, it provided, as you'll see in struck through language on page four, all these fun mathematical adventures including different inflationary factors depending on the year. It made for this very messy statute, and the main thing that was omitted here, the reason that this provision originated, is that it provides for inflation through FY26, right? You can see that here. He provided for no inflation FY '27 onward, and so this is a provision that's included to inflate that census block grant moving forward, as you might have expected. I think it was kind of like an oversight in what was done at that time, and it also cleans up the statute so you don't have all these transitionary measures in there. So it ends up being that the uniform base amount means $23.5 is adjusted for inflation. I do want to call it the unique inflator that is included here. Typically, you guys have seen just the annual change in NIPA. What's proposed here, I think, to reduce variation, volatility would be a three year rolling average effectively, and you can see that on lines 16 to the bottom of the page, adjusted for inflation to each fiscal year beginning in FY twenty eight, because this figure reflects the FY twenty seven figure, it codifies that FY twenty seven figure, and adjust it by the most recent three year average annual percentage change. Oh,

[Sen. Ruth Hardy (Member)]: so three year average of NIFA?

[John Gray (Office of Legislative Counsel)]: Yes, and the annual change, it's not taking that three year total, yeah. Of the average change, yeah, okay.

[Sen. Randy Brock (Member)]: What would that mean if you have a year where you have an unusually high number?

[John Gray (Office of Legislative Counsel)]: Right, so that's exactly what this is intended to address for, is that you have it counteracted by the other two years included in that period,

[Patrick (Joint Fiscal Office Analyst)]: and you could imagine that if

[John Gray (Office of Legislative Counsel)]: you just use the standard annual change provision, you could have so many bold fluctuation in that year unless you have

[Patrick (Joint Fiscal Office Analyst)]: a high change. Is NEPA the one that went away? The one that went

[Sen. Ann Cummings (Chair)]: I don't And

[John Gray (Office of Legislative Counsel)]: just to so so what this does, just to explain some of the context, you've heard the core thing that this provision is trying to do, but the uniform base amount is a per pupil amount effectively that is multiplied by your student counts to produce the census block grant, which is an aggregate figure, and so this sets your effectively per pupil amount, and then you can see and statute the way that it works, the state commits to satisfying the special education maintenance and fiscal support efforts requirements, spells out the process for receiving a census grant, use that funding to provide special education services in accordance with IE fees as mandated under federal law, and then you see the cleanup of transitionary measures that we no longer need, and the very simple calculation, the amount of the census grant for a supervisory union shall be the uniform base amount, the 23.5, as adjusted for inflation, multiplied by the supervisory union's long term membership. Much easier to read this section down

[Sen. Ann Cummings (Chair)]: there,

[John Gray (Office of Legislative Counsel)]: And that is the main thing I care about. Love that.

[Julia Richter (Joint Fiscal Office)]: I love that too, Tom. I'm not blame her. And

[John Gray (Office of Legislative Counsel)]: then It's

[Sen. Ann Cummings (Chair)]: just for the transition. All of that was language that spelled out transition. They threw it, so poor law that

[Sen. Ruth Hardy (Member)]: was passed almost a decade ago now, and we did. 2018?

[John Gray (Office of Legislative Counsel)]: And it's effective 07/01/2026.

[Sen. Randy Brock (Member)]: And the only number that is the three year average is the number of the amount that is spent. It's not student population.

[John Gray (Office of Legislative Counsel)]: But the three year average is just for the NIFA annual change. The effect that, what that plays into is the uniform base amount, that 23.5 per pupil, exactly. And that is it, that is the yield bill. Okay.

[Sen. Ann Cummings (Chair)]: Any questions? I'm gonna jump. I've told upstairs we're not gonna vote anything out tonight. I'm starting to lose people, and I'd like to let everything settle. But tomorrow, I'm gonna drive vote this out. It's 07:10, that utility make our way drive way.

[Sen. Ruth Hardy (Member)]: Someone reminded me that there was a PUC wanted amendment

[Sen. Ann Cummings (Chair)]: for that bill.

