PO Box 440, St. Albans Bay, VT 05481
The House Government Operations Committee met on Thursday to discuss Vermont's overwhelming pension-underfunding problem. Joint Fiscal Office staff member Chris Rupe presented a report that summarizes the state’s complex pension systems and outlines why they are in such bad condition.
Between FY21 and FY22, the unfunded liability for the Vermont State Employees' Retirement System increased by $225 million, and the determined employer contribution – the yearly contribution from the state – is projected to increase by $36 million. Moreover, the same projections increased by $379 million and $60.6 million respectively for the Vermont State Teachers' Retirement System. The two funds combine for an increase of $605 million in unfunded liabilities and a projected $96.6 million contribution from the state in FY22.
Recent changes in assumptions based on employee experience, investment performance, funding history, and demographic and economic forecasts resulted in the updated deficit projections. Despite the range of possible reduction options in the Treasurer’s report, the real challenge is finding one solution to eliminate underfunding increases entirely.
The committee discussed the possibility of the State filing for bankruptcy as a way of avoiding its unfunded obligation, but that prospect was not seriously considered. Federal law does not allow states to declare bankruptcy. Even if Congress provides a COVID-19 exception, bankruptcy would not eliminate the State’s existing unfunded liabilities.
The prospect of switching employees from defined benefit to defined contribution pension plans hit a nerve with many committee members. While the suggestion may be subject to further discussion, it seems unlikely to receive serious consideration.
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The legislature passed a law last fall that was intended to make it easier to build more housing at greater density by prohibiting certain deed restrictions, specifically for accessory dwelling units (e.g., mother-in-law apartments) and small lots with access to water and sewer.
After the law was enacted, Vermont’s real estate community raised concerns about the breadth of the language, which was likely to invalidate many common deed restrictions, including those used by homeowner associations and those added as part of settlement agreements. The law could be interpreted to mean that other state statutes, such as environmental laws, could not limit any development that is otherwise allowed under local bylaws.
S.14 corrects and narrows the language in Act 179. It states that deed restrictions added after March 1, 2021 are invalid if they would prohibit ADU’s and development of existing small lots. Both were part of the original intent of Act 179 and both encourage infill development and increasing housing density. The bill also seeks to prevent private parties from overriding the intent of Act 179. It would take effect retroactively on January 1, 2021 in order to avoid invalidating any deed restriction under the prior language. The bill was reported on the Senate floor on Friday, and will be up for a final vote next Tuesday.
The House Committee on Natural Resources, Fish and Wildlife and the Senate Committee on Natural Resources met jointly this week to hear testimony on Executive Order No. 02-21, which makes significant changes to the makeup of the Act 250 Natural Resources Board. The current board—comprising a full-time chair and four citizen volunteers—coordinates the nine district commissions, provides legal and technical support and participates in Act 250 appeals.
The governor’s executive order gives more authority to the NRB by creating a new board made up of three full-time professionals who would assume the duties of the original board and rule on all major Act 250 permit applications. For each major permit application deliberation, the new board would be joined by two voting district commissioners from the district in which the permit originated.
Legislators had barely scratched the surface of the merits of the order when the conversation was sidelined by a constitutional question. State law provides that within 90 days, only one legislative chamber needs to object to an order for it to become null and void. However, the last paragraph of the governor’s order reads that it “shall take effect on April 15, 2021, unless disapproved by both houses of the General Assembly.”
Jaye Pershing-Johnson, General Counsel, Governor's Office, testified that she was “putting the legislature on notice” that she considers the state statute to be unconstitutional, and she cited U.S. Supreme Court case law invalidating a Congressional one-house veto.
Meanwhile, a lawsuit filed Wednesday on behalf of a Berlin environmental attorney makes a sweeping constitutional argument challenging the authority of executive orders to circumvent existing law. Committee members were advised by legislative council that although a challenge to the law has been filed, they should proceed under the law currently on the books. If that’s the case, there may be a straight up or down vote on the executive order from one or both houses of the legislature.
The governor’s $10 million Economic Recovery Grant proposal is not ready for inclusion in the Budget Adjustment Act quite yet, according to members of the House Commerce and Economic Development Committee. On Wednesday, the committee spent a majority of the day discussing the proposal with Department of Economic Development Commissioner Joan Goldstein, but reported to the House Appropriations Committee on Friday that they were not in agreement with the governor’s proposal at this time.
