Editor’s note: The following is the Campaign for Vermont Jan. 16 legislative update.

The legislature has wasted no time diving into big issues – housing, workforce development, pensions, and Act 250 just to name a few. We are encouraged by the level of focus the legislature is exhibiting but we are concerned about some of the comments made about Act 250. Strife between the natural resource and economic development committees continues without a clear end in sight. We will need to overcome these differences in order to address our housing shortage.

Also, we had the privilege of testifying on a bill that would create a statewide code of ethics this week. This bill is the next step in the work we started in 2017 to hold our public officials accountable. We hope the legislature will finally get this done so the state’s Ethics Commission can move forward with providing certainty to the public around the conduct of our public officials regardless of their position in state government.

Fiscal Responsibility

The Senate Government Operations Committee heard from six union representatives on Wednesday. Each of them had positive things to say about the Pension Task Force, the people who served on it, and the final product they presented. It was described as a “win” for everyone, particularly future retirees.

The Joint Fiscal Office provided an overview of the recommendations, which included:

• A combination of employee contribution increases and benefit changes.
  • Vermont State Employees Retirement System (VSERS)
    • No changes to current retired or vested members.
    • Employee contribution rates raised over 5 years.
    • Cost-of-Living Adjustment (COLA) increases adjusted for retirement plans going forward.
  • Vermont State Teachers Retirement System (VSTRS)
    • No changes to current retired or vested members.
    • Employee contribution rates raised over 3 years and progressively based on incomes.
    • COLA increases adjusted for retirement plans going forward.
• A commitment from the state to “pre-fund” the pension investment funds with one-time money to buy down the liability
  • VSERS
    • $57M one-time payment, plus the $150M set aside by the legislature last year.
    • The state will fund the ADEC “plus” payment beginning in FY2024 (around an extra $15M/yr) and continuing until 90% funded.
    • The state will start funding other post-employment benefits (OPEBs) to reduce long-term cost liability (instead of the current pay-as-you-go model).
  • VSTRS
    • $125M one-time payment
    • The state will fund the ADEC “plus” payment beginning in FY2024 (around an extra $15M/yr) and continuing until 90% funded.
    • The state will also fund the normal pension cost out of the Education Fund but the extra contributions will be paid out of the General fund to avoid disrupting property taxes.
    • The state will start funding OPEBS for teachers as well.

Combined, these steps would reduce the state’s long-term unfunded liability by $2B (out of the current $4.5B liability). The pre-funding of OPEBs and pension retirement funds will likely have a meaningful impact on the unfunded liability within the first year or two. If markets continue to perform well, this impact could be magnified.

According to the Senate Appropriations Committee, the Senate will seek to use the FY2021 surplus monies to buy down this liability even more. While there is certainly wisdom in doing this, we would want to see if there are any more immediate needs for those funds (like housing or workforce training).

The House Commerce Committee reviewed a report this week from the State Auditors Office about Unemployment Fraud and Overpayment. A familiar face, Tim Ashe (Deputy State Auditor, State Auditor’s Office), who was previously the Senate Pro Tempore, provided an overview. An arms-length contractor was chosen to develop the report the Auditors office acted strictly as a facilitator.

The Vermont Department of Labor (VTDOL) has statutory limitations that dictate a need for definitions separating “overpayment” and the types of errors requiring repayment possibly versus “fraud” classifications (which are largely dependent on false statements or by false identities).

As everybody knows, there is a desperate need to update the system. However, there are some steps the Department is taking:

• The first phase of UI Modernization has been authorized
• There is a newly formed internal fraud unit
• VTDOL is more responsive to fraudulent activity indicators than in the past
• Analysis indicates there historically is a low rate of improper payments

Limitations and weaknesses:

• Dependence on a 40 year-old mainframe limits opportunities for improvement
• Data is not readily accessible which limits quantitative analysis and data-driven decision making
• Classification of “improper payment types” lack sufficient detail needed to right-size penalties

The report could not determine whether or not fraud had occurred because the reporting systems and data collection of the state did not allow for a cross-matching type of analysis. The threshold for prosecutable fraud is $20k of benefits paid out to someone who knowingly files false claims.

The report also recommended moving to a tiered administrative penalty system where fines would be tied to the scale of the fraud perpetrated on the system

Representative Kornheiser testified to the House Ways & Means Committee the day before about her work on the Unemployment Task Force. They looked at various ways to provide additional UI benefits to Vermonters because the federal government found Vermont’s initial plan to be out of compliance. Originally, the Task Force was set up to look at the UI trust fund to see how money was spent, however, they were derailed by the federal issues that arose.

