Scott Calls For First Tax Hikes, More Money For Clean Water In Speech

Jan 24, 2019

Gov. Phil Scott used his budget address Thursday to call for the first proposed tax increases of his tenure, but simultaneously backed a plan to dramatically lower the estate tax paid by wealthy Vermonters.

More from VPR — Read the text of Scott's speech here.

The Republican governor had previously resisted any proposals for new taxes or fees, but the budget he delivered to lawmakers’ desks Thursday includes both. Scott wants to increase fees by $8.5 million, the majority of which would come from fee increases on stockbrokers, mortgage lenders and other financial services professionals.

Scott also wants to raise an additional $10 million in taxes, primarily from a sales tax on online purchases. Scott also wants to increase the tax on electronic cigarettes to 92 percent, which is the amount assessed on tobacco products. That proposal would generate about $1 million annually.

Online hotel brokers would also see higher taxes under Scott's plan, generating another $2 million.

At the same time, the governor proposed several tax cuts. Right now, residents pay the estate tax on property in excess of $2.75 million. Scott wants to increase that exemption to $5.75 million over the next four years, which would eventually cost the state an estimated $10 million in lost revenue annually.

Scott also wants to exclude military pensions from income taxes, and repeal the “land gains” tax; those two proposals would cost Vermont $2.1 million.

Even accounting for the proposed tax cuts, Scott says his budget will give lawmakers about $73 million more than they had for the current budget. He provided plans for how to spend it.

Spending Proposals From The Governor

Clean Water:

Scott wants to redirect $8 million from estate taxes to clean water efforts. He said eventually, Vermont should use all its estate tax revenue on clean water projects. Scott said total funding for clean water in the fiscal year 2020 budget proposal is $48 million.

Workforce Development:

Vermont’s aging population represents the single-biggest challenge to economic growth, Scott said. He proposed nearly $4 million to lure new workers to the state. The plan includes $1 million in “relocation grants” for workers considering a move to Vermont, and $1.4 million to phase out the tax on military retirement income, which Scott says will entice former service members to move here.

Education:

Scott called for $1 million for the Vermont Student Assistance Corporation, to fund a “non-degree” grant program that adults pursue alternatives to college. He also wants to increase the Vermont State Colleges System budget by $3 million, an amount he says would allow them to eliminate a three percent tuition hike set to take effect this fall.

Early Learning:

Scott called for a $7 million boost for the Child Care Financial Assistance Program, which would allow Vermont to raise subsidy levels for low- and moderate-income families.

Housing:

Scott wants to give an additional $1 million to the Vermont Housing Incentive Program. He says the money would be used to spark the revitalization of blighted or vacant properties.

Human Services:

Scott wants an additional $2 million for the Department for Children and Families to increase the number of family service workers and “resource coordinators” serving at-risk families. He also asked for an extra $3 million to increase school safety grants and to test every school water faucet for lead.

Energy and the Environment:

The governor wants to use up to $1.5 million from the Volkswagen settlement to subsidize purchases of electric vehicles, and called for a $500,000 investment to increase the state’s fleet of electric vehicles and build more charging stations.

Broadband:

Scott wants a total of $1.5 million in new spending to provide grants for “last mile” broadband connections, and also to increase broadband access in “underserved” communities.

Pension:

The governor said he wants to use $28 million from revenue surpluses to pay down debt related to retired teachers’ health care benefits.

Reaction From Democratic Lawmakers

Democratic lawmakers were bracing for the worst when Phil Scott began his budget address Thursday. But after the Republican governor finished his speech, you could almost hear the collective sigh of relief.

“I think we are encouraged that there’s a really different tone than what we’ve seen in the past," said House Speaker Mitzi Johnson.

"I think it’s a good place to be for the start of the budget conversation," Johnson also said.

Scott’s budget addresses in 2017 and 2018 were full of ultimatums and edicts. He warned lawmakers against passing any tax or fee increases, and he demanded substantial reductions in spending on public education.

Senate President Pro Tem Tim Ashe said Thursday’s address sounded more like an invitation to collaborate.

"This budget, unlike the last two, did not immediately set up a showdown by pitting public education versus keeping the government open," Ashe said, "and so that is a very welcome change."

However, that isn’t to say Democratic lawmakers are on board with all of Scott’s proposals. They sound especially skeptical of the governor’s plan to use estate tax revenue for clean water funding.

Scott said the estate tax could anchor a long-term funding plan for water quality projects. But Addison County Sen. Chris Bray said it’s unclear what happens when $9 million in estate tax revenue is suddenly diverted to water cleanup.

"Once you take that 9 [million dollars],  you’ve created a gap someplace else. So we need to have adequate funding, and it has to be long-term and stable," Bray said. "We’ll look forward to more details. Right now I have my concerns."

Lawmakers also said they worry about whether the budget includes enough money for a mental health system struggling to keep pace with rising demand for services.

Update 6:20 p.m. This post was updated to include reaction from Democratic lawmakers.

Correction 4:26 p.m. A previous version of this post ommitted the word "million" when discussing the funding for school safety grants and water testing. The governor is seeking $3 million for those efforts.