Budget problems dominate 2009 legislative session

MONTPELIER — State Sen. Claire Ayer used an apt metaphor on Tuesday in describing the 2009 legislative session.
“It was like trying to do a regular household budget with no money to spend and being unsure about future paychecks,” the Weybridge Democrat said.
And while the state’s 2009-2010 “household budget” remains in limbo, lawmakers this past session looked beyond finances at times to endorse a variety of social, agricultural and legal initiatives — including same-sex marriage and tougher sex offender laws.
But it was overwhelmingly a session dominated by finances — or the lack thereof. The Legislature ended the session on Saturday after passing a $4.5 billion budget for fiscal year 2010 that featured a $281 million revenue shortfall. Lawmakers “patched” that hole by cutting $59.3 million from state programs and services, while hoping to collect $4.8 million in unpaid taxes; generating $21.3 in new taxes; reducing the general fund transfers to the Vermont’s education fund by $18.4 million; using $3.2 million in “rainy day funds”; and applying $174.5 million in federal stimulus funds.
Gov. James Douglas, a Middlebury Republican, has served notice he does not support the General Assembly’s budget, primarily due to the increase in taxes it requires. The proposed revenue package includes:
•  Closing the capital gains loophole (with a new $5,000 exclusion) to generate $16.2 million in state revenue.
•  Raising the estate tax to bring in an estimated $3 million.
•  Closing the income tax deduction loophole (with a $5,000 cap) to generate $15.5 million.
•  Bumping up the sales tax on liquor ($2.4 million).
•  Raising the cigarette tax (from $1.99 to $2.24 per pack) to raise $4.1 million.
•  Increasing the tax on other tobacco products to generate $1.8 million.
Those taxes would be offset somewhat by lowering the marginal income tax rates to save Vermonters $22.4 million. The net boost in revenues, therefore, would be $26.1 million.
Douglas and legislative leaders have been unsuccessful thus far in reaching a compromise on the budget, setting the stage for a gubernatorial veto and subsequent override vote by legislators.
“This is probably the most disappointing piece of legislation, as far as the governor is concerned,” Douglas administration spokeswoman and Addison County native Dennise Casey said.
Casey said Douglas entered negotiations opposed to any new taxes but was “willing to meet (the Legislature) in the middle” on their proposal to generate $26.1 million in new revenues.
“In the end, the Legislature went its own way, knowing they would be extending out the legislative process,” Casey said.
She pointed to revenue forecasts predicting a potential $170 million deficit in fiscal year 2012 if state passes the General Assembly’s version of the fiscal year 2010 spending plan. The reason, according to Casey: The Legislature has buttressed its fiscal year 2010 budget with $174.5 million in federal stimulus money that will not be around come fiscal year 2012. That means lawmakers are now postponing tough cuts and financial decisions for a few years, according to Casey.
“Our budget decision in fiscal year 2010 has significant implications for 2011 and 2012,” Casey said.
Most lawmakers argued that the Legislature’s proposed budget already reflected $59.3 million in cuts to state programs and services.
“This budget makes difficult cuts, closes tax loopholes to cut taxes for middle and lower income Vermonters and sets us on a track for greater sustainability in the future,” said House Speaker Shap Smith.
“Some Vermonters will see fewer services, some higher-income Vermonters will pay higher taxes, but we are all in this together.”
“I believe we spread the burden across all Vermonters, not just the most vulnerable among us,” said Rep. Willem Jewett, D-Ripton.
Ayer, the Senate majority whip and vice chairwoman of the Senate Finance Committee, said she believed the Legislature was responsible in its budget planning.
“In the end, I think we did the best we could do with the combination of cuts in services and penny pinching,” Ayer said. “I think what we did was creative, responsive and practical.”
That said, Ayer acknowledged that more major cuts are on the way, in part due to the use of federals stimulus money to fill gaps.
“Next year is going to be another difficult year, in my mind,” Ayer said.
While most Addison County lawmakers voted in favor of the budget, some did so reluctantly — and for varied reasons.
Rep. Michael Fisher, D-Lincoln, said he was concerned the budget trimmed too many services for the state’s neediest. Among them was a cut of $1 million for services to Vermonters with developmental disabilities.