Kornheiser noted that depending on how the issue of fraud is perceived it can impact people’s ability to access benefits. One of the main barriers to UI reform is the IT system, where outdated architecture essentially makes it impossible to develop new methods of benefit delivery. There was no way to test changes to the system using the current state mainframe without significantly disrupting the software. Contractors (who must be hired to actually work on the software) have no documentation to test or program changes without it impacting the system in real time.

The study committee also looked at the solvency of the trust fund. Pre-pandemic Vermont had the healthiest unemployment trust fund in the country. Nearly two years into the pandemic, Vermont’s fund has fallen considerably and is now rated in the middle of the pack. The Task Force looked at why this drop occurred and sought recommendations to help prevent this from happening in the future. It was noted that Vermont’s UI tax structure created the perfect storm because automatic tax rate adjustments led to a reduction of funds at a time while benefits were increasing significantly. Kornheiser noted that every time they looked at policy changes the existing IT problems prevented any meaningful changes. Their conclusion was that the state needs to solve the IT infrastructure issues before any meaningful policy changes can be contemplated.

Workforce Development

Jason Grinold (President, Vermont Association of Career and Technical Center Directors) voiced support in the House Education Committee this week for the Governor’s proposed budget adjustment to direct more funding toCareer & Technical Education (CTE) schools. He noted that it was vitally important to provide CTE schools with more funding because they have to compete with each other and traditional high schools for tuition dollars. These schools provide internship and apprenticeships in badly needed in highly skilled fields. Making these investments will have positive impact on state labor market.

Independent tech centers were not eligible to receive federal COVID relief funding, making them more at-risk. Grinold argued that the existing funding formula – based on a tuition model – for CTE schools is outdated. If the goal is to have more graduates with much-needed skillsets, we need to address barriers to entry.

The Committee is interested in making changes but they are trying to figure out how adjustments might work. The solution seems likely to be a combination of direct payments (particularly to independent CTE’s) as well as policy changes that better funnel students to programs at these schools.

The House Commerce Committee looked at the effectiveness of Vermont’s worker relocation program on Wednesday. The Department of Financial Regulation (DFR) hired a contractor to determine the effectiveness of the program. The somewhat controversial program was meant to bring workers into the state who can work remotely. There have been three versions of this program: 2018, 2019, and a 2020 program, however the contractor focused on 2018 and 2019 programs.

The first conclusion was that the $2M spent on these programs was not enough to have a meaningful impact on the state’s economy. The incentives alone were not enough to encourage people to move, but they are large enough to influence decision making. The overall return on investment was very position – every dollar the state spent on the program generated roughly $94 in economic activity. However, the report reiterated that, in the end, it was very difficult to pinpoint exactly why someone moved to the state (usually multiple reasons). While the programs may play a factor, it is hard to say with certainty that the people who chose to move here would not have done so otherwise.

Cost of living was found to be one of the major barriers to relocation while lifestyle and natural resources where the major reasons people wanted to move here. The report recommend that state invest in affordable housing, broadband internet, and childcare infrastructure to reduce the cost of living and make it more appealing for people to move here. Housing affordability is a major limiting factor despite the current incentives. Economically depressed areas do not have the infrastructure needed to attract this type of growth so much of the in-migration goes to areas with existing economic bases. This finding lead to a recommendation that the program should be more tailored to encourage movement to economically distressed areas of the state.

The report also recommend that the program goals need to be more focused in order to do effect cost measuring. DFR pointed out that if the goal of this program is to drive tax revenue then they should target high-income individuals, but if the goal is to target population growth and depressed areas than perhaps they need to re-target the program. Legislators were surprised that the program had a positive ROI even if they were dubious of the program overall.

The Senate Economic Development Committee also looked at the remote worker program this week. Something that was highlighted in this committee was the fact that because it was often households that moved to the state, there was a multiplier effect on wage growth and economic impact. It was also determined that the remote worker program had a higher ROI than the relocation program which focuses on covering costs for workers who move here to take a Vermont-based job.

