MONTPELIER — House lawmakers on Friday approved a $6.1 billion state budget proposal, along with a sweeping tax bill that reforms Vermont’s estate and capital gains taxes, among other levies.
The budget bill, which passed overwhelmingly in a vote of 137-1, prioritizes large new investments in child care and environmental protections.
The only lawmaker who voted against the budget bill, Rep. Selene Colburn, P-Burlington, said she had hoped to see more spending on climate change mitigation efforts.
“I think many of us have heard the analysis that to make really substantive progress on these goals we need investments on a much larger scale,” she said.
Much of the spending — including a $3 million infusion to the Vermont State Colleges to prevent a tuition hike, and economic development programs aimed at attracting new residents — reflects priorities laid out by Gov. Phil Scott in his January budget address.
In crafting the fiscal year 2020 budget, members of the House Appropriations Committee sought to build the state’s reserves amid concerns from fiscal analysts that Vermont, and the rest of the country, could soon see a significant economic downturn.
The bill sets aside $215 million in reserve funds next year, which the committee estimates would be enough to help the state weather a recession.
“The budget looks to today and it looks to tomorrow,” said Rep. Kitty Toll, D-Danville, the chairwoman of the House.
The budget now heads to the Senate, which typically makes significant changes to the bill, before it goes back to the House and eventually is sent to the governor.
Democrats and the Scott administration have said that budget deliberations this session have been more collaborative compared to past years, when disagreements over tax rates, and the administration’s proposed cuts to human services programs, generated tension on both sides.
“I think we have had a very good opportunity to work with the House, not against them,” said Finance Commissioner Adam Greshin.
But Gov. Phil Scott said on Thursday he has some initial concerns about the budget, noting in particular that the legislation, as it stands, has no additional long-term funding for statewide water clean-up.
Scott has proposed a clean water funding plan that relies on redirecting Vermont’s estate tax revenue to serve as a new permanent funding source for clean-up projects.
“We included $8 million for water quality that doesn’t appear to be addressed, although they spent whatever money was there for other initiatives,” Scott said of the House budget during a press conference.
Democrats have rejected the governor’s water proposal and have yet to throw their weight behind a plan of their own — though they said they plan on finding a revenue source by the end of the legislative session.
However, House Democrats have already prioritized a series of other environmental initiatives in the budget legislation.
The budget invests about $15 million in a variety of programs aimed at combating climate change. An increase in the tax on heating fuel, which the House passed on Wednesday, would raise $4.6 million in additional funds for low-income weatherization programs.
The spending package also includes $1.5 million in incentives for Vermonters to purchase and lease electric vehicles and $500,000 for the state to purchase electric vehicles for its own fleet.
But some House legislators, particularly members of the Progressive caucus, don’t believe the environmental investments go far enough.
After approving the budget, lawmakers advanced a sweeping tax bill, which in total, will generate $7.65 million in new tax dollars for the state next year.
The revenue package, HB 541, reforms Vermont’s estate tax, which the governor had pushed lawmakers to loosen at the beginning of the year. Scott says Vermont’s estate tax is too burdensome, and spurs wealthy residents to move or take up legal residence elsewhere.
The legislation would raise the estate tax exclusion from $2.75 million to $5 million over two years — meaning it would only apply to estates worth $5 million or more.
To make up for the revenue lost from estate tax reforms, the House moved to expand the state’s capital gains tax.
While taxpayers could previously avoid paying a tax on 40 percent of capital gains, under the new plan, they could only exclude 30 percent of their earnings from the levy. In total, taxpayers would not be able to exclude more than $450,000 in capital gains earnings.
In two years, fiscal analysts expect changes to the capital gains tax to bring in about $5 million in new revenue.
Rep. Janet Ancel, D-Calais, chairwoman of the House Ways and Means committee, said it would largely impact those making more than $1 million annually.
Republicans said the tax could impact lower income earners, who may profit from large capital gains in a single year from an event, such as the sale of a business.
Scott on Thursday also expressed concerns about modifying the levy.
“Some automatically assume that capital gains only affect the wealthy, but it’s not necessarily true. It can affect a wide range of income levels,” he said.