Heating oil tax mulled for efficiency effort
By PETER HIRSCHFELD
Vermont Press Bureau | December 09,2012
@$ID/[No paragraph style]:MONTPELIER — In 1999, Vermont lawmakers passed legislation that would give rise to an energy-saving program now regarded as a forerunner of the nation’s efficiency movement.
Next month, advocates will ask the Legislature to do for heating oil what Efficiency Vermont has done for electricity.
A report set to hit lawmakers’ desks in January will promise $1.5 billion in avoided heating costs if Vermont can weatherize 80,000 homes by 2020. But, as is generally the case with efficiency projects, it will cost money to save money. A lot of money, as it turns out.
Assembled by a task force that has been meeting since spring, the report will seek more than $260 million in taxpayer funds over the next seven years to reach the 80,000-home goal. The likeliest source of revenue: a tax on home-heating fuels.
As the panel readies is formal recommendations, lawmakers and administration officials are preparing to revisit a question that has confounded efficiency efforts in the past: Should taxpayers be required to hand over more money now to pay for programs their government believes will save them money in the future?
“I don’t think it’s any secret that trying to create a new source of funds is not going to be an easy thing to do in today’s environment,” said Rep. Tony Klein, an East Montpelier Democrat and chairman of the House Committee on Natural Resources and Energy. “But having said that, thermal efficiency is about the biggest bang we can get for our buck, and the biggest long-term help we can give to Vermonters of all walks of life.”
The conversation isn’t a new one. A 2008 bill, championed by then-Senate President Peter Shumlin and signed into law by Gov. James Douglas, codified the 80,000-home goal. Four years later, elected officials have yet to say how they’ll pay for it.
Asked last week whether the thermal-efficiency goal was still realistic, Shumlin said “I hope so.”
“Where we’ve done very well in Vermont is efficiency that has anything to do with (electricity) running into the home,” Shumlin said. “I think where we have failed is in thermal efficiency, and I’m working together with my team to try to find ways to speed up our progress in thermal efficiency.”
Made up of experts from across the energy and efficiency sectors, the task force is expected to say that Vermont will need to raise $26 million in fiscal year 2014, then ramp the figure up incrementally to $45 million annually by fiscal year 2020.
At a meeting last Wednesday — the task force will convene once more before adopting the final report — the group still hadn’t landed on a favored revenue stream. But the options center around a tax on heating fuels, like oil and propane, used to heat seven in 10 Vermont homes.
Is Shumlin amenable to a new tax on heating oil?
He wouldn’t commit to anything last Tuesday, but he did say that a surcharge on heating fuel — the report is considering an 11-cent per gallon excise tax, among other options — wouldn’t violate his pledge not to raise broad-based taxes.
“I don’t think it is a broad-based tax,” Shumlin said. “I think a broad-based tax is income, sales, rooms and meals.”
Matt Cota, executive director of the Vermont Fuel Dealers Association, disagrees.
“Everyone would be required to pay this, whether they’re rich or poor or middle class, whether they’re a business or a homeowner,” Cota said. “A tax on heating oil would hit just about everyone in the state.”
Cota is among the early opponents of a weatherization financing proposal that will no doubt gain enemies as it tracks through the Legislature.
Other options the task force is considering — increasing the gross receipts tax, subjecting residential heating oil customers to a 6 percent sales tax on their fuel — would also generate opposition.
Cota says low-income Vermonters can ill afford the $88 tax increase that the 11-cent-per-gallon surcharge would add to the average homeowner’s annual heating bill. The effects on business, Cota argues, could be even starker.
The excise tax, or any other fuel oil tax that sought to raise the same amount of money, would add to overhead expenses for companies already struggling for profit margins, Cota says. When combined with existing taxes on heating fuels, Cota said, an 11-cent-per-gallon excise tax would make state taxes account for 10 cents of every dollar that businesses spend on heating costs.
“And that looks even worse when you consider that businesses in New Hampshire don’t have to pay a cent in state taxes on their heating bill,” Cota says. “I worry about jobs fleeing the state because yet another tax has been heaped on businesses who just can’t take it anymore.”
George Twigg, director of public affairs for Efficiency Vermont, says it’s a matter of fairness. Efficiency Vermont derives its annual budget from a surcharge on ratepayers’ electricity bills that raises about $45 million per year. He said people who use natural gas — also a regulated fuel — also pay an efficiency surcharge that the gas utilities plow into home weatherization programs for their customers.
“So it’s really a matter of equity, where we have some fuels having funds raised from their sales to support efficiency programs and others that are not,” Twigg says. “And what that means is there is a lack of opportunity for businesses and families who are not heating with natural gas.”
Cota says the one half of 1 percent gross receipts tax on heating oil has, since it was imposed in 1990, funded weatherization efforts for low-income Vermonters. The money, combined with a gross receipts tax on other sources of energy, generates about $8 million for a low-income weatherization program administered by community action agencies around the state.
But advocates like Hal Cohen, executive director of the Central Vermont Community Action Council, say the funding isn’t nearly enough to meet demand. Even with nine trucks and 30 workers, Cohen says, “we have an 18-month waiting list.
Cohen says the $88 his low-income clients might face in higher annual heating costs as a result of the new tax would be well worth the increased capacity for weatherization.
“The reason I don’t have a problem (with the tax) is because it’ll mean winterizing more of those homes for those families, which in the end will bring them much more in terms of savings,” Cohen says.
Cota says the state’s weatherization movement is plugging along just fine without requiring new taxpayer investment. Thirty years ago, the average Vermont home consumed 1,400 gallons of fuel per year; today, the figure is less than 800.
“We’ve made great progress and we continue to make great progress, and fuel dealers have been at the forefront of that effort,” Cota says. “It’s unfair to ask them to shoulder the costs of a program that essentially tries to put some of them out of business.”
But Richard Faesy, principal at the efficiency consulting firm Energy Futures, says a large swath of Vermont homeowners won’t be able to reap the benefits of weatherization without some level of government aid. Programs for low-income residents cap eligibility to those making 60 percent or less of median household income.
@$ID/[No paragraph style]:“Right now if you make 61 percent, you get nothing,” Faesy says. “After that is this huge no man’s land where we’re going to have to provide larger incentives if we want them to be able to come up with the cash.”
Environmental advocacy groups like the Vermont Natural Resources Council, Vermont Public Interest Research Group, Conservation Law Foundation and others will push hard for funding next year. Supporters will brand the legislation as a jobs bill that will, combined with homeowners’ contribution to the taxpayer-funded subsidies, infuse the construction and remodeling industry with more than $600 million in consumer spending.
In a call to arms to his 96-member Democratic caucus Saturday morning, House Speaker Shap Smith invoked climate change as among the chief issues facing lawmakers in 2013. Asked later how he aimed to solve the problem legislatively, thermal efficiency was at the top of the list.
“We have worked for a long time to set up a framework for making our homes more efficient and I think we need to translate that into action,” Smith said.
As for how to fund it, Smith remained noncommittal.
“I think you have to be careful about singling out one hydrocarbon to raise revenue,” he said, referencing the tax on heating oil. “And I’d want to see whatever proposal was put on plate.”