The Committee would like to see more data over time, but this will take several years of operation before this analysis can be done. However, 52 states or municipalities have followed Vermont’s lead with a worker relocation incentive program. Commissioner Goldstein also reiterated that the Administration is concerned the program is constrained by the classifications of workers eligible for the programs. The Committee signaled they are open to expanding funding with guardrails in place. They will likely wait for the Governor’s budget address next week to see what proposal is on the table.

Economic Development

On Wednesday, legislative counsel walked the House General Committee through H.270 which looks at changes Vermont’s wage and hour laws. Many of these changes would bring Vermont statutes into alignment with federal policies around student, on-farm, and temporary employees. It would also exempt executives and licensed professionals acting as practitioners from wage and hour laws. Also, tipped employees would have to receive $120 per month in gratuity in order to qualify.

The Committee briefly discussed re-instating an Obama administration policy that would set a $934 weekly salary floor for full-time managers. The Trump administration dropped this to $684 per week. There was also some discussion of non-governmental agencies being exempt from overtime but not minimum wage. There is likely to be further discussion on these two topics.

The overall goal of the bill is to clean up existing statute to get to a baseline where further policies can be evaluated in the future.

The House General Committee also took a look at H.28 this week. The bill would change the definition of a livable wage as used in the legislatures basic needs budget from a household of two persons to a household of four (two adult wage earners and two children) and include health care costs in the calculation. The basic needs budget and livable wage calculations are important because they are used by the legislature for policy-making determinations such as childcare subsidies, minimum wage increases, and other economic policies.

The legislature’s Joint Fiscal Office (JFO) is encouraging a review of the calculation, specifically asking (not a complete list):

• Do the basic needs budgets and livable wage reflect reality for low income families? Should public assistance be a part of the calculations?
• Is it appropriate to use data that reflects “average costs” at the state and national level to determine “basic needs” wages?
• Review the definitions of “basic needs” and “livable wage” to determine whether changes are appropriate.
• Consider whether to merge some more minor costs (i.e. savings, telecommunications, clothing) into one category, as in other livable wage calculators.

The Committee seems interested in putting together a summer study committee to look at this issue.

On Thursday, the Agency of Commerce and Community Development (ACCD) shared with the House Commerce Committee that 52-57% of the people who started applications for the Economic Recovery Bridgegrants ended up finishing them within the first two rounds. By round three both application completion and award grants dropped significantly. Representative Mulvaney-Stanak worried that there was less technical support in round three and that is what lead to the drop in completion and success rate. Commissioner Goldstein argued that the complexity of the third round applications was what lead to this situation (you needed a 2020 tax loss). ACCD staff added that something they heard from small businesses was that a revenue loss wasn’t necessarily representative of the owners financial position. The first round of the Bridge grants saw $90 million in applications and the second round saw $65 million requested.

A number of other ACCD projects are in flight including the Quebec-Vermont partnership, SBIR and STTR grant program, and housing projects.

Abbie Sherman, the new Executive Director of the Vermont Economic Progress Council (VEPC), introduced herself for to the Committee. VEPC administers the Vermont Economic Growth Incentive (VEGI) program and the Tax-Increment Financing (TIF) program. Over $2M in incentives were paid out in 2021 to companies with over $64M in payroll. The TIF program has seen success in many towns, including Hartford, South Burlington, and Saint Albans (which saw a $49M increase in taxable value). ACCD would like to revive a bill from last year that would allow small towns to access project-based TIF programs.

Housing

Senate Natural Resources looked at S.200 on Tuesday, which deals with Act 250 masterplan permits. It’s no secret that the state has been facing a problem of affordable housing, which has been exacerbated by Covid-19. As a matter of policy, the legislature prefers that housing development occur in downtown areas in order to prevent forest fragmentation.

Senator McCormack noted that Act 250 has slowed down development and was an intended outcome. He does not believe that Act 250 is a barrier of development and sees evidence to the contrary is propaganda. Act 250 serves the community well, he told the Committee. He acknowledges that developers have stated the permitting process is an obstacle but he thinks it would be bad to hand out Act 250 exemptions and does not want to yield on that point.

The bill would allow for municipalities to apply for a master plan permit for designated downtown areas under one Act 250 permit so that individual homes would not have to apply on their own. In order for each project within the designated area to be approved they would have to answer specific questions about that property through the municipal zoning process instead of the full Act 250 process. There would be a cost to these master plan permits but there may be funding available through the Agency of Commerce and Community Development to assist with the necessary site reviews and planning. They cannot exempt these projects from the process because the Natural Resources Board (which reviews Act 250 permits) is funded through these fees.

