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LEGISLATIVE SUMMARY May 30, 2019

To many observers, this year’s legislative session was almost on autopilot, with committees going about their work, very little deviation from predicted issues and subject matter, and a somewhat common order to things; that is until the 19th week of an 18-week session. Major priorities of the Democratic Party, which has a supermajority in the House and Senate, languished in the final days of the session with both minimum and paid family leave legislation not being agreed upon before the final fall of the Speaker’s gavel. As the session came to a close, the Senate held both bills as well as the budget and revenue bill. Things hit their final boiling point Friday when the Speaker of the House sent a letter to the President Pro Tem listing out options to bridge their impasse, noting that if none could be reached, she would send the House home. With the House sending the “must pass” legislation to the Governor, passing an adjournment resolution, and leaving, there really isn’t much to be done. The Speaker deemed it better to have no deal than something rushed and decided to adjourn. In our final update, we’ll cover the issues that we highlighted throughout the year that passed. Remember, just because the legislative session is over, it doesn’t mean our government affairs teams, with a combined 50 years in the Vermont State House, is done until the next session. Our members got personally involved many times this session and their firsthand experience made a real difference in our work on your behalf. Planning for next year is already starting and we’d love for you to be a part of it. Each section of this summary contains a look at what can possibly be expected next year so please contact our advocacy team at [email protected] to help. Also, next Wednesday, June 5th at the LCRCC’s monthly public policy meeting, Government Affairs Manager Austin Davis will cover a 2019 legislative session wrap-up and take your most pressing questions about legislation that passed this year and potential proposals for next year. To join the meeting, please RSVP by emailing him at [email protected] .

TAXES AND BUDGET

This year’s budget is just over $6 billion and will allow the state to have 14% reserves. The state saw substantial growth in revenue this past year due to a decision last June by the Supreme Court that gave states the authority to collect sales tax from businesses without a physical presence in a state (provided they do more than 200 transactions or $100,000 in-state). This has opened a whole new door for tax revenues which the Vermont legislature has taken full advantage of by passing laws taxing marketplace facilitators, online booking agents, and other online sales.

Childcare and Education Finance

This year’s budget contained $7.4 million in new funding for childcare subsidies, reimbursement for childcare centers, and measures to address a childcare workforce shortage, as well as $2.5 million in new funding for Reach Up. This comes after almost a decade of little-to-no movement in an area LCRCC frequently hears employers and employees identify as a major barrier. This year, required education funding rose more than the expected 3.2% after the passage of school budgets on Town Meeting Day, resulting in a 4% increase, or about $70 million. Despite this, property tax rates will only increase one penny due to a plan to use a little over $14 million of a $19 million surplus to buy down the rates. There will be a $4.6 million carryover. New this year, the education fund will begin to see sales by a third-party platform included in the sales tax collection obligation as “marketplace facilitators” defined as a person who contracts with sellers to facilitate the sale of products through a physical or electronic marketplace operated by the person, and who engages in certain specific activities related to those sales. The obligation to collect and remit only applies tax if the marketplace facilitator has more than $100,000 of sales in Vermont or more than 200 individual transactions and the bill also contains provisions to cover a situation where a seller has both direct and third-party sales. The new language is expected to net about $13.4 million into the education fund.

Changes to the Tax System

The Miscellaneous Tax Bill H.514 , contained a provision that moves Vermont from a Cost of Performance (COP) based tax system to a Market Based Sourcing (MBS) system for C-Corporations. For producers of intangible goods, which would mostly be services, Vermont’s current apportionment methodology states that the sales are attributable to the state where the service is produced, not delivered. This change would reverse that. There is an expected increase in state revenue of about $140,000 in FY 2020 and an increase of over $800,000 in FY 2021 because Vermont is a net importer of goods. H.541 made substantial changes to land gains, capital gains, property transfer, and estate taxes while bringing back a medical deduction repealed last year. These changes are laid out in the table below.

