Tape No. 98-14, 98-15, 98-16, 98-17 A only

MEMBERS PRESENT: Representatives John S. Freidin, Chair; Paul A. Cillo; Martha P. Heath; Karen M. Lafayette; Senators Nancy I. Chard; Cheryl P. Rivers; Jeb Spaulding.

STAFF PRESENT AT VARIOUS TIMES: Bill Russell, Emily Tartter, Anne Winchester and Rachel Levin of the Legislative Council; Steve Klein and Mark Perrault of the Joint Fiscal Office.

Representative Freidin called the meeting to order at 9:45 a.m.

Representative Freidin asked if there was any discussion on the draft minutes. Representative Heath made a motion to approve the minutes as submitted. The motion was seconded and passed unanimously on a voice vote.

Bill Johnson, Director, and Charles Merriman, Attorney, for Property Valuation and Review, said that as requested by the committee at its last meeting, they had met with municipal officials to discuss concerns, raised by Barbara Andrejczak, a lister from Manchester, between statutory dates governing grand lists. During their testimony they referred to a "Lister’s Timeline" (a copy of which is attached) submitted by Barbara Andrejczak to the committee at its previous meeting.

Bill Johnson testified that Acts 60 and 71 do present heightened challenges for some towns to meet pre-existing statutory dates. He concluded by saying that the Department of Taxes did not feel that the challenges required action prior to the 1999 legislative session. Representative Freidin asked Bill Johnson to consider working with the Vermont League of Cities and Towns (VLCT) as well as other appropriate organizations, to include in their mailings information which would encourage towns to adjust their schedules. Bill Johnson agreed that would be a good idea and said he would work on it. Representative Freidin asked Steve Jeffrey, Executive Director of VLCT if he would be willing to provide assistance. Steve Jeffrey agreed VLCT could be helpful.

Representative Freidin requested from Bill Johnson a memo to help municipalities determine homestead values.

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CURRENT USE

Senator Rivers read, distributed and discussed a letter mailed to the voters of Bridgewater written by Representative Ira Pike. She questioned the manner in which the Current Use Program was portrayed. She raised the concern that communities are receiving incorrect information regarding whether the state was fully reimbursing towns for Current Use. Bill Johnson responded by saying that the cost of use-value taxation for education is absorbed by the entire grand list of the state. Senator Rivers stressed that the Hold Harmless payment from the state to the towns is 100% on the municipal side. She also suggested that Property Valuation and Review do a mailing to municipal elected officials. Representative Freidin also asked Steve Jeffrey to address the committee. Steve Jeffrey said he had a copy of an 8/21/98, VLCT memorandum to candidates for state and legislative office which had a section on Current Use. Representative Freidin said that he had asked Ed Larson of the Use Value Appraisal Coalition to testify later, and requested that Steve Jeffrey provide the memo to staff so that Ed Larson and committee members could be provided with a copy.

Representative Freidin invited Chris D’Elia, Vermont Economic Progress Council (VEPC) Executive Director, to update the committee on several VEPC activities, and then to have the other witnesses join him in presenting and reviewing with the committee the REMI/cost-benefit model. Chris D’Elia said that other than the day-to-day operations and general outreach, VEPC had been concentrating on the development of the cost-benefit model. He said the "Vermont Guide to Economic Advancement Tax Incentives and Downtown Development Incentives" had been printed, and that Rachel Levin had been provided with enough of the Guides for the committee’s mailing to the General Assembly. Representative Freidin asked for an update of the number of queries VEPC had received. Chris D’Elia said the number stood at approximately 65.

Representative Freidin said that there was a lack of understanding at all levels that Act 71 fully restored local authority over property tax stabilization agreements for economic development. Chris D’Elia responded that VEPC was trying to actively address that issue. Representative Freidin asked Chris D’Elia, as the Executive Director of VEPC, to make absolutely certain that every VEPC board member had a firm grasp of the law governing tax stabilization agreements – especially that municipalities have the unencumbered discretion to enter into such agreements at their own expense as they had in the past under the Foundation Formula. And that there is also a new opportunity for property owners to receive tax stabilization agreements at state expense. Representative Cillo said that it was necessary for town officials to understand that they had authority over tax stabilization agreements locally. Representative Cillo also suggested that if the application forms were available, they should be included with the "Guide," which would be mailed to the General Assembly.

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Representative Freidin invited the following economists who have worked on the cost-benefit model for VEPC to testify: Larry Copp, President, and Jeff Carr, Vice President, of Economic and Policy Resources, Inc. of Williston, Vermont and Tom Kavet of Economic and Information Systems Consulting of Williamstown, Vermont. Representative Freidin thanked them for adjusting their schedules in order to be able to attend the committee’s meeting. Larry Copp lead the presentation and distributed a 10/8/98 document entitled, "VEPC Cost-Benefit Model Review," prepared by Economic and Policy Resources, Inc. It outlined the purpose of the VEPC cost-benefit model; the structure of the cost-benefit model; an overview of the incentives evaluated with the cost-benefit model; cost-benefit model enhancements and updates; and concluded with a summary as well as questions. Larry Copp explained that the cost-benefit model had three components: an initial input component, an economic input-output (IO) component, and a fiscal impact component. He said that the interaction of the three components was the cost-benefit model. He then explained where the REMI economic model fit within the framework of VEPC cost-benefit activities: applicant makes initial contact, information from that application taken into cost-benefit model and run through components, resulting in a report, then report will go back to VEPC for consideration to be placed on the agenda of the next meeting where the application is accepted or rejected.

