Legislative Update – Week 21

State Budgeting, Economic Relief, and CRF Spending Takes Shape – For Better or Worse

Today the House passed a partially unfinished budget bill that would fund state government for the first three months of the next fiscal year, which begins on July 1st, at about the same level that it did in the same quarter of the last fiscal year.  The bill also appropriates Coronavirus Relief Fund (CRF) dollars to a number of state entities. 

The Scott Administration had proposed a 2% reduction in the first quarter budget that would amount to an 8% cut if it continued throughout the year.  The administration also put into place a hiring freeze on non-essential positions and will prevent any non-unionized state employees from receiving a pay increase or bonus in the next fiscal year.  Vermont State Employee union members will still see a one-time $1,400 lump sum payment at the beginning of the upcoming fiscal year as well as raises of 2.25% in FY 22 as their contract currently stands. 

Senate President Tim Ashe and House Speaker Mitzi Johnson plan to move forward with immediate economic relief in the form of a scaled-back version of the grant portion of the Governor’s relief package. As we’ve outlined the last two weeks, the Governor envisioned a two-part economic relief package with the first part consisting of:

• $150 million in grants to businesses that pay trust taxes to the state;
• $80 million in loans with a grant advance;
• $20 million in small business grants;
• $50 million in housing assistance;
• $5 million in technical assistance, and;
• $5 million in marketing funds. 

On Thursday, Speaker Johnson sent a memo to committee chairs outlining how they are to proceed with their committees’ requests to the Appropriations Committee for a portion of the $1.25 billion in CARES Act CRF dollars. The legislature, Joint Fiscal Committee, and Administration have already spent about $275 million allocated during the FY 20 budget adjustment. The Speaker envisions appropriating $575 million of the CRF dollars during the initial budget that covers the first quarter of FY 21. Of that $575 million dollars, a set amount is allocated to each chair to let them get to work on “first-tier priorities.”  The memo states, “there are no promises,” as leadership might need to “rebalance committee targets.”  

That leaves $400 million in CRF dollars, which the speaker intends to hold in reserve and allocate when the legislature meets again in August to address the last nine months of the FY 21 budget.  Of this amount, committees were allocated a smaller amount for “second-tier priorities,” however, $400 million is close to the amount the state needs to cover the tax revenue losses in the coming fiscal year and one could infer that if Congress or the Treasury changes the rules governing the CRF between now and August, to allow the state to backfill lost revenues, the speaker might rebalance priorities. This would allow the legislature to forgo the need to make any cuts in state government, a rift growing between the Governor and legislature we outlined above.  This is a risky move, and may just be delaying the inevitable, as the state’s revenues are not going to rebound until FY 24 or later.  Either way, leadership risks businesses going under which would mean they will receive less tax revenue. 

Last week the U.S. Treasury issued new guidance on the use of CRF dollars that squashed the hopes of many that hazard pay could be sent from the state to essential workers, and created new challenges for broadband buildout.  The guidance also outlined that any loan dollars would need to be returned to the Treasury after they are paid back.  Also playing into the calculations of House and Senate leadership must be the potential funding that could come to the state if the beleaguered HEROES Act is passed by the U.S. Senate.  This bill, which is in relative deadlock, would bring an additional $1.32 billion to Vermont this fiscal year and 1.43 billion in the next fiscal year, as well as almost a half-billion to be distributed among municipalities this fiscal year and almost a quarter-billion in the next – if it passes looking like what the House passed. 

Speaker Johnson told reporters that the initial round of relief for businesses would likely fall into the $60 million-$90 million range in the coming weeks. The House Committee on Commerce and Economic Development, which is handling this relief, was told in a memo from the Speaker that they were allowed to spend $150 million from the CRF in this budget, with the intention to have another $30 million to appropriate when they return in August, presumably if the rules governing CRF don’t change to allow to backfill for lost state revenues. 

As of this afternoon, the Committee contemplated appropriating $70 million for grants to businesses that can show a 75% loss in revenue via their filings of trust taxes, rooms and meals, or sales tax.  If an applicant can demonstrate that need, they would be eligible for a grant equivalent to 5 percent of the business’s average annual sales subject to sales and use, and to rooms and meals taxes, from calendar years 2018 and 2019 through myvtax.  The thought, it seems, is that the program could go through the first tranche of funding and then either be backfilled with additional funding at those parameters, or the demonstrated loss of revenue could be dropped, possibly to 60%. 

The Committee might also explore using the Vermont Economic Development Authority and the Regional Development Corporations to cover those businesses that have seen the same level of loss, yet don’t file trust taxes.  The Committee does not envision previous access to federal aid factoring into the need calculations.  The committee’s most recent draft bill can be found here. 

Meanwhile, the Senate Committee on Economic Development, Housing, and General Affairs passed their own version of a response to the Governor’s proposal.  Both versions will converge next week and the collective goal is to get some type of package out by next Friday.  From the House perspective, it will need to be a $70 million tranche and that will leave $80 million in the next week to allocate to technical assistance, marketing, and other assistance.  

LCC conveyed our concerns this week through multiple channels of communication.  The economic recovery plan proposed by the Governor will not solve the lasting damage to these businesses and to our economy.  However, if the Legislature does not act quickly to provide businesses with the full financial assistance envisioned in his plan, we risk these businesses shutting their doors forever.  We risk our economic recovery, we risk the employment of thousands of Vermonters who have lost their jobs, and we risk larger state budget shortfalls that last longer. 

As we said last week, in addition to advocating for relief, you can make sure you are ready to capitalize on it in the event the legislature passes it by making sure you have a myVTax account and are up to date on filings.  There is a ubiquitous agreement that this will be the preferred method of grant delivery.  Also, failure to pay taxes won’t disqualify you, however, all indicators point to an applicant needing to have filings up to date and be on some manner of payment plan.  The discussion has also drifted into allowing of this money recipients to leverage loans, so you may want to connect with your financial institution to understand what your options are.