What to Expect Next Year:

Medicaid reimbursement is on everyone’s minds after it presented one of the biggest obstacles for the passage of a minimum wage bill. Vermont, which has the 6th highest minimum wage in the country, is having trouble because Medicaid reimbursement is not keeping up with these mandated wage increases. Next year will certainly see more conversation on this topic.  The best preview of what might be low hanging fruit for legislators looking for money next year might be the menu of items they looked at in their last-minute dash for clean water funding; this list included taxes on rooms, trash franchises, candy, clothing, remote access software, and others. While the legislature made a significant change to the collection of corporate tax, they still could go further. The Ways and Means Committee had explored adjusting sales factors and other methods of apportionment, so expect further conversation and potential changes on corporate tax. This year, the state will spend over $150 million on unfunded pension liabilities. Those looking for new programs or initiatives are becoming increasingly aware of how the sins of the past are holding back the state, so expect more conversation of how to more quickly remedy this problem.

LABOR AND EMPLOYMENT ISSUES

At first glance, it seemed unthinkable that the Democratic supermajorities could have gone home without their key priorities, a minimum wage increase and a paid family leave program, however, that is just what they did. In a letter sent to the Senate President, the Speaker of the House laid out a list of potential compromises which may serve as a preview of where each chamber will be starting from next year.

Minimum Wage

As noted above, increasing the Vermont minimum wage beyond its existing statutory increase will not be making its way to the Governor’s desk this year. In the final days of the session, proponents of the increase resorted to increasing the minimum wage to $12.50, then $12.25, and finally to $12.20 by 2021 with the hopes they could come back to increase the wage to $15 an hour in the next legislative biennium. The Senate prioritized this bill, with the goal of getting to $15 a soon as possible.

S.23 would have studied Medicaid-funded services such as nursing home care, as well as tipped, student, and agricultural workers. We expect negotiation on this bill in January.

Paid Family and Medical Leave

When this bill left the House, it had threaded a proverbial needle. The bill, while not everything the advocates opposing or supporting it wanted, represented a great deal of collaborative work and compromise. When this legislation got to the Senate, much of the work which had left the various parties happy was undone. A mandated tax on employers, which the House Democratic caucus had decisively said no to was reintroduced, the personal care, or disability insurance component, was stripped out of the bill leaving many advocates flustered, and the program became less likely. Just as with minimum wage, expect to see the results of a lot of out-of-session meetings manifest themselves in a new version of this bill come January.

What to Expect Next Year:

LCRCC worked tirelessly to ensure that any minimum wage and paid family leave policy that might have passed would have not impeded the Vermont economy and that the legislature understood the full consequences of all possible permutations. Expect these bills to be quickly taken up again at the very start of the next session. H.1, a bill banning non-compete agreements, after considerable input from LCRCC was pushed back this year, however, expect that conversation to come back early next session. LCRCC will be convening stakeholders on this subject in the coming months.  S.108, a bill which would have created a duplicative process in which the Attorney General would have authority to investigate and assess penalties for employee misclassification, couldn’t be agreed upon in a Committee of Conference in the final days of the session.

ENERGY, TELECOM AND ENVIRONMENTAL LEGISLATION

At the start of this session, there was a great expectation that Act 250 would dominate the discussion and time of the natural resource and energy committees. It did for the first six weeks until it became clear that the process of updating Vermont’s 50-year-old land use legislation needed to be a multi-year effort. What did come out of this session is a massive investment in weatherization, a new plan to build-out broadband, and a litany of new laws around chemical regulation.

Weatherization Bill - Passed

Weatherization was handled in many different places, however, eventually found its home in one bill this year, H.63 . A proposal, passed by the House, which would have increased the fuel tax from two to four cents was not included in this bill. The bill directs $1.3 million to low-income weatherization and an additional $2.25 million in anticipated savings in the Efficiency Vermont budget to moderate-income weatherization. Weatherization programs are seeing an additional $350,000 from the provisions of the revenue bill which broaden the fuel tax to include non-profits and municipalities. The bill also creates working groups to explore mandated labeling of residential and commercial buildings based on energy benchmarks. Finally, the bill tasks the Public Utility Commission to consider the creation of an all-fuels energy efficiency program which would handle all heating and transportation and report back to the legislature by January.

Broadband Buildout - Passed

H.513 contains numerous provisions with the intent primarily of supporting the expansion of broadband access in rural areas of Vermont. The majority of the funding for the provisions comes from an increase of 0.4% in the Universal Service Charge, which applies to retail telecommunications services, as well as imposing a tax on all retail sales of prepaid wireless telecommunications services subject to the sales and use tax starting July 1st. All told, the bill will facilitate the one-time transfer of $955,000 towards broadband efforts and a continued $900,000 from the new Universal Service Charge increase. The Vermont Economic Development Authority is now authorized to loan $10.8 million to facilitate broadband projects with interest and principal on the loans deferrable for up to two years.