[Sen. Ruth Hardy (Member)]: They had a technical change requested in their testimony. Somebody just reminded me when I was alcohol going back to

[Sen. Ann Cummings (Chair)]: the office. Well, said she'd get it to us. I think she emailed it to you about an hour ago.

[Sen. Ruth Hardy (Member)]: About an hour ago. Yeah. So yeah. They told me to tell you because you wouldn't be looking at your email.

[Julia Richter (Joint Fiscal Office)]: I was waiting So for you to bring up the

[Sen. Ann Cummings (Chair)]: I would be looking to amend if this is truly tactical and vote both of those out, like first thing or last thing, probably first thing.

[Sen. Ruth Hardy (Member)]: Are we gonna hear from Juliet to go over the We are going to

[Sen. Ann Cummings (Chair)]: hear from Juliet, yes. I was just giving you all things. Okay. So Julia, come on up. This is probably the simplest bill we had this year. Great. I mean, actually, the yield bill in former years has been attached to miscellaneous tax. Last year it was a major bill and came over like the last week of the session with a lot of the educational changes on it. This year it's pretty simple, but probably should go alone since miscellaneous taxes are pretty simple. So, we'll see if we can get this out. All right.

[Julia Richter (Joint Fiscal Office)]: Joined fiscal office. I'm gonna go ahead and share my screen. There are a few documents in the committee page under my name. There's the fiscal note. There is an Ed Fund Outlook I put together for the committee. And then there's also an issue brief, the ASO published one of these days, an issue brief on what happens if there's no budget, and another issue brief of what happens if there's no yield bill. So if there's no yield bill, that issue brief is also posted on the committee page. Madam Chair, do want me to start with a fiscal note?

[Sen. Ann Cummings (Chair)]: Sure.

[Julia Richter (Joint Fiscal Office)]: Okay. John just walked through all of this, so I think we can go through it pretty quickly, unless you want at least we can go through sections three through five pretty quickly. Section one, this is setting those yields and rates. The house construct uses half of the 104.9

[Sen. Ann Cummings (Chair)]: general fund one time transfer to uniformly lower tax bills in fiscal year '20 this one may not be going out tonight because that is the subject of

[Chris Rupe (Joint Fiscal Office)]: Yeah.

[Sen. Ann Cummings (Chair)]: Some discussion.

[Julia Richter (Joint Fiscal Office)]: Yes. Okay. So the House construct landed on, there's that 104,900,000 in the general fund being transferred in the big bill, assuming that your Senate Appropriations Committee keeps it, being transferred to the education fund for lower property taxes. The house construct uses half of that one time money in FY '27 to uniformly lower bills, and then reserves the other half in section two to use for lowering bills in FY '28. So this 52,450,000 that's reserved in FY '28 is just half of the 104,900,000. The house passed version of the yield bill. When they passed the bill, that represented an average increase of 7% for all property tax bills as compared to the prior year. That's the estimate. When we get to the outlook, yeah, that's the average. When we get to the outlook, as always happens or usually happens, we have updated budget data, so that's not the uniform increase anymore. So if you were to wanna keep the house construct and make no changes, there would still need to be an amendment from this committee to align the yields and rates with the updated budget information. Okay. But we'll talk we can talk through that when we get the outlook. So, section three, this is that technical correction for statewide adjustment. JFO, alleged counsel, tax department all worked on it in consensus. We all agree it needs to happen so that the statewide adjustment doesn't have a fiscal impact. Section four, this is the second half of the Berry TIF overpayment that needs to be refunded back to the city of Berry. This comes from the Ed Fund because it would be $150,576 de minimis impact to the Ed Fund. Lastly, section five, John just did a great job walking through this. Essentially, it's codified the Census Block Grant for Special Education uniform base amount, its statute at 23.5 for FY '27, and then increased by inflation each year. This is what AOE has already communicated to the field. It was included in the gov rec budget and then included in the house budget for the purpose of calculating the special education census block grant. So there's no fiscal impact because this is essentially lining up statute to what everyone was anticipating.

[Sen. Scott Beck (Member)]: So is the this is the first year it's uniform one. Correct. Is that correct?

