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DRM Advocacy Update – Week 5 – 2023

This Update is Created by the Lake Champlain Chamber for Distribution by

February 3, 2023

Our economy follows the same rules as a natural ecosystem. If you hope to harvest anything from a natural ecosystem, you must be mindful not to do so at a rate greater than it can be regenerated. Hunt too many deer in a herd, and the herd reaches an inflection point where it can not recover. Those who manage trusts  or endowments experience this as well; they extract the interest from the fund, leave some to account for inflation, and never dip into the principal. Such focus on sustainability is commonplace in many conversations around Montpelier, however, let’s take a step back and look at the ecosystem we all work in; the Vermont economy. Our government needs to extract resources from this ecosystem in the form of taxes, however, just as with a natural ecosystem or a trust fund, it must be mindful of long-term sustainability. 

We covered in a previous update a report by the Joint Fiscal Office recently released on the state’s demographics which hints that we are not thinking sustainably. We are looking at a more expensive future, and we’re going to have fewer and fewer Vermonters of working age to fund it. Currently, one in five Vermonters is over 65, and the trend is  moving toward one in four. At the same time, we’re looking at massive spending proposals that will need to be funded with taxes on that ever-shrinking population of wage earners. In this update alone, we’ll discuss proposals that look at levying a 1% payroll tax (~$120 million), a 0.58% payroll tax (~$85 million), a 70 cent tax on heating fuels (about $1.2 billion), and numerous other taxes such as that on internet services ($18.4 million). 

We understand that taxes must be raised for the essential function of government and, thereby, our economy, however, any steward of our economy with an eye toward sustainability has a reason for concern. 

In this week’s update; 

Budget Adjustment Act Passes House 

The Budget Adjustment Act (BAA) passed Thursday after a slightly contentious debate around emergency housing dollars. The BAA is a mid-year true-up of the budget the state is currently operating under and allocates some revenue surpluses to ongoing work while refining programs passed the previous session. H.145 allocates in total about $324 million in state spending across broadband, healthcare staffing, technical infrastructure investments, and $3 million towards the Rural Infrastructure Assistance Program. 

With the completion of this process, the Appropriations Committee can now turn its full attention to the FY 24 budget. 

Childcare Bill Released in the Senate; No Revenue Source Identified  

After years of conversation and momentum built towards addressing issues of affordability, availability, and dependability of childcare in Vermont, we finally received a report around the cost of the popular prevailing plan of limiting out-of-pocket costs to no more than 10% of household income (for some families). For years folks have wanted to know what the cost is and how to raise the revenue to cover that cost, and this week, we saw the introduction of a bill that … didn’t do that. Money committees are having conversations around childcare financing, however, nothing has been added to this legislation, instead, the bill only addresses how to spend money and restructures how the government agencies oversee childcare regulation and subsidization. 

It is difficult as a business to discuss what you want to be done without knowing exactly how much it will cost or where the money comes from because those details are essential when trying to understand the marginal benefit for marginal cost or opportunity costs. 

With no revenue source identified yet, and other competing priorities moving, it feels as though this legislation might not be ready to make it across the finish line as much as many will try. This is not something we say lightly, our childcare system is unstable and in need of assistance. 

Here’s what is in the bill: 

  • The proposal eliminates work requirements for households to be eligible for subsidies. This is a non-starter for many businesses who have heard childcare reform touted as a driver of workforce growth and participation. 
  • The bill would cover 100% of childcare costs for households up to 185 percent of the federal poverty level (FPL) and then phase out subsidies until nothing is received above 425% of the federal poverty level. For context, a family of four making a household income of $127,000 is at 425 FPL. See where you are here.  
  • The bill does not have any language on how to raise revenue, only on how to spend an estimated $120 million. The Governor already identified roughly $50 million for childcare from existing base revenue.
  • Allows four year olds to enter the public school system kindergarten classes. 
  • The bill rebrands the Department of Children and Families to the Department of Economic Empowerment. 

In other childcare news

Paid Family and Medical Leave Receives Committee Time

The House Committee on General and Housing has started working through H.66, which would seek to create a paid family and medical leave program in the state. The bill would be among the most generous created. The proposal includes; 

  • offering 12-weeks of leave at 100% wage replacement up to the state’s average weekly wage of $1,001
  • The system would be funded by a 0.58% payroll tax split evenly between the employer and employee. 
  • Anyone employing one or more individuals in Vermont would need to comply while extending Vermont’s FMLA coverage
  • Only two-quarters of wages would be necessary to be eligible, designed to bring in seasonal and part-time workers who were previously ineligible. 
  • Eligible employees would be able to take leave for parental bonding, bereavement (two weeks), their own medical reason, or the medical reasons of any family member.
  • A family member under the program is defined to include “other individual with whom the qualified individual has a significant personal bond that is or is like a family relationship, regardless of biological or legal relationship”

The bill creates a Division of Family and Medical Leave within the Office of the Treasurer and appropriates $20 million of general fund dollars to start the insurance’s special fund, which would then need to grow to at least $80 million to remain solvent. The Legislature would be responsible for annually setting the tax rate to ensure that the fund can cover its obligations. Under the proposal, the rulemaking would subside by April 1, 2025, and the collection of a payroll tax would begin on July 1, 2025, with benefits eligibility in late 2026.

70 Cents per Gallon of Fuel Tax Pondered for Clean Heat Standard   

The Clean Heat Standard, this year rebranded in S.5 as the “Affordable Heating Act,” has been the subject of debate over cost in the State House over the last week, with the Secretary of the Agency of Natural Resources bringing estimates to the Legislature suggesting that the plan could effectively add a tax of $0.70 per gallon on kerosene, heating oil, and propane and cost the state’s economy $1.2 billion to make the necessary changes. It is harder to understand the cost impact on natural gas, as that cost would be spread across the rate base or all of the customers of a regulated utility.