The proposal would use General Fund money to provide grants to businesses that were ineligible or received only partial funding from the Paycheck Protection Program or Economic Injury Disaster Loans. Commissioner Goldstein said that some businesses that are not eligible for the second draw of PPP because they didn’t suffer the required 25 percent revenue loss may have high fixed costs and COVID-related costs requiring financial help. The grant would also assist businesses established after February 15, 2020 that are ineligible for the federal aid programs. Goldstein reported that 430 new rooms and meal tax licenses were registered during the pandemic, only a portion of the new businesses that may require assistance over the next few months in order to survive.
The committee was concerned that the determination of need would be complicated and inaccurate. Committee Chair Mike Marcotte, R-Newport, suggested that Goldstein “flesh out” the proposal and wait until the BAA is sent to the Senate to propose it. There will be a public hearing on the BAA on Monday before the House Committee on Appropriations votes on the bill.
The Senate Committee on Economic Development, Housing and General Affairs continued work on S.10 this week, a bill that would extend COVID-related unemployment insurance changes that the legislature made in Act 91 of 2020.
Under Act 91, an employer’s experience rating and unemployment insurance tax rates can’t be adversely impacted by unemployment insurance benefits paid to employees who were laid off or quit because of COVID-19. For an employer to be relieved of UI charges, they are required to re-hire the employee or offer employment after a reasonable period of time. Due to the overwhelming number of UI claims filed, the Department of Labor requested that universal charge relief be extended for 2020, as the department did not have the capacity to investigate whether the re-hiring requirement was met for each claim. Labor Commissioner Michael Harrington told the committee that 95 percent of layoffs were COVID related, so inappropriate charge relief would be rare. Harrington also suggested that for 2021, employers could apply for charge relief with a short, five-question survey, with random audits enforcing the re-hiring requirement. The committee will continue work on the bill next week.
The legislature’s E-Board adopted an official state revenue forecast this week. Legislative economist Tom Kavet delivered good news to legislative money committees, saying that “sufficiently massive” federal spending has fended off a recession. Seven billion dollars in federal spending in Vermont ($5 billion from CARES I, PPP, and pandemic unemployment and an estimated $2 billion still to come from CARES II) have stimulated spending and economic activity, significantly boosting state revenues. Consumption taxes are particularly strong and e-commerce is booming.
Total revenues in all three major state funds – General, Education, and Transportation – have rebounded from more pessimistic August forecasts. The pessimism was warranted at the time. There is little historic basis on which to forecast predictions during a pandemic. The negative effects of the pandemic were well understood – unemployment and a cessation of many activities that drive the economy. But the positive effects of federal spending on personal and corporate spending required the benefit of time and tax receipts to better understand. Funds are now expected to fall only $20 million below pre-pandemic FY21 estimates and a total of $77 million above earlier FY22 estimates. These revenue numbers lay the foundation for the governor to propose the FY22 budget.
Property taxpayers heard instant relief. The December 1, 2020 Tax Commissioner letter that helps set property tax rates foretold a nine cent increase. But with very strong sales and use tax receipts, and higher purchase and use tax income, that estimate is now down to two cents.
Under Act 137, the Vermont Legislature appropriated $17.4 million of the State’s Coronavirus Relief Funds to broadband expansion programs. The Department of Public Service administered these programs and finished the year with an estimated $3.9 million unspent. Federal restrictions, time constraints, geographic limitations, and labor shortages are a few of the barriers that the DPS faced.
Vermont has experienced a considerable rise in startup Communications Union Districts due to growing frustration about the inaccessibility of broadband services. New CUDs require funding, information sharing, feasible business plans, and resources such as equipment and experienced laborers. To that end, State and community support, innovative partnerships, and workable finance models are critical to broadband expansion.
On January 15, the House Committee on Energy and Technology took testimony from Consolidated Communications Senior Director of Fiber Build Strategy Jeffrey Austin, who said the company was eager to work with new CUDs. The company has partnered with Searchlight Capital Partners to launch a major five-year accelerated fiber-to-the-premise program, expecting to reach 53,000 Vermont addresses with a 500-mile fiber build-out in 2021.
The Vermont Economic Development Authority’s Broadband Lending Program may provide a financing avenue for CUDs. Act 79 caps the program at $10.8 million with a maximum loan size of $4 million or up to 90 percent of project costs. VEDA, a non-profit organization, provides loan recommendations, overwriting, and servicing to borrowers.
Many uncertainties still surround Vermont’s connectivity challenge. Nevertheless, expanding fiber networks to unserved and underserved neighborhoods for remote education, work, and telehealth remains a top priority for the State.
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In response to a reporter’s question, Governor Scott said that neither he nor his team will receive vaccinations before their time. He emphasized that these doses are meant for older populations in order to save lives.
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