Water Quality Measures and Funding Passes

After a lot of public uproar from a proposed cloud tax and then even more uproar from a proposed rooms and meals tax, the Senate Finance Committee dropped both proposals originally considered to fund clean water initiatives. The new plan would dedicate 6%, or about $7.5 million, of the state’s existing rooms and meals tax that would typically be directed to the general fund to a clean water special fund. This year, that hole in the general fund is backfilled with a surplus created by higher than expected revenues, however, it is unclear how it will be filled in future years. None-the-less, as previously reported, S.96 creates a new way to handle non-regulatory efforts to mitigate water quality issues and dedicates a long-term funding source to state efforts.

Single Use Bags - Passed

S.113 is a bill aimed at curbing the use of single-use plastic and polystyrene and would ban single-use plastic bags entirely, make straws available to customers only by request, ban some expanded polystyrene products, and allow businesses that distribute paper bags to levy a $0.10 fee per bag. Expanded polystyrene for raw meat packaging for use in grocery stores is exempted from this bill, and the potential law could not ban expanded polystyrene for food packaged out of the state due to potential commerce clause violations; limiting the bill’s effect only to food packaged in Vermont for consumption in Vermont. A late addition to this bill allows inventory acquired before May 15th of this year to be used until July 1, 2021. Finally, the bill also contains a study from the single-use working group due July 1st, 2020 with recommendations for further consideration by the legislature involving other types of packaging and expanded “producer responsibility” for single use packaging.

School and Childcare Lead Testing - Passed

S.40 creates an action level for remediation at 4 parts per billion, the highest standard in the nation, and sets aside $3 million to cover the costs of testing and helping schools and childcare centers remediate lead. The bill applies to all schools and childcare centers, public or private and comes after a statewide pilot program found elevated levels of lead in five of the 15 schools tested last year.

Polyfluoroalkyl Limits Passed and Signed by the Governor

S.49, which has now been signed by the Governor, adopts a maximum contaminant level for polyfluoroalkyl substances under the Agency of Natural Resources’ Water Supply Rule. The bill would require the Secretary of Natural Resources to amend the Vermont Quality Standards to include criteria or effluent limitations for polyfluoroalkyl substances. Also required under this bill, landfills must treat leachate for polyfluoroalkyl substances prior to delivery to a wastewater treatment facility or other facilities where the leachate would be discharged to the waters of the State.

Medical Monitoring and Strict Liability - Passed

S.37 creates the statutory language to allow private residents to sue businesses for the costs associated with ongoing medical testing, beyond a typical doctor’s visit, if that person could make the case that proximity to that business’s permitted releases may cause health risks. The bill also creates the most stringent legislative strict liability standard in the country which holds businesses financially liable for all contamination, even if it wasn’t caused by negligence, incompetence, or malfeasance. The final version of the bill was limited to manufacturing, mining, transportation, and utilities with more than 10 employees in Vermont or more than 500 employees across the footprint of the business. A similar bill was passed last year and vetoed by the Governor over concerns that the broad nature of the bill would create an unprecedented level of liability.

Chemical Management Bill - Passed

S.55 establishes an Interagency Committee on Chemical Management to evaluate chemical inventories in the State and identify potential risks from the inventories. The bill would require a manufacturer of a children’s product containing a chemical of high concern to children to report the brand name, product model, and available universal product code of a product. The Commissioner of Health would be authorized to add a chemical to the CHCC list on the basis of independent, peer-reviewed scientific research. The bill would allow the Commissioner of Health by rule to restrict the sale of, or require the labeling of a product containing a CHCC after consultation with the Working Group, instead of upon recommendation of the Working Group, if the Commissioner determines children may be exposed to a CHCC in the product.

