The Vermont House voted 124 to 14 Thursday evening for legislation that would boost clean water funding by $7.7 million and rework the way the state distributes that money to pay for water quality improvements.
House debate on the bill, S. 96, focused almost exclusively on the funding mechanism for the legislation. The distribution system was largely designed by the Senate, which passed an earlier version of the bill last month without including any new money for clean water.
The House Ways and Means committee drafted a plan that would use 4 percent of the revenue from Vermont’s rooms and meals tax. Those funds are currently dedicated to the state’s Education Fund.
In order to offset the drop in education money, the proposal would levy a sales tax on “pre-written software” accessed over the internet.
Ways and Means chair Janet Ancel (D-Calais) said the so-called "cloud tax" would recapture revenues that have been lost as the software market has shifted from brick-and-mortar stores to the internet.
The state used to collect sales tax on software such as TurboTax, Ancel said, because Vermonters had to go to a store to buy software on a CD or DVD. When Vermonters buy software online, however, the state doesn’t collect any tax. The bill would subject online software to Vermont’s 6 percent sales tax, generating an estimated $6 million for the Education Fund.
Reps. Cynthia Browning (D-Arlington) and Robin Chesnut-Tangerman (P-Middletown Springs) said the plan would put the Education Fund at risk because it relies only on revenue projections for the cloud tax. Since the state hasn’t collected the tax before, there isn’t reliable historical data about how much money Vermonters spend on cloud-based software. If revenues came up short for the cloud tax, Browning and Chesnut-Tangerman warned, the resulting shortfall would put upward pressure on property tax rates.
“This is specifically removing funds from the Education Fund for a purpose not related to education,” Chesnut-Tangerman said, adding that “the net result is a potential liability to the Education Fund.”
House Appropriations Committee chair Kitty Toll (D-Danville) reassured her colleagues on the House floor that any missed projections could be dealt with, as always, in the annual budget adjustment act.
The Education Fund could also get a boost from another new source of sales tax revenue proposed in a separate bill: It would tax purchases made through “marketplace facilitators,” such as Etsy or eBay, which have not previously paid the tax. That would generate an estimated $13.4 million for the Education Fund.
During Thursday's debate, Rep. Laura Sibilia (I-Dover) expressed reservations about the proposed system to distribute the clean water funds using block grants to regional organizations, which would in turn provide local grant money for clean water projects.
Sibilia said that change could result in a loss for farmers who have access to agriculture-specific grant money through the existing funding system but couldn't rely on a dedicated funding stream under the proposed legislation.
“It is estimated that agriculture is responsible for 41 percent of the phosphorus in the watershed, but they are responsible for 60 percent of the reduction,” Sibilia said, adding that the existing funding structure has worked well.
“Since 2016, the clean water funding provided to the Agency of Agriculture, Food and Markets has expanded investments in water quality partners by over 1,000 percent,” she said.
Rep. Rodney Graham (R-Williamstown), a farmer, agreed with Sibilia.
“The agency of ag has a process firmly in place that works good,” he said. “It gets people with boots on the ground, it gets money on the ground and it gets these projects done.”
In response, the House voted to add a provision to the bill that would specifically monitor clean water spending on farms and report back to the legislature with recommendations. Sibilia said she still plans to propose an amendment ahead of the House’s final vote on the bill, which is expected Friday.