Tom Kavet clarified that he was a co-contractor for VEPC and had received prior approval and encouragement from the Joint Fiscal Office to act in that capacity. He then gave the committee an overview of how the Regional Economic Model Inc. (REMI) economic model was selected. He said that six models had been subjected to evaluation and review, as well as information from other states and relevant literature. He said that the advantages of the REMI economic model were that it was a dynamic economic model that could capture sets of demographic and economic equations; that it was currently being used by the Department of Public Service, which meant a reduced rate; that it had been tested for Vermont; and that the company was located in Massachusetts, which was relatively close in terms of travel.

Jeff Carr gave the committee an example of how VEPC would use the REMI/cost-benefit model on an application for a payroll tax credit. Jeff Carr said that this was just one of the pieces of information VEPC would use for approval or denial of the application.

Representative Cillo asked if there would be any way to "recalibrate" the model in the future, based on what actually happened. Jeff Carr replied that there were opportunities for recalibration.

Representative Freidin asked if there was an opportunity for Deb Brighton or someone else with her skills to review the assumptions behind the initial data used to create the VEPC cost-benefit model. The witnesses replied there was a working group that would make an outside assessment of the factors and variables used. Representative Freidin requested that VEPC come before the committee, from time to time, to review the complaints VEPC had heard, so that there are opportunities for improving the process.

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Representative Cillo asked Chris D’Elia what steps take place prior to the use of the cost-benefit model and what steps take place after the use of the cost-benefit model. Representative Cillo said that it was important for VEPC to be clear to the applicant what the application and review process is and at what steps which evaluations are made and what type of screening takes place. Chris D’Elia said that VEPC would be looking at all the information provided by the applicant. A lot of discussion would take place in the pre-application process and that ranking is critical since the legislature’s authorization is finite. Larry Copp said that they were just beginning to assemble what questions applicants needed to be asked to obtain the data needed by VEPC.

Representative Freidin raised the issue of the legislature’s $300,000 allocation for property tax stabilization agreements and whether this amount is a gross amount or can be offset by other revenues. Representative Freidin said that the legislature clearly intended that the total, gross amount of property tax stabilization benefits could not exceed $300,000, since offsetting revenues would flow into the general fund, not the education fund, and the $300,000 loss of property tax revenue was a loss to the education fund only. Chris D'Elia said VEPC does not disagree with the intent to protect the education fund; however, if projects are revenue positive (i.e., putting money into the education fund) VEPC would prefer not to have a cap on that. Chris D’Elia concluded by saying that VEPC intends to propose changes in current law on this matter at the beginning of the legislative session.

Representative Freidin asked, after having heard VEPC’s presentation on the VEPC cost-benefit model, how the committee would like to proceed with its recommendation to the Joint Fiscal Committee (JFC). He noted the committee had already made a few suggestions to modify the presentation and asked if the committee wanted to take any formal action and relay it to the JFC. The committee agreed that those Oversight Committee members, who are also members of the JFC, would report that the Oversight Committee had completed its review.

Representative Freidin thanked Ed Larson, Executive Director of the Use Value Appraisal Coalition, for coming to testify on short notice. Representative Freidin asked Ed Larson to take a look at the letter from Representative Ira Pike which Senator Rivers had shared with the committee. Representative Freidin said that in that letter there was an error made in stating the way the Current Use Program was implemented by Acts 60 and 71.

Ed Larson said that he did not know the amount of Current Use payments to each town and did not know whether the information in Representative Pike’s letter was accurate or not. Representative Freidin and others pointed out that under Act 60 the cost of use value taxation for schools is absorbed by the education grand list of the entire state. Representative Cillo asked if it would be in the interest of Current Use landowners for other property tax payers (in towns which have current use land) to know that the education fund, not local property owners, is assuming the cost of Current Use valuation. Ed Larson replied that it would indeed be in the Coalition’s interest.

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Representative Freidin asked Ed Larson if he had considered communicating with the 50 – 100 municipalities where there were the most enrollments in the Current Use Program. Ed Larson said that his organization would contact town officials and consider addressing the issue in the next newsletter and that the distribution of the newsletter depended on their budget. Senator Spaulding said that if the goal was to maintain use value taxation of agricultural and forest land, it was important that organizations such as the Use Value Appraisal Coalition help to get the message out. Ed Larson said that he was willing to talk to any municipal or other officials and provide clarifying information. He said that he now better understood the law. Representative Freidin invited Ed Larson to the committee’s November meeting to give an update on what his organization had done to address the misunderstanding, and to help town officials understand the affects of Current Use taxation under Act 60.