What to Expect Next Year:

This year, climate activists called for a ban on fossil fuel infrastructure, which was quickly dismissed by most, however, the Speaker early in the session signaled that next session there will be a “Climate Package.” Expect the conversation on Act 250 to pick up where it left off. In the back half of the biennium, the committee will have one year of working together under their belt. Expect requests for funding to remediate lead found from testing schools in the coming year. This year, they passed the funding for testing and the likelihood that they will find levels that need remediation is high. It was known and agreed upon at the time of passage that testing could cost about $100,000 more than what is being appropriated and many close to the subject matter expect even more. About five million dollars in water quality funding may be needed in FY 21 to close a hole in the general fund. Results of the plastic study are due to the legislature at the start of the new legislative session and will most likely result in new single-use packaging legislation.

ECONOMIC DEVELOPMENT, HOUSING, AND GENERAL AFFAIRS

This year’s economic development work expands and builds upon existing programs such as the remote worker program passed last year and the state’s Career Technical Education system.  Advancing Adult CTEs - The Department of Labor is tasked to collaboration with the Agency of Education, the Vermont State Colleges, and the Vermont Adult Technical Education Association, and a hired consultant to report back to the legislature on the design, implementation, and costs of an integrated postsecondary career and technical education system by January 15, 2020. The same bill codified a goal of the State of Vermont that “not less than 70 percent of working-age Vermonters will hold a credential of value, as defined by the State Workforce Development Board, by the year 2025.” New Americans Report - The Department of Labor is tasked with developing and making available to employers a collection of best practices for addressing the unique language, transportation, cultural, and other challenges New Americans face in the workforce. New Worker Incentive Program - The new legislation authorized about $1.1 million for a new program that will reimburse workers who relocate to Vermont and work for Vermont-based companies up to $7,500. This builds on the success of last year’s remote worker program which has already attracted about 40 new families to the state, but did not (disappointingly), benefit Vermont-based companies. The program also has provisions to funnel new workers to areas of the state in need, sectors of the economy desperate for workers, and to jobs of a specific salary level. Business Portal - The Secretary of State is tasked with delivering a finalized proposal for a one-stop business portal for businesses, entrepreneurs, and citizens to provide information about starting and operating a business in Vermont, as well as a designated source of funding, by December 15, 2019.

Standard Form Contracts and Waivers of Liability

A final version of S.18 was resolved by a committee of conference after the final sticking point was cleared up. The final version of the bill would define a clause that would require those signing contracts to waive rights to a jury trial or class action unconscionable unless a contract drafter can convince a court it is necessary. This bill, which presented a great risk to the Vermont economy when first introduced, has since been pared back. The final version of the bill exempts contracts by industries regulated by the Department of Financial Regulation as well as recreational activities and competitions. The legislation also requires that harm would need to be shown; the mere presence of terms described in this bill as unconscionable is not enough to award damages.

What to Expect Next Year:

Student debt is on everyone’s mind, as it has come up in debates in the legislature, gained more exposure in our region due to LCRCC’s BYP Survey, and will likely be an issue of more attention during national campaigns in this upcoming election. Expect some effort from legislators on this next session. Legislation introduced by Rep. Heidi Scheuermann this year would create a designated funding source and increase the state’s capacity to market itself as a destination for tourism. LCRCC was glad to be a part of the first-ever Tourism Day spearheaded by Rep. Scheuermann which drew businesses to the State House to highlight the industry and call attention to the bill. LCRCCintends to work on it further next session. While this might not be the best section for this subject, certainly expect more debate on the commercialization of cannabis in the coming legislative session. Talks on such legislation stalled this year. A bill involving a registry for building contractors as well as provision around housing rehabilitation and rental regulations fell flat this legislative session. A “right to repair” bill saw little time this year, however, it is likely to see some attention next year. S.110, a bill governing data privacy and auto-renewal of subscriptions didn’t make it across the finish line after conversations in a Committee of Conference reached a deadlock.  Thank you to all of the members that support our advocacy work by answering questions, providing feedback on bills, offering testimony, or sharing their thoughts with their legislators. We also want to thank the many legislators, collaborating organizations and others that partner with us on our work in Montpelier. Have questions on other business issues not covered in this summary? Please contact us at [email protected] .

T om Torti President C athy Davis Executive Vice President J ane Clifford Government Affairs Specialist A ustin Davis Government Affairs Manager

Thank you for reading our Legislative Update from the Vermont State House. We are always looking for members interested in getting involved in our work. Sharing your thoughts before a Legislative Committee is easy and provides valuable insight that informs the discussion. Have questions or want to learn more? Email  Austin Davis .

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