Governor, lawmakers duel over tax policy

MONTPELIER — State lawmakers and Gov. James Douglas are not only headed for a collision course on same-sex marriage (see related story), but are apparently about to come to loggerheads on the matter of a fiscal year 2010 general fund budget.
Legislators this week set the stage for some potential budgetary disputes with the governor, a Middlebury Republican, by endorsing a gas tax hike and discussing the prospect of an income tax surcharge.
The Vermont House on Tuesday voted 106-40 in favor of a 5-cent boost in the gas tax, money that would be used to underwrite $120 million in bonding to repair the state’s deteriorating roads and bridges.
“We did not come to the conclusion of putting 5 cents on your gas that easily,” Diane Lanpher, a Vergennes Democrat who serves on the House Transportation Committee, told participants at a legislative breakfast in Bristol on Monday. “But we are not living up to our responsibility if we allow bridges to fall down. Roads need to be repaired, but the bridges are deplorable as well.”
Lanpher noted that while Vermont is being extended $125 million in federal stimulus aid for transportation projects, that money still falls well short of the need, as evidenced by the combined total of $1 billion worth of local projects that communities have submitted for funding consideration.
“It is hardly a drop in the bucket,” Lanpher said of the $125 million.
At the same time, the House Ways and Means Committee is considering a temporary income tax surcharge of less than 1 percent designed to raise as much as $21.1 million to help shore up a revenue shortfall in the fiscal year 2010 budget. Ways and Means was expected to vote out a proposal by Friday, April 3, according to Rep. David Sharpe, D-Bristol, who is a member of House Ways and Means.
The two tax initiatives are not expected to sit well with Douglas, who has instead stressed cuts and using federal stimulus funds to pay for education costs, in addition to shifting about $40 million in costs for teachers retirement into the state education fund.
While they acknowledged the tough economy, local lawmakers said they have already taken a cleaver to the budget and believe they must now look to taxes to bridge the revenue shortfall.
“We have already cut $68 million, and we’re looking at another $23 million in services,” said Sen. Claire Ayer, a Weybridge Democrat and vice chairwoman of the Senate Finance Committee.
“We’re talking about medicine, we’re talking about food for poor people, we’re talking about education,” she added. “They are very tough cuts, but we are taking our job seriously and we’re also going to have to look at raising revenues, I believe. We have to come to some kind of sensible, sustainable balance, and we have done that work and we’re continuing to do that work.”
But some Addison County residents served notice they won’t be able to handle additional taxes.
Monkton resident Barry Meader runs a small, local moving company.
“Last October, I saw my business begin to die,” Meader said on Monday at the legislative breakfast. “No more phone calls; nobody was moving, I have a debt load. I cut every possible corner to survive.”
Meader said his insurance costs have increased and added he is no longer able to afford health insurance.
“We’re talking about increasing taxes? How can we keep going on like this,” Meader said. “A lot of you can’t understand how us little people are trying to survive, and we aren’t surviving.”
Rep. Michael Fisher, D-Lincoln, contended the Legislature is seeking to raise extra revenue not from low-income families and others who are struggling, but from “people who still have good jobs and are still raising good wages.”
Fisher said he is dismayed that the state’s current tax laws allow the state’s wealthiest residents to avoid substantial payments on capital gains income — around $300 million in 2006, he said.
“It’s unfair to working people,” Fisher said. “There is room to raise some revenue, and we will have to make some very serious cuts on top of that.”
Sharpe said he and other members of the Ways and Means Committee have a constitutional obligation to ask themselves “whether the money is better left in Vermonters’ pockets than to tax them, before we levy a tax.”
It’s a litmus test that, Sharpe said, “has been weighing heavy on our minds. How do we raise the additional money government needs to operate and yet deal with the economic realities people are dealing with in the community?”
He said the proposed income tax surcharge would cost a household earning $50,000 or less about $20 more per year, with a larger tax impact on those earning more.
Vermont House Speaker Shap Smith and state Senate President Pro Tem Peter Shumlin weighed in on the proposed new tax measures during a visit to Addison County on Monday.
“We are going to get some flack on the gas tax, but I really think it is the right thing to do,” Smith said during a gathering with the Addison County Democratic Committee.
Smith added that the state budget package the House will likely pass “does not contemplate any (additional) layoffs, but does contemplate some savings from… private contracts.”
The House version of the budget, he added, uses some federal stimulus money and envisions $24 million in new revenue to “reach a balanced budget.
“We are going to have, I’m sure, a fight galore about the budget; that’s just the way things go,” Smith said. “We’re having to make some very difficult choices, but one of the things I’ve said is, ‘We do not, through this budget, want to put more people on the unemployment line than already are on the unemployment line.’”
Shumlin charged that Douglas’s “no new tax” mantra is undermined by the additional $63 million the governor had proposed to shift onto the state education fund for fiscal year 2010. Those additional property taxes, he alleged, come from the governor’s proposal to transfer the $40 million of the teachers’ retirement fund obligation from the general fund to the education fund; as well as a cut of $23 million in the amount that had been pegged for transfer from the general fund to the education fund.
Shumlin argues that translates into $63 million in additional property taxes Vermonters will have to assume for public education expenses.
“Watch out — the governor’s proposed $63 million property tax increase is bad news for Vermont,” Shumlin said. “We’ve got to say ‘no.’”
He added the teacher’s retirement fund will only demand more property tax-related contributions in the future because of the recent stock market swoon. Prior to last year’s crash, the teacher’s retirement fund had $3 billion in funds under management, according to Shumlin. That amount has now shrunk by $1.4 billion, he said, meaning that local property taxpayers would be on the hook for putting that much more into the fund to keep it solvent.
Neale Lunderville, Douglas’s secretary of administration, stressed Douglas’s proposed transfers from the general fund to the education fund were to be done in concert with his hope that the Legislature would support level funding fiscal year 2010 education spending at fiscal year 2009 levels.
“The Legislature chose not to act on his proposal,” Lunderville said.
Shumlin countered that Douglas’s request came at a time when most school boards had already drafted budget warnings for Town Meeting Day, and that the governor’s suggestion to postpone Town Meeting Day to make the needed adjustments was universally ignored by towns and school districts throughout the state.
Tax Commissioner Tom Pelham, however, updated and clarified the $63 million that Shumlin referred to. Of that amount, $40 million from the teachers’ retirement fund, Pelham confirmed, would be a shift from the general fund into the education fund, but that only about two-thirds of that fund is raised by property taxes. Of the other $23 million, Douglas has revised his budget proposal to use $30 million  in federal stimulus money to cover the shortfall and help restructure the way Vermont accounts for education spending.
Lunderville also reiterated Douglas’s opposition to the gas tax, which he said is being proposed at “a time when gas prices are on their way up,” and at a time “when families are struggling just to get by.”
A gas tax, Lunderville added, would disproportionately hurt rural communities, such as those in Addison County.
Douglas, according to Lunderville, remains committed to closing the revenue shortfall for the fiscal year 2010 budget with cuts rather than revenue hikes. He said the governor hopes to come to an agreement with the state employees’ union that will avert additional layoffs. Douglas has said that barring some substantial concessions from the union — a 5-percent pay cut while assuming a greater share of health care premiums — he will likely call for trimming the state workforce by more than 300 positions.
“We need to find $17 million in base labor savings,” Lunderville said.

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