Representative Freidin invited the following witnesses to join the committee and testify as a panel: Jennie Buchanan, Vice President, Chittenden Trust Company, and Chair, Vermont Bankers’ Association; David Miner, Vice President, Banknorth Mortgage Division; Tom Candon, Deputy Commissioner for Banking, Department of Banking, Insurance, Securities and Health Care Administration; Ed Haase, Commissioner of Taxes; Sean Campbell, Deputy Commissioner of Taxes; and Tim Hayward, President, Vermont Bankers’ Association. Representative Freidin said the witnesses were invited to discuss how escrow payments had been affected by Acts 60 and 71 as well as to give an update on information the public had been provided or would be provided on implementation of any changes in procedures affecting them. After discussion, Representative Freidin requested that Commissioner Haase write the committee a memo articulating the issues. He then invited the participants to the November committee meeting to discuss the issue of mid-year property transfers.

The committee then recessed and reconvened after lunch.

Bill Russell, Chief Legislative Counsel, reviewed the October 1, 1998, preliminary first draft of the committee’s December 1 report to the General Assembly, as well as recommended attachments. He said Act 60 directed the committee to report to the legislature by December 1 each year and to report on the implementation of the Act and the achievement of its goals, together with any recommendations for legislative action. The committee gave Bill Russell recommended changes and information to incorporate in the report as well as the attachments.

Senator Chard suggested that the report answer the following questions: what was the challenge? what was the action? what was the result?

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Representative Freidin asked Bill Russell to incorporate the committee’s feedback, as well as suggestions from the Legislative Council and Joint Fiscal Office staff and the executive branch and present another draft of the report to the committee in early November for review at the November committee meeting

The committee agreed to change the date of the next meeting from November 5 to Tuesday, November 17, beginning at 10:00 a.m.

Sean Campbell, Deputy Tax Commissioner, referred to the update on Tax Department related reports and studies he had sent to the committee prior to the meeting. He said he would further update the committee if it had any questions. Deputy Commissioner Campbell said that the Commission on Property Tax Exemptions was scheduled to meet the next day and then provided the committee with a list of its members.

He distributed and discussed a 10/8/98, memo to the committee entitled, "Implementation Update." He said the Tax Department had continued to process Prebates, that last week 1,465 checks were sent, which brings the total number of checks sent to 102,037, at an average of $521.75 per check, totaling $53,238,308. He also reported on other implementation activities: the town of Manchester and the town of Williston had expressed some interest in Local Option Taxes; the Tax Department was continuing its work on legal and enforcement issues; and preparations were underway for FY2000. Deputy Commissioner Campbell said that the Department was working with Deb Brighton to project income sensitivity costs and to project what the breakout will be between homestead and non-homestead property.

Bill Talbott, Chief Fiscal Officer for the Department of Education, presented to the committee, a 10/1/98, letter to Representative Freidin from Commissioner Marc Hull, stating that under "Section 90, subsection (d)(1) of Act 60, the Commissioner of Education is to report to the Joint Committee his recommendation of ‘an appropriate level of general state support grants provided under section 4011 of Title 16 to school districts for the next ensuing school year.’ Additionally Section 100 of Act 71 of the 1998 session requires, ‘the per equalized pupil in the state amount of the education grants of the previous year shall be increased by the most recent price index for state and local government purchases of goods and services.’ My recommendation in response to this requirement is that the general state support grant be $5102 for FY2000." Bill Talbott cautioned that the Commissioner’s numbers were preliminary and that he would have final numbers in January 1999.

Representative Freidin said the committee might think about three issues relating to the block grant: What is an appropriate per pupil support? What does the committee believe is a reasonable estimate of the number of pupils? What is the total dollar amount the committee is comfortable with recommending? He said that he believed it was the responsibility of the committee to make a

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recommendation to the General Assembly and that the recommendation should go into the December 1 Report. He then invited Bill Talbott and Commissioner Hull to the November meeting to present an analysis showing the difference in local tax rates between the administration’s recommended level of General State Support Grant and a level which was $50 and $100 higher.

Bill Talbott also provided the committee with a 10/7/98 document entitled, "Determination of the General State Support Grant." He noted that the Index for local and state government purchases of goods and services was 1.81%

Bill Talbott distributed and asked for feedback from the committee; a town-wide profile sample for Montpelier which, after editing, would be printed for each town.

Bill Reedy, General Counsel for the Department of Education discussed the challenge of distinguishing between education expenses and municipal ones with particular attention to the work carried out by town clerks, treasurers, and auditors on behalf of school districts. He said that since Act 71 addressed this challenge only for FY99, the legislature might wish to consider further action for FY00. He also said that he had been working on the matter with a group of town and school officials, and that they would soon have a draft recommendation for the committee.

The Committee adjourned at 4:25 p.m.

Respectfully submitted,

Rachel Levin