[Patrick (Joint Fiscal Office Analyst)]: Yes. K.

[Julia Richter (Joint Fiscal Office)]: Which is why now we could put a uniform based on that. We can put just, like, a a number in statutes, basically. K. And then and and based on the converse we had some good conversations with AOE. Based on conversations with the AOE, This is the number that had they've been going towards Towards. Yeah. From x 73.

[Sen. Ann Cummings (Chair)]: 73.

[Julia Richter (Joint Fiscal Office)]: Not one at one seventy three. Thank you. I've been doing a lot of x 73 today.

[Patrick (Joint Fiscal Office Analyst)]: Oh, yeah.

[Sen. Thomas Chittenden (Vice Chair)]: Add I'm just gonna reel my hand a little bit and what I said on the radio, and I wanna post it as a question to Julia. But what I I don't support this bill as it currently is. What I do support is using that full 52,450,000 to buy down the tax rate this year, and I also like to add the s two twenty language to this bill, but do you have the mock up of what the full buy down would translate to?

[Julia Richter (Joint Fiscal Office)]: I had a feeling the committee was gonna wanna understand that. Right. So moving to the outlook, I'll just walk through what we have here. I sort of so reorienting ourselves. And a reminder, we're now using budget data as of March 16. So this is an update from the budget data that has waived the means that the house was looking at. At 01/26, this is that preliminary DAA. Nothing's really changed there from the last when I was in here. Column v, this is the house task construct, which I know this isn't the question center Chittenden, but lining this up. Column b, this is the house passed construct to use half of the one zero five million to uniformly lower property taxes. This is what I wanna call out, where if you I'm not saying that you do want to, but if you were to want to keep the house construct with the updated budget information, things flexed. And so That's fine. Yeah. Because school budgets came down further between the February update that we're looking at, March updates, by round about $5,000,000. Now it would be a uniform average bill change of 6.7% if we were to move to the not homestead yields. You see that one time general fund transfer being assumed here in line eight, And then you see half of it being reserved here and or that's the transfer and then half of it being reserved here in line 35. I do wanna also note that this construct uses a 22,300,000 of Ed fund surplus to also uniformly lower property taxes in FY '27. Yeah. So the house construct is using a 52.5 from general fund plus the 22.3 of Ed fund surplus to uniformly lower.

[Sen. Ann Cummings (Chair)]: Uniformly lower. Did you ever look at not uniformly?

[Julia Richter (Joint Fiscal Office)]: Yeah. And I can certainly come back. The process in house ways and means as some of your colleagues are intimately aware from their time prior in the house is usually starting in, like, the second week of the session. I go into house ways and means every week, and they look at it outlooks and they did explore what happens if the buy down is used only to certain classes or shaking things off, adjusting the property tax credit, and we can certainly do that here too. Great. Thank you. That's column b. That's what the house passed. Column c, this is I want to sort of sort of show, like, the two extremes, so to speak, of the box that we're working in. So sections column c is what if there was no general fund transfer to the education fund? And that and there was a uniform bill change. So if there was no money coming in from the general funds, that would result in an average uniform bill increase of 9.9%, so 10% compared to the prior year.

[Chris Rupe (Joint Fiscal Office)]: But that does include the '22, her?

[Julia Richter (Joint Fiscal Office)]: It does include the education fund surplus. Yes.

[Patrick (Joint Fiscal Office Analyst)]: I had the impression that when the Ed spending from the December 1 letter was then marked down with updated numbers from a

[Sen. Thomas Chittenden (Vice Chair)]: few weeks ago, I thought that was up 4.3%.

[Sen. Scott Beck (Member)]: I thought I just heard

[Sen. Thomas Chittenden (Vice Chair)]: you say that it's further marked down, but I'm still only seeing 4.2%. Am I not remembering correctly?

[Julia Richter (Joint Fiscal Office)]: You are remembering correctly. You're referring to

[Patrick (Joint Fiscal Office Analyst)]: Line h.

