Appropriations panel briefs on pilot special fund, cautions on shifting recurring costs and local option tax policy

Committee staff presented a detailed briefing of the pilot special fund and its projected balances at the Appropriations Committee meeting on February 4.

Speaker 3 explained the pilot fund is funded by a 25% share of local option tax revenue, "It comes from the 25% share of local option tax revenue," and outlined recurring obligations and recent one-time appropriations. Staff highlighted a governor recommendation for a $500,000 one-time appropriation to the tax department for telecommunications valuation work, a VITRANS-related $360,000 cost that the pilot fund absorbed this year, and the House's move to shift $3,410,000 in tax department costs into the pilot fund. With these changes, staff projected the pilot fund would end FY27 with about $11.6 million, down from an FY25 surplus of about $15 million.

Presenters stressed the fund is conservatively budgeted to avoid prorated town payments: recurring lines (three statutory lines) account for roughly $12.2 million and one-time appropriations vary by year. Committee members, including the transportation committee chair, raised concerns that towns increasing local option taxes above the statutory 1% (some considering 2%) could produce uneven outcomes and urged a policy conversation on whether and how revenue above 1% should be shared to help smaller towns maintain roads.

Staff warned that shifting recurring costs into the pilot fund reduces space for new recurring obligations under current revenue projections and said revenue growth depends on more towns adopting local option taxes in future years. The committee requested further coordination with the tax department, VITRANS, and the Joint Fiscal Office to refine projections and to explore allocation formulas if towns pursue higher local option tax rates.

The session closed without a committee vote; staff and members agreed to follow up with agency testimony and JFO modeling.