It is difficult to estimate these costs due to so many variables as well as the fact the program ultimately would not be designed by the Legislature but rather by the Public Utilities Commission, which until now has had no experience with the entities that would be obligated parties under the legislation. This week, the PUC used its time in the Senate Committee on Natural Resources to lobby for more flexibility and less oversight, and greater power in implementation. In the past, a large component of the debate around this legislation has been around the Legislature needing to approve any final program or cost structure created by the PUC; as written, this legislation would require the legislature to pass further legislation to stop the program if they deemed it problematic, but by default, it would start. 

Of special interest to business owners is a potential decision around how to deal with middle distillate fuels such as dyed fuel, often referred to as off-road diesel, or propane, kerosene, and natural gas used for backup electric power generation, fuel for tractors, processing fuel, and other industrial processes. These often operate under different regulatory and tax regimes and would be expected to be left out of the conversation in policy regarding heating, however, they could be swept in.

Report on Funding Universal School Meals Suggests Taxing Internet Services, Sugar, or Just Sales

Last year, the Legislature extended universal school meals to all children in Vermont’s k-12 schools at the expected cost of roughly $36 million. The program was funded with an education fund surplus for the current fiscal year yet implemented for two years. This year, the Legislature needs to wrap up Universal School Meals so that it is permanent or discontinue the program by not funding it. 

The Joint Fiscal Office this week issued a report outlining four potential sources of revenue that probably look familiar, as they are consistently identified. 

  • Tax on sugar-sweetened beverages of two cents per ounce – $32 million 
  • Tax on internet services – which we’ve covered a number of times – $18.5 million
  • Removing the sales tax exemption on candy – $3.7 million 
  • Increasing the sales tax – roughly every 0.1% increase is equivalent to $9.1 million 

Universal School Meals will be in direct competition with many other proposals looking to use the same revenue sources. The report can be read here.

House Commerce Mulls Unemployment Insurance Changes 

The House Commerce Committee began a discussion around two bills that would make changes to Vermont’s Unemployment Insurance; H.55 affects nonprofits, and H.92 would expand the system to cover more separations. 


H.55 would make changes to nonprofit options around unemployment insurance, requiring nonprofits with less than four employees who are currently exempt from the system to be subject to it. The bill would also seek to have reimbursable nonprofits deposit with the Vermont Department of Labor (VDOL) a surety bond of two percent of their payroll. 

To understand this legislation better, it helps to have a little background. There are two types of employers in the context of the unemployment insurance (UI) system; reimbursable employers and contributing employers.

  • A contributing employer: one that pays a tax on wages to the Department of Labor (VDOL) which administers the UI trust fund, each quarter up to a taxable wage base. If they have an instance in which an employee is separated from employment and qualifies for benefits, then the employer will have a benefit ratio calculated that results in a new rate class for that employer and a different tax rate for the employer. 
  • A reimbursable employer: one that does not pay tax to VDOL each quarter, however, they still need to pay benefits back at a dollar-for-dollar basis to reimburse the UI trust fund. Only nonprofit entities are eligible to have this type of arrangement. 

The decision point for reimbursable nonprofits broadly: if they decide to be a contributing employer and are contributing to the UI trust fund, there could be many years in which they just contribute taxes but never have employees draw a benefit. If they go the reimbursable route, they could have a bad year and need to pay for the entirety of the benefits. In short, reimbursable employers carry higher liability, and contributing employers have a carrying cost. Where benefits become more difficult to understand is when looking at the effect of the benefit ratio. 

LCC created a rudimentary tool to help understand these trade-offs better. 

The Committee heard initial testimony from the bill’s presenters and Common Good Vermont representing nonprofits, among others, before hearing from the Vermont Department of Labor. The Committee had to postpone further testimony until next week. 


The Committee also heard initial testimony on H.92. This proposal is focused on creating separation from employment and eligibility for benefits in the instances of medical leave, issues with childcare, and domestic violence. While the bill’s intentions are  good and addressed some admitted administrative shortcomings of current programs, the proposed legislation offered paths to benefits that were less supportive to individuals in these situations than those that already exist. Furthermore, the legislation looked to severance of employment for the solution instances where there were no issues with the employment present, only unavoidable outside factors. Existing paths, such as FMLA leave, retain the relationship with the employee.

The Laundry List 

There are many moving pieces, and we do our best to add the ones that don’t get a section in the newsletter yet should be on your radar here. On any given day in the State House, there are about 175 hours of committee time outside of floor time, and then the hallway, cafeteria, or other time spent legislating. 

  • Read past updates here – week 1, week 2, week 3, week 4, and the last session’s wrap-up
  • A proposal to change the State’s Renewable Energy Standard was introduced this week and was met with a quick condemnation from the Burlington Electric Department and its union for its language that would shutter the wood-burning McNeil Generating Station in Burlington. We’ve covered recently how the latest movement among some environmental circles is one of “anti-combustion” despite experts agreeing that sustainable biomass has acceptable emissions and is more sustainable than fossil fuels. 
  • The House Ways and Means Committee had further education this week on pass-through entities and how they are taxed as part of their consideration of a proposed SALT cap workaround that could save Vermont’s businesses millions of dollars in federal taxes. Read more about this subject here. 
  • Read a recent commentary about the Vermont Employment Growth Incentive program by the presidents of LCC and GBIC here

Hey! You read the whole update. You probably have some thoughts on the content or how we delivered it. Feel free to reach out with those at [email protected].

Bills of Interest Thus Far 

We follow a wide range of bills each session, as any issue that affects the day-to-day operations of our employers warrants monitoring. While many bills are still awaiting release for introduction, here are some on our radar.