[Julia Richter (Joint Fiscal Office)]: Line h. The difference is, and this is a little bit weedy, but the estimate is still four point two percent. The four per the 4.2% was as school budget information came in. That was the estimate. However, we didn't have a number of school budgets, so we weren't including them in the average. We had to use the 4.2% to project what their education spending would be. But now that we have the updated budget information, it's still 4.2%. Okay. Because really, compared in the context of an education payment of 2,000,000,000 coming down by 5,000,000 seems like a lot. And in terms of percentage points that where it's rounded, it's not making a significant

[Patrick (Joint Fiscal Office Analyst)]: Why did the house estimate go from 7% down to 6.4%?

[Sen. Thomas Chittenden (Vice Chair)]: I thought you thought you heard you say that that 6.4% is an update from what has been said

[John Gray (Office of Legislative Counsel)]: about Why? The

[Sen. Scott Beck (Member)]: Why did it go down?

[Julia Richter (Joint Fiscal Office)]: Because of updates to education spending. But what I'm saying is that because in the if you think about you think about the way that the education fund works and the scale of the numbers that we're working within, a decrease will significantly impact certain tax rates, which would correspond with a more significant impact in uniform average bill change because that's weighting the the tax rates by district size. Whereas, when looking at the ed fund as a whole, it takes a it takes a lot to to move the needle to where it's not rounding to the same, or it takes more, I guess,

[Sen. Ann Cummings (Chair)]: I should say.

[Sen. Scott Beck (Member)]: Last one.

[Sen. Thomas Chittenden (Vice Chair)]: So if the committee is amenable to adding our s two twenty language to this bill, would you expect the s two twenty estimates to also have fluctuated since you last ran those numbers based on that same?

[Patrick (Joint Fiscal Office Analyst)]: That's true.

[Sen. Thomas Chittenden (Vice Chair)]: That's the excess threshold penalty bill that we had.

[Sen. Ann Cummings (Chair)]: Okay. Well, I'm already at two.

[Julia Richter (Joint Fiscal Office)]: So

[Sen. Thomas Chittenden (Vice Chair)]: You understand my question? It's like, do those numbers also adjusted?

[Julia Richter (Joint Fiscal Office)]: They would be. Okay.

[Sen. Ann Cummings (Chair)]: That assumes that passes the house. And

[Julia Richter (Joint Fiscal Office)]: I guess I would say that Well,

[Sen. Thomas Chittenden (Vice Chair)]: I'm gonna holding on chair. You mentioned this on the radio, I think I mentioned to you as well, the WBMT. So it just

[Patrick (Joint Fiscal Office Analyst)]: Just a good segment. You should have given a list

[John Gray (Office of Legislative Counsel)]: of I can say that.

[Sen. Thomas Chittenden (Vice Chair)]: I I think what the house did is sensible. I do think splitting it up into two. I think equally sensible is to give property taxpayers the relief they need with the full buy down, coupling it with what I see as sensible policy, which is lowering the excess spending threshold. So what I said is I support the full buy down coupled with what we did with s two twenty. That's just what I said on the radio where I currently am on this bill. I also qualified it by saying this where

[Patrick (Joint Fiscal Office Analyst)]: I currently am, and I'm looking to understand more about the give and take of these topics.

[Sen. Ann Cummings (Chair)]: I appreciate your sharing your opinions. I don't agree with that, but I appreciate your Okay. Your I

[Julia Richter (Joint Fiscal Office)]: would, I just wanna clarify one thing about the s two twenty estimates, that the s two twenty estimates that the Senate looked at and this committee looked at when you're considering s two twenty, those would be refined with the new budget data. However, assuming that the S-two 20 constructs has passed out of the Senate were to be included in the yields bill because because that's not effective for FY '27 and it'll be effective for FY '28, we wouldn't see any estimated impact in this outlook. Okay. Okay. So so that's policy if there's no general fund monies used to buy out property taxes, but there is the education fund surplus. And lastly, on this Ed Fund outlook, but there, of course, are infinite different ways to do this. Column d is if the entire $1.00 4,900,000 of one time general fund were to be used to uniformly lower property tax bills in FY '27. So answering your original question. This would be in addition to the 22,000,000 of the Ed Fund surplus. And if it were to be solved uniformly, that would result in an average property tax increase compared to the prior year of 3.6%. You can see that there are some, like, in here in line eight, and then that entirety of it being used in lines twenty nine and thirty seven and thirty five.

