Due to an influx of federal stimulus and COVID relief funds, Vermont has more than $300 million in surpluses combined in the state's general fund and education fund. This has prompted discussions at the Statehouse about different proposals to cut taxes, and it's likely there will be a spirited debate among lawmakers and the Scott administration over the best way to achieve tax cuts.
A number of legislative committees are starting their review of these issues.
VPR’s Mitch Wertlieb spoke with VPR senior political correspondent Bob Kinzel to get an update of where things stand. Their conversation is below and has been edited for clarity.
Mitch Wertlieb: Let's start with the general fund surplus. It is expected to be around $230 million this year. What are the key factors that created the surplus?
Bob Kinzel: Well, Mitch, virtually all of it can be attributed to the huge amount of federal COVID money that's come into the state over the past two years. I mean, think about it. There have been stimulus checks, enhanced unemployment benefits, expanded child tax credits and business grants to deal with COVID. And when you add it all up, you're looking at $10 billion. That's five times the size of the general fund budget.
"When you look at dropping $10 billion on us, on a small economy like Vermont has, and how that flows through, it hits lots of different tax sources," said legislative economist Tom Kavet. "It hits lots of different parts of the economy."
So Mitch, all this money has worked its way through the Vermont economy. It's really boosted revenue for the personal income tax, corporate income taxes and the state sales tax. And it's had such an impact that, as you mentioned, the surplus in the general fund could easily top $230 million when the fiscal year ends on June 30.
Well, we know that Gov. Phil Scott wants to return some of the general fund surplus money to taxpayers. What is his plan to do that?
Well, the governor's determined that it would be financially prudent to allocate about $50 million of this surplus for a package of tax cuts. He says his package will help retirees, young workers and middle-income families. His proposals include not taxing military pensions, exempting some social security payments from the state income tax, tax credits for health care and child care workers and expanding the state's Earned Income Tax Credit program.
"With a surplus in our base budget, we can make changes that Vermonters will notice in their wallets," said Scott during his budget address. "If you work with me to pass this package we'll help tens of thousands of Vermonters keep more of what they earn."
Usually the governor opposes plans to use one-time money for ongoing programs, but this is a case where he thinks allocating $50 million for these tax cuts is financially sustainable in the future.
And that's because there's so much extra, I'm assuming. So that's the governor's plan. What's emerging as the leading legislative plan to use some of the surplus to lower tax burdens?
Well, Mitch, lawmakers seem to be going in a very different direction. House Ways and Means Chairperson Janet Ancel is using that same $50 million number, and she wants to target families with young children with her tax cut. Under Ancel's plan, families with children six and under would receive $100 a month per child or $1,200 a year.
"It seems that if we want to encourage young families to live in the state and stay in the state targeting any kind of tax reduction that we might do to those families makes a lot of sense," Ancel said.
This bill is moving along. Late last week, it was approved by the House Ways and Means Committee on an 8-3 vote. And that's a pretty good indicator of how it will be received on the full House floor when it comes up for debate.
OK, so that's the general fund surplus and the debate over plans to use some of it to lower taxes. What about the education fund, Bob? What are the reasons why this fund has a surplus of almost $100 million?
I think it really reflects how the spending habits of many Vermonters have changed during the pandemic. Spending all that money has been fueled by the federal stimulus and COVID money.
"So they're not doing as much travel, not spending as much on services. All of that money plus the stimulus money is going into goods, and that represents about $1.7 billion in additional spending," said legislative economist Tom Kavet.
So, Mitch, let's just review that number again. In the last nine months, Vermonters have increased their overall spending — mostly on goods — by $1.7 billion. And that's created a $100 million surplus with the sales tax.
OK, Bob. So, the governor has proposed a package of tax cuts that would be financed using half of the education fund surplus. That's roughly $50 million. What's his plan there?
Well, Mitch, the governor is proposing a one-time tax cut in the form of a rebate for all property owners in Vermont. It would amount to about $150 per parcel of land.
"Affordability is an issue for us, and if we have an opportunity to, to make it a little more affordable by giving some back, I think we should do so," Scott said.
So, Mitch, here's his logic: If the state knew last spring that the state sales tax revenues were going to be so strong — that $100 million surplus — then the statewide property tax rate would have been set at a lower level, but they didn't know. And they've used the rebate as a way to lower property tax burdens, but just on a one-time basis.
It's interesting, Bob, because this feels like good problems to have for the state to have all this extra money, but it comes down to how it gets used. So how are key lawmakers looking at using the education fund surplus contrasted with how the governor would like to use it?
Mitch, I think legislative leaders have a feeling that this unexpected surplus in the education fund offers an opportunity to make some additional investments in Vermont schools, particularly to support students and teachers who have been most affected by the pandemic.
"We're not out of the pandemic," said Senate President Pro Tem Becca Balint. "We are hearing from so many Vermont families and schools that there's a mental health crisis happening right now in Vermont. So, we want to make sure that that is part of any package that we put forward."
Gov. Scott does not support this legislative plan. He says the state has more than enough federal money to address many of these COVID issues that affect Vermont schools and students. Again, he wants this money to be returned directly to property owners.
And what are the next steps here, Bob? How will these issues play out at the Statehouse?
They're going to play out pretty soon. That general fund tax cut that was approved by the House Ways and Means Committee could be on the House floor for a vote early this week. The governor's property tax plan — the rebate plan for property owners — is still very much up in the air. It's probably tied up with consideration of next year's budget. So, that really won't come to a head until sometime at the end of March.
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