Draft bill would let towns that already levy 1% add a second local option percent, split revenue 50/40/10
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Summary
A Joint Fiscal Office and Legislative Council briefing presented draft language (24 BSA 1 38a) that would let municipalities already collecting a 1% local option tax add another 1% on any permitted tax base, with 50% kept by the town, 40% routed to a new municipal transportation special fund for town-highway aid, and 10% to the pilot special fund. Lawmakers pressed staff on timing, estimated revenue for Stowe, and whether local shares could supplant existing road spending.
A draft bill discussed at a joint House and Senate transportation committee hearing would allow municipalities that already levy a 1% local option tax to impose an additional 1% on any of the tax bases currently authorized by state law, and would distribute the added revenue in a 50/40/10 split between the host municipality, a new municipal transportation special fund, and the existing pilot special fund.
Christopher from the Joint Fiscal Office said the proposal is intended as a starting point for lawmakers weighing how to help towns that struggle to fund road maintenance. "An additional 1% in STOW would be about 3 and a half million dollars," Christopher said, later noting that including online-sales categories could raise that estimate to about $4.24 million.
Damian Leonard of the Office of Legislative Council described the bill text, saying, "A municipality that already assesses a local option tax may impose an additional 1% local option tax on 1 or more of the tax bases on which it currently imposes a local option tax." The draft ties administration to the Department of Taxes' existing procedures and prescribes quarterly distributions: 50% to the municipality (unrestricted for municipal services other than education), 40% to a new Local Option Municipal Transportation Special Fund devoted to town-highway aid, and the remainder to the pilot special fund.
Under the draft construct and Christopher's estimates, Stowe's town share would be roughly $1.8 million to $2.1 million and the town-highway portion roughly $900,000 to $1.7 million, depending on whether 'other' online sales are included and on final effective dates and administrative timing. Staff said implementation details — including the bill's effective date and the Department of Taxes' 90-day notice needs for merchants — would influence when revenues could begin flowing; staff estimated receipts could start in fiscal 2027 depending on timing.
Committee members asked whether the proposal should include anti-supplanting language to prevent municipalities from shifting existing road spending off local budgets once new revenue arrives. Leonard said the initial draft did not include supplanting restrictions but that such language could be added. Members also raised that Burlington and Rutland collect and administer local-option taxes under charter authority and therefore retain 100% of revenues, creating precedent that weighs on fairness questions for smaller towns.
The briefing also reviewed the pilot special fund, which receives the statutory 25% state share under current law. Ted Barnett (JFO) explained that pilot payments, historically prorated when revenue was insufficient, have recently been fully funded and that the pilot special fund shows an ending balance (surplus) of about $15 million. The draft includes a one-time $3 million appropriation from that surplus to seed the new municipal transportation special fund in its first year.
No committee vote or formal action occurred; members agreed the session was an opening for further work, requested additional analysis (including more precise revenue estimates and implementation timing), and urged outreach to the Department of Taxes and the Vermont League of Cities and Towns for operational perspectives. The committees signaled interest in follow-on joint hearings, including related proposals such as local-option gas taxes.
Next steps: staff offered to provide the full calculation steps and slide deck, and members were invited to return for deeper review; lawmakers emphasized urgency because one town's March ballot (Stowe) could move before final legislative decisions.