Week 8: February 21st to February 24th

Big Decisions Coming

 Work on the floor of the House was light last week as committees continue to take testimony and modify bills. But in the next two weeks several important and controversial bills will come up for full House consideration: Paid Family Medical Leave Insurance, Online Sports Betting, and Universal School Meals are three of them.

Paid Family and Medical Leave Insurance 

H.66 is Vermont's version of Paid Family and Medical Leave Insurance. That bill has come out of the House General and Housing (HGH) committee last week. HGH was primarily concerned with the policy of the bill, rather than how such a program might be funded. Now the bill has been sent to the Ways & Means committee (HWM) for answers to those funding questions. That's my committee. The 12 of us on the committee are taking testimony in order to better understand the potential costs and implications of the program.


Vermont already has an unpaid family and medical leave program, and there is also a federal unpaid family and medical leave program.  H.66 is very different in that it provides wage replacement during the time on leave. Eleven other states now have this type of program, so this is not a new concept. Not new and not cheap.


Here's a link to the most frequently asked questions about the program. The HGH committee suggests adding Safe Leave (for handling Domestic Violence) to the existing unpaid family leave program, but left the rest of the bill the same as it was when introduced. The big issue my committee looks at is the cost and how those funds might be raised. We've been hearing some scary numbers:

The Costs

The Joint Fiscal Office (JFO) was charged with estimating the yearly cost of the proposed legislation. This video is of their testimony to House Ways & Means. JFO uses a model to predict how many Vermonters will take how much of each kind of leave.  The results are in the chart.


Bottom line is that the yearly cost is $85 million. JFO used a 0.55% payroll tax and calculated that $91.5 million would come in as revenue.

There are two sides to the program: revenue and benefits. The tax department will be responsible for the the revenue. The State Treasury will be responsible for the benefits. Each needs additional employees and IT costs.


The Treasury 

The program will be housed within the State Treasury. Treasurer Mike Pieciak told the committee this week that it will take at least three years to ready the program. The first year would have no IT costs but it would be necessary to hire at least four key positions to begin developing the program. That would be about $500,000 to $600,000. In the second year the software vendor would be hired to begin work. After looking at expenditures from other states, Pieciak estimates the cost of developing the program's IT structure to be about $30 million. With $15 million for the second and third year of development. During the second year there would need to be additional positions to handle the revenue side of the program. Near the end of the second year employees and employers would begin paying into the system, though no benefits would be offered.  This will require at least an additional position. There is a planned 15 months of revenue with no benefits. During that time the rest of the IT structure will be completed. During that third year there will be more hiring as there will be a need for people to consider and process claims, adjudicate appeals oversee businesses, and protect against fraud. The full payroll estimate is $7 million a year for the 45 or 50 positions needed to make the program fully operational. Pieciak also estimates $2 to $3 million of ongoing IT costs. Bottomline looks like roughly $32 million for the first three years, then $10 million a year after. Those cost will go up over time due to wage and benefit increases.


The Tax Department

Vermont's tax commissioner tells us that he will need to hire an estimated 15 full time employees and spend $2 to $3 million a year on Information Technology costs.


Where does the money come from

The current proposal is that the program is financed with a payroll tax on all Vermont employees and employers. The tax is proposed at .58% of the paycheck, split 50/50 between the employer and the employee. The average Vermont wage earner receives about $33,000 in income. A payroll tax of .29% means (.0029 * $33,000 = $95) a year for the average Vermont wage earner. It's important to note that the employer will pay that amount for each and every one of their employees. So though the cost to the employee may seem small, the cost to the employer is significant.


Who might not pay into the system

If an employer already has, or develops, a similar program but with better benefits and lower cost to the employee, then that employer and their employees would not pay into the system. A self-employed person who is a sole-proprietor can also opt-out of the system. 


What can/will change?

As the bill moves from committee to committee and then from House to Senate and perhaps back again, there will be many changes. The following are the primary ways that the costs and benefits might change:


What might be the fate of the bill?

H.66 is a "caucus priority." That means that the Party (Democratic) leadership strongly supports the bill. It will not die in some committee. Usually that means that eventually there will be a House and Senate committee of conference that will work out differences and present a consensus bill. But the Governor is not a fan. He has his own Paid Family Medical Leave program proposal. So the Governor can/may veto H.66. But a strong majority of Democrats in both the House and Senate could override that veto.


On July 1st the Governors Paid Family Leave proposal is supposed to start. H.66 will take at least three years to be developed and become operational. The big differences between his proposal and that of the General Assembly (GA) is that his would be run by a private company. The GA version has a third party developing and maintaining the program but it would be under contract with the Vermont Treasury. The Governor's program will be voluntary while nearly all employees would contribute and benefit from the GA version. It's possible that the Governor and the General Assembly could work together to resolve differences in the programs and come up with an agreed upon approach to Paid Family and Medical Leave.


Right now?

House Ways & Means will continue to take testimony and vote the bill out of committee during the next two weeks.

Online Sports Betting

H.127 is not a caucus priority and may well not make it past a vote on the House floor.  This bill legalizes online sports betting over the internet. The usual way to receive revenues from sports betting is to tax the income of the operators. Other states (there are 29 including New York, New Hampshire and Massachusetts) levy taxes on the operators ranging from 10% to 50%. There are two ways to establish that rate: 1) set it by law, 2) negotiate with the operators. Unlike the legalization of cannabis, the people making money off the system (aside from those that win) is not Vermonters starting up small businesses.  Rather it is one or two large international companies like FanDuel or DraftKings. Other states have negotiated contracts with those companies that specify what the tax will be. The willingness of a company to pay taxes as high as 50% is based on the number of players that might be involved, the number of operators allowed in the state, and any restrictions imposed by the state.

The Joint Fiscal Office estimated the revenue Vermont might receive from the legalization of online sports betting. The values shown below make assumptions about the number of people who might bet and how much they might bet. Information from other states informs those assumptions. 

Talking about sports betting requires learning some new vocabulary.

Estimates of the revenues Vermont might receive range from $450,000 to nearly $5 million a year depending on the tax rate and how competitive the market is. A competitive market would have several operators competing. Clearly the way for Vermont to bring in the most revenues would be to allow several operators (4 to 6) and set a high tax rate. However, that may not be possible as operators might decide that Vermont is not a big enough market to justify such a high tax rate.

Where are we on this?

House Ways & Means will continue to take testimony, but should vote the bill out of committee within the next two weeks.

Others In and Out of My Committee


These bills will come to the House floor for a vote next week and will then be passed on to the Senate for consideration.

Coming Up

The agenda for the Committee on Ways and Means shows that we will be hearing more on Family and Medical Leave and begin hearing testimony on Universal School Meals (H.165). That's another high cost program and another tough decision.