The new taxing scheme could raise millions for renewables as Vermont Gas Systems charts a southern pipeline expansion through Addison County on the western side of the state.
The proposal, to be introduced to the Senate Finance Committee on Wednesday, would divert pipeline tax revenue into the Clean Energy Development Fund from the state's Education Fund, where the revenue goes under current tax policy. Because the Education Fund is facing tough fiscal pressures, the proposal may raise concerns about the monies that would be diverted.
Sen. Christopher Bray, D-Addison, lead sponsor of bill S.238, said the proposal is designed to help move the state off of carbon-emitting fossil fuels.
"If we don't have a healthy environment, the level of funding for schools, at some point, is going to become secondary," said Bray, who is a member of the Finance Committee. "If you were personally not healthy, you would stop worrying about your education."
Statewide property taxes for education are expected to jump about 7 cents, a sobering hike that has raised concerns in both the Legislature and the Shumlin administration. This is largely due to rising school budgets, declining enrollment and the slow growth of grand lists, which is the amount of taxable property in the state. Property values have grown little following the 2007 recession.
Vermont Gas Systems plans to build a 43-mile, $86.6 million natural gas pipeline extending its current transmission mainline in Colchester to Middlebury. Pending approval by the quasi-judicial Public Service Board, the utility could extend its pipeline to New York and Rutland.
Steve Wark, communications director for Vermont Gas, said there could be unintended consequences with any new tax policy. He said it is too early to say whether the proposal would raise customers' natural gas rates.
"We want to make sure our customers are not unduly penalized for picking something that is more clean," he said, referencing the cleaner emissions from natural gas over other heating fuels.
The bill would set a floor for a pipeline's taxable value at 30 percent of the total construction cost. This means the pipelines will continue to offer tax revenue even after their appraised value depreciates to zero under the proposal.
"The lowest you can go is to 30 percent so that it is always generating revenue as long as it's operating," Bray said.
Bray said the state must funnel resources to the Clean Energy Development Fund to meet the goals set by the state's Comprehensive Energy Plan, which call for Vermont to be 90 percent renewable energy by 2050. This bill supports that mission by providing continued funding, he said. The fund has no stable source of revenue at this point.
"A commitment without money is no commitment at all," said the bill's lead sponsor, who is making this his top priority this session.
But Steve Jeffrey, executive director of the Vermont League of Cities and Towns, said the proposal would divert school tax revenues from pipeline property assessments in towns from going into the Education Fund. Taxes collected for roads and other municipal services would not change, he said.
"Under the bill, nothing would change as far as where the municipal property taxes will go, that continue to be assessed and taxed by the municipalities," Jeffrey said. "With the bill, it does propose to divert the new property taxes, or replace the property tax that would be paid into the Education Fund, and have it go into the Clean Energy Development Fund."
On average, he said, three-quarters of municipal property tax revenues currently go toward the state's education fund, and the remaining go to fund municipal services. Cities pay more for municipal services and rural areas pay more toward the Education Fund, he said.
Pipeline advocates have urged its construction to provide a lower cost fuel that will help economic development and reduce homeowner heating costs, but opponents have voiced criticism of the siting process. Some residents in Monkton, which is located in the path of Vermont Gas' southern expansion, have voiced concerns about Vermont Gas' right-of-way negotiations with landowners.
When asked if the town would support a new taxing scheme for the proposed pipeline, Stephen Pilcher, newly elected chair of Monkton Select Board, replied: "At the highest level, you're asking should some of the money in the state Education Fund go to the Clean Energy Development Fund. At that level, my answer is probably not. Would the town of Monkton be interested in seeing an additional tax on top of the transmission tax, if you will, levied on Vermont Gas that would go to a Clean Energy Development Fund? That would make a lot of sense."
The bill also gives the Vermont Department of Taxes the authority to approve applications for funding under the Clean Energy Development Fund. Towns will receive 50 percent of the tax revenue they contribute to the CEDF for renewable energy projects in their town, according to the bill.
Monkton does not have the space for large-scale renewable energy facilities, Pilcher said, but it would welcome the money for weatherization projects.
Sen. Ginny Lyons, D-Chittenden, who is a member of the Finance Committee and a sponsor of the bill, said the revenues from pipeline taxes could be used for a variety of renewable energy projects.
"I can see the development of any number of clean energy projects. It can be anything from woodchip burning stoves and plants to solar plants to farm net metering systems, methane digesters. I think it's the whole broad spectrum," Lyons said.
The bill is a stepping-stone toward a statewide carbon tax, she added.
"I think this is an opportunity for us to begin a conversation about what a carbon tax is and what exactly that means," Lyons said. "I wouldn't call this a carbon tax but it continues moving us toward a direction of taxing the bad and moving in the goods."