The House Natural Resources Committee also looked at Act 250 this week – H.509 which is one of those strange little carve-out bills for parcels of less than one acre. The bill arose because of a Vermont Supreme Court Case (Snowstone, LLC Act 250 Opinion) that changed 50 years of legal precedence around this particular exemption. There is a stipulation in Act 250 that prevents multiple parcels within five miles of each other (only within towns that do not have zoning laws) that also have the same owner from proceeding through the Act 250 process. The bill would essentially re-instate an exemption if one of the parcels is less than one acre of land.

While the potential impact of this bill is quite minimal, it illustrates the complexity of this law and how laughable some of the stipulations have become. The Committee does seem interested in moving the bill forward but might combine it with another Act 250 bill.

The Senate Economic Development Committee is developing an omnibus housing bill. This week they held “Housing Roundtable” with over a dozen people testifying. The Agency of Commerce and Community Development shared that most efforts over the past few years have focused on commercial multi-family development. Some new efforts include redeveloping public housing and aging housing stock.

The Brattleboro Housing Partnership shared that they have received funding from the federal government for both low-income and affordable housing. They asked the Vermont Housing and Conservation Board (VHCB) to focus on this by replacing the 70-80 year old public housing stock with more modern amenities. They believe this will result in more housing stock and less pressure on the private market.

Josh Hanford (Commissioner, Department of Housing and Community Development) emphasized that Vermont is missing the middle-income housing stock. Their department is piloting a program with supply-side incentives, but buyers are competing against year other because of supply which is driving up prices and further making single-family homes unattainable for middle-income families. New housing is being built at the $500k and up price point but the demand is at the $300k level.

Builders and developers who testified agreed with this analysis. Many identified the dual process of local zoning and Act 250 as archaic and counter-productive. Workforce constraints are also a problem because construction companies can’t find enough skilled workers. All of this is compounded by the well-known supply chain issues that are driving up material costs and scarcity.

“People who show up to complain act at Act 250 hearings to complain about a development already have housing.” – Eric Farrell, Owner of Farrell Properties

Mobile home parks are also a key piece of the puzzle in supplying attainable single-family homes. Old motels can also be part of the solution, many local housing agencies have had success turning them into permanent housing. VHCB is asking for a program to offer tax credits to replace them to keep this part of the housing stock modern. Another key component they are asking for is funding to help municipalities build out their water and sewer infrastructure to meet the demands of new development.

Some members of the Committee expressed interest in converting commercial buildings to residential housing. There are Act 250 issues here, however, because that requires re-zoning the building and much of the infrastructure for residential is different than commercial (like kitchens and bathrooms). On the financing end, the Committee was interested in expanding shared-equity programs and exploring some version of employer-sponsored housing.

Good Government

On Wednesday, the CFV team testified before the Senate Government Operations Committee about the importance of a statewide code of ethics.

“[A] universal code of ethics is important because it provides the public, the Ethics Commission, and (perhaps most importantly) public officials with a common set of standards and expectations that should be easily understood by all. Regardless of the job role, occupation, or department those that serve in all three branches of state government serve the people of Vermont and there is a level of conduct we should expect whether they are a judicial clerk, a department head, or policy-maker.” – Ben Kinsley, CFV Board of Directors

The full testimony can be found here. The Committee quickly got into the weeds on who the code of ethics should apply to and what oversight would be too onerous. One point of contention is the thousands of persons who serve on boards and commissions for the state because they would be subject to the same standards of conduct as state employees. There was also the perennial issue of external oversight over the legislature. Because of separation of powers, legislators don’t believe that the Ethics Commission (executive branch) should have oversight over legislators. Plenty of states have figured this out, separation of powers is not unique to Vermont. Generally, the Ethics Commission would make a determination of compliance with ethics regulations and pass those findings to the legislative body for enforcement action.

There were some legitimate concerns around the definition of a family member which can be addressed with existing definitions in other areas of statute. We will be bringing some recommendations to the Committee in this area.

Education

Unfortunately we did not have the capacity to follow education policy issues this week, however, we do want to correct an error we made in last week’s update. We attributed comments made by Dan French and Tammy Kolbe to House Ways and Means Committee meetings that took place on Thursday and Friday last week. These comments were actually made during the last meeting of the Pupil Weighting Task Force, not the legislative committee. We apologize for this error and have taken steps to avoid similar issues in the future.