[Sen. Ann Cummings (Chair)]: Any questions at this point? I think we probably have enough numbers. I'm not the one point of contention since it's policy, these are numbers, the yield is set on numbers, is what do we do with this general fund transfer. It's from last year. I assume that the budget is holding that. So the question is, do we put it over two years? I know which of the top was three, which is when the foundation formula goes in. The concern is that if we buy it down all this year, a, the sticker shock, it's like utility bills. You keep buying it down and down, and then the full bill hits you. In next year, it is extremely painful to people. And then when we go to a foundation formula, that is going to be extremely painful to some schools. And we haven't figured. I believe there is work in the education bill that did they vote it out on Friday?

[Julia Richter (Joint Fiscal Office)]: Yeah. So the H-nine 55 was voted out of house appropriations this afternoon.

[Sen. Ann Cummings (Chair)]: So we will get that maybe early next week, depending on how long it takes to get it off the floor. And I believe that has transitioned ways to transition high spending schools down and low spending schools up and the relevant because tax rates will have to be adjusted and we'll work on it. But there's there's a lot of adjustments coming that and So that I think is the big one. Other than that, it's some housekeeping and the yield is a numbers calculation.

[Sen. Randy Brock (Member)]: Well, just wonder where the administration is on this and whether or not you're gonna have a potential.

[Sen. Ann Cummings (Chair)]: So so I'll put the details on. I think she the Caledonia has said he doesn't like this plan.

[Sen. Ruth Hardy (Member)]: Chris, the the yield bill uses general fund to buy the tax rate down. It it had did anyone look at using that general fund surplus to just help the jet trans the T fund instead of moving funding sources around in this somewhat So the way.

[Chris Rupe (Joint Fiscal Office)]: The governor's recommendation actually had that transfer at a 114,900,000, 10,000,000 higher than that number, and 10,000,000 of that would have essentially paid for in the Ed fund, the cost of shifting 10,000,000 of purchase and use tax out of the Ed fund into the T fund. So in that sort of I think of that, like, recycling symbol with the arrows and the triangle. Like, in that construct, there was still a $104,900,000 going from the general fund into you had fund to buy down rates. Mhmm. So that I have not seen any different construct with that relative to transportation. What senate transportation has been talking about is why send that why have the Ed Fund be the middleman for that 10,000,000? Why not just send a $10,000,000 transfer directly from the general fund to the t fund and keep that transfer going to the Ed Fund at a 104.9? At the end of the day, like, it's a different path to get roughly $10,000,000 from the general fund, even the t fund. The impacts from all of these policy decisions that are outstanding are really f y twenty eight and beyond. Okay. And whether whether the impact of that falls on property taxes, on education property taxes, or whether that falls on the general fund or some other yet to be determined transportation rather. Mhmm.

[Julia Richter (Joint Fiscal Office)]: And and I I guess I would say to Chris' final point of that impact showing up in f y twenty eight, do you know that Ed Fund has a portion of purchase and use tax? So that 10,000,000 is one would be one time in f y twenty seven to fill the hole in FY '27, but come FY '28. If there were to be a phase down of that purchase and use tax, Chris' point, that would be good. That's what's Right. So we're if we're buying down the rate even more and we're allowing the purchase fees tax thing, then we're

[Sen. Ruth Hardy (Member)]: just creating a bigger hole that we're gonna have to buy down in the future. And that's what we did last year. We created this big hole that we're now talking about buying down again this year. And so it seems to me if we have this one time general fund money, we should instead of creating bigger holes in the Ed Funds, maybe we use it to buy down or, you know, help the team fund and not create a future hole in the education fund. And do it even big, make it even bigger hole than it already is. I mean, one of the reasons the rate is so much higher this year is because we bought things down last year. We created this problem for ourselves. And in fact, members of this committee argued to create this problem for ourselves. Yeah. So, it's strange that we're doing it again.

