VCC_er2021

Two proposals have brought the prospect of a cloud tax as a new source of revenue back into legislative conversation. The Child Tax Credit, which would reduce revenue by $48 million, and Universal School Meals, which would need at least an $8 million appropriation from the general fund have both lead to the House and Senate considering a cloud tax. The cloud tax proposal approved by the House last year as part of S.53 would remove a tax exemption on software as a service and would create additional taxes on platform and infrastructure as a service.

If passed into law, consumers and nearly all of Vermont’s businesses that use cloud-based services would see considerable cost increases. This additional financial burden becomes particularly daunting for many businesses still struggling to recover from the pandemic while navigating labor force shortages and supply chain disruptions.

The House Commerce and Economic Development Committee hit the road this week to learn more about the programs they will take up in the Senate’s economic development bill, which is expected to make its way to the Committee late next week. The first stop was the City of St. Albans, where the Committee saw progress in the downtown revitalization projects made possible through tax increment financing (TIF). St. Albans City has utilized TIF to intentionally invest in sustainable development, increase workforce housing, improve public spaces, and attract Main Street businesses to previously vacant storefronts, resulting in a renewed vibrancy in the downtown.

The next stop was the former Energizer plant in St. Albans Town, which Beta Technologies may acquire as a battery testing facility. Beta was approved for a Vermont Employment Growth Incentive (VEGI) to create at least 60 jobs, but likely hundreds, over five years, giving the St. Albans site an edge over competing locations such as Plattsburgh. Later, the Committee stopped by the Northwest Career and Technical Center to get an up-close look at the benefits of career and technical education (CTE). The CTE system has been struggling for decades as the education system pits traditional high schools against technical centers for tuition dollars. Despite repeated legislative study committees and reports over the years, the Legislature has yet to attempt a fix that would allow for growth in the training programs preparing the next generation of workers for the jobs of the future.

Finally, the Committee visited Black Flannel Brewing & Distilling in Essex, a Vermont Chamber member business that opened during the pandemic and, despite all odds, is growing. Founder Chris Kesler testified last week before the Senate Economic Development, Housing, and General Affairs Committee in support of a VEDA forgivable loan program with enough flexibility to accommodate businesses like Black Flannel, which have taken on enormous debt to stay afloat and need support to thrive.

Meanwhile, the Senate Economic Development, Housing, and General Affairs Committee began work on the House’s workforce development bill, H.703. There is a lot to cover in very little time, as legislators anticipate adjournment in May.

The House Appropriation Committee finalized their version of the budget bill, which will be considered by the full House in the coming days. This budget makes significant changes to the Governor’s recommended priorities, setting the stage for an uphill battle. The Committee accounted for all ARPA and General Fund dollars but a core disagreement between the House and the Administration is how to use one-time dollars, with the Governor recommending these funds be used for transformative infrastructure spending while the House has mixed these funds with ongoing spending.

Another major point of contention is tax relief. The Governor presented his budget with no new taxes and a $50 reduction in taxes through cuts and rebates. The House countered that with a $50 million Child Tax Credit. The House also chose not to fund the business grants, which the Senate has approved, or the Missing Middle Home Ownership Program and relocation marketing proposal to encourage more people to move and work in Vermont, both priorities of the Governor.

Reconciling all these priorities will be a struggle, but it will be even more difficult once the Senate crafts its version of the budget. The stage is now set for a clash of priorities as each of the three sides fight for their priorities over the remaining weeks of the 2022 legislative session.

The Senate Economic Development, Housing and General Affairs Committee approved a new business support program that establishes a forgivable loan program allowing the Vermont Economic Development Authority (VEDA) to issue loans up to the lesser of $200,000, six months of eligible fixed costs, or the amount of cumulative decline in adjusted net operating income during the COVID-19 public health emergency in 2020 and 2021. They appropriated $20 million for this program which is $6 million less than was promised last year.

The Vermont Chamber advocated for a higher cap of up to $500,000 per eligible business, based on six months of operating expenses, and to remove the requirement that businesses be in operation before January 2020 to serve those who opened right before or during the pandemic. Part of the Chamber’s advocacy included bringing the stories of businesses in impacted industries to the attention of the Committee members ahead of a vote on the bill.

The testimony clearly made an impact, as Committee members discussed a direct communication from Beth Kennett of Liberty Hill Farm in a hearing on Tuesday. The Committee was also engaged and receptive to Chris Kesler from Black Flannel Brewing, who testified that this program was intended to help businesses not only survive the pandemic, but also get back to a place where they can thrive. With these representatives from the lodging, brewing, and restaurant industries showing up to make their voices heard, the Committee got the full picture of the issues businesses with ongoing need are facing as they struggle to remain afloat without the necessary aid.

The Committee voted this bill out favorably, and it will now need to make stops at several committees including Senate Finance and Senate Appropriations before advancing to the Senate floor and then the House. There is still work to be done on this bill before final passage. The cap for the VEDA forgivable loan is far too low to provide adequate relief, particularly since payroll would likely not be an eligible cost. In addition, the bill as amended still contains several provisions of concern, including a minimum wage increase to $15/hour by 2024 and a supplemental unemployment insurance benefit of an additional $25/week per person. The minimum wage increase would come at a time of record-high wages when most employers are already paying above $15/hour for labor, and this would add additional costs to the smallest employers who can least afford the increase. The bill allocates $8 million of ARPA funding to pay for the UI supplemental benefit, which will sunset in 2024, but because the UI system’s projected costs are wildly unpredictable, it is unclear whether this will be sufficient funding. There remain questions about how the benefit increase will be paid for if and when this funding is depleted. The Vermont Chamber will continue to raise these issues as the bill progresses.

With more than a billion dollars of ARPA funding to be appropriated this year, the Legislature continues to find new ways to tax businesses as they struggle with ongoing pandemic impacts. Even as they work to provide a new grant program to support for businesses, they are appropriating $6 million less than promised last year. Current efforts underway to add to employers’ cost burden include:

• $8 million unemployment insurance tax increase
• $11 million increase on software as a service (also known as cloud tax)
• $4 million for a corporate minimum tax increase
• $17.7 million increase in health care premiums for businesses purchasing on the Health Care Exchange
• $2.8 million increase on the commercial and residential property tax transfer tax
• Unknown fiscal impact of a new $15 minimum wage and
• Unknown cost of the Clean Heat Standard to be determined by the Public Utility Commission

All this comes at a difficult time for businesses who continue to struggle with a constrained labor force, higher wages, reduced hours, 7% inflation and endless supply chain problems. Please reach out to your legislators and help them understand the real-world situations in your businesses.