[Sen. Ann Cummings (Chair)]: I'm sorry. I'm really. I can't make a call. Yes.

[Chris Rupe (Joint Fiscal Office)]: And, okay, madam chair. I gotta just follow-up on Senator Hardy's comment. Alright. Doing policy decisions, you all land on the t fund. If you were to do a $10,000,000 transfer straight from the general fund to the t fund, that still creates a hole in the t fund in years beyond that. And I just wanna give the committee some context that that $10,000,000 leverages over $60,000,000 worth of project investment because of the federal match at play. So that is an important consideration of, like, not creating cliffs in any of the major funds. And one thing that the house's construct did, it that's in miscellaneous tax is it doesn't create a $10,000,000 cliff in f y twenty eight. It shifts $10,000,000 on an ongoing basis, you know, give or take a couple 100,000 with revenue growth. But it doesn't commit to doing, you know, step two, step three, step four, and step five to get you all the way to $50,000,000 for the t one. It just it takes step one and stands on step one until the legislature agrees to go up another step. Mhmm. It's it's a nuance, but it's an important nuance because I've heard this described inaccurately in the building. So I wanna be really clear that that construct was not just a one and done in FY twenty seven.

[Sen. Ruth Hardy (Member)]: Okay. So it does fill the

[Sen. Ann Cummings (Chair)]: hole in the education fund. Yes. But what the governor

[Patrick (Joint Fiscal Office Analyst)]: For 10,000,000. Yeah.

[Sen. Ruth Hardy (Member)]: For the 10,000,000. Yeah. What the governor proposed would not have filled the hole.

[Chris Rupe (Joint Fiscal Office)]: Correct. Okay. It only would have filled the hole in f y twenty seven.

[Sen. Randy Brock (Member)]: Right. Okay. And then that's only gonna

[Chris Rupe (Joint Fiscal Office)]: be filled on the on education property taxes in future years absent the legislature, you know, making a policy change or or doing something else. But when all else is equal, that well, what you've killed by property taxes on it. Right.

[Sen. Ruth Hardy (Member)]: So that would increase the governor's proposal would have,

[Julia Richter (Joint Fiscal Office)]: all things being equal, increased property taxes in the future. Correct. Yes. That's a fair statement.

[Sen. Ann Cummings (Chair)]: But Assuming dollars of pennies.

[Chris Rupe (Joint Fiscal Office)]: Meals and rooms doesn't go up.

[Sen. Ann Cummings (Chair)]: That you're up to this. 2,000,000 out.

[Kirby King (Office of Legislative Counsel)]: Right.

[Julia Richter (Joint Fiscal Office)]: And that was not the the governor's contract. So the governor's contract had that pulling out of PNU over the years, backfilling it in FY '27, and then that was it. And then the house changed it to backfill it with the ongoing. And

[Sen. Ann Cummings (Chair)]: education fund is out of this. Transportation gets 10,000,000 provided the taxes keep coming in. The economy that's probably running roughly an equal transfer, and that's ongoing so they don't have to rely on getting 10,000,000 plus yeah. Miscellaneous tax, the decoupling raises that $10,000,000 so that the general fund is also held harm. The

[Sen. Ruth Hardy (Member)]: the yield bill in section two with the head fund reserve. The fifty two four fifty. The yield the house version uses 27 uses half of it in '27 and then reserves the other half for use in 28.

[Julia Richter (Joint Fiscal Office)]: That's right. Yeah. And this would assume the entirety of the one zero five were to be transferred from the general fund to the Ed Fund, so it wouldn't fall into the big building contingencies. So it'd all be transferred to the Ed Fund, and then half of it would be put in reserve.

[Sen. Ann Cummings (Chair)]: Mhmm. You just okay.

[Sen. Ruth Hardy (Member)]: Kind of what I proposed last year in here was the reserves and

[Julia Richter (Joint Fiscal Office)]: the 100 so that we could use it this year so that we wouldn't have percentage increase that we have. I

[Sen. Ann Cummings (Chair)]: think this is about all we can for today. Thank you, everyone, who's held with us. We are

[Sen. Ruth Hardy (Member)]: now