“That was a huge, and frankly negative, cut,” said Fisher, vice chairman of the House Human Services Committee. “For those people who say we didn’t make ‘real’ cuts, they don’t know the people most affected by the cuts.”
In the end, though, Fisher voted “with reservations” along with 90 of his colleagues in supporting the proposed budget.
Rep. David Sharpe, D-Bristol, also voted for the spending plan with some concerns. Sharpe, a member of the House Ways and Means Committee, noted that his panel had recommended a temporary income tax surcharge — what he thought was a more progressive way to raise revenues as opposed to the sin taxes and capital gains adjustments that were ultimately incorporated in the final compromise.
“I am concerned about … the impact the sales tax increases are going to have on the eastern border of our state,” Sharpe said, referring to the fact that New Hampshire does not have a sales tax. “It may be problematic for some stores along the Connecticut River.”
Sharpe also does not want to see the Legislature get in the habit of endorsing general fund transfers to the state’s education fund. The $18.4 million transfer approved for fiscal year 2010 is from savings and will not raise Vermonters’ property taxes, according to legislative leaders, but he is leery of what will happen in future years.
“I remain very concerned about the education fund in 2011,” Sharpe said.
Rep. Will Stevens, I-Shoreham, voted against the budget because of the tax increases, particularly those on capital gains and estates.
“I couldn’t support (the budget) at the end of the day,” said Stevens, who remains unsure at this point about whether he would vote to override a gubernatorial veto of the spending plan.
Stevens added he was disappointed that the Legislature worked in an atmosphere in which the budget was driving policy decisions and not vice-versa.
Rep. Diane Lanpher, D-Vergennes, was concerned about the cuts and revenue increases reflected in the budget, but, like her colleagues, emphasized the problem at hand.
“For the fiscal year 2010 budget, there was a $282 million (revenue) gap — and that was after a $141 million gap in the 2009 budget,” said Lanpher, a freshman lawmaker and member of the House Transportation Committee.
Ultimately, Lanpher believes the Legislature’s budget closed the budget gaps using a combination of cuts, federal revenues and tax increases that “asked for a balanced sacrifice from everyone.”
Indeed, limited finances affected the number of initiatives the Legislature was able to discuss and pass during the 2009 session. But lawmakers cited some notable exceptions:
•  The “marriage equality bill,” which will allow people of the same gender to tie the knot beginning later this year. Supporters assembled just enough votes to override Gov. James Douglas’s veto of the legislation.
•  A bill that would compel the owners of Vermont Yankee (Entergy) to put together the funds necessary to decommission the Vernon-based nuclear power plant. The cost is estimated at around $900 million, according to Lanpher, though the current decommissioning fund bears less than $400 million.
It’s a bill that faces a possible veto from Douglas, who has said he is concerned about how the proposal could affect Vermonters’ power bills.
•  Successful efforts to strengthen Vermont’s sex offender laws and expand the state’s sex offender registry from the current 400 names to around 2,000.
•  Agreement on a fiscal year 2010 transportation bill that includes a  2-percent tax on gasoline and a 3-cent-per-gallon tax on diesel, with proceeds to be used to help pay for additional repairs to Vermont’s roads and bridges.
House leaders had previously proposed a 5-cent hike on both gas and diesel.
•  Agreement on a fiscal year 2010 capital bill that invests in an “emergency operations center” and a public safety forensics facility, both in Waterbury.
“Those facilities are quite antiquated and need some updating,” noted Casey, who emphasized the governor’s support.
•  The use of $1 million in federal stimulus money to facilitate loans for cash-strapped farmers. Sen. Harold Giard, D-Bridport, said the money was used to buy down the interest rates on loans totaling more than $6 million to farmers who otherwise might see their operations fail.
Along with its accomplishments, the 2009 session had its shortcomings, state officials acknowledged.
Casey said that along with the budget, Douglas is concerned that lawmakers did not do enough to promote economic development, or take enough steps to stave off a looming deficit in Vermont’s Unemployment Insurance Fund that could reach $300 million in the near future.
Casey said that Douglas had proposed several strategies to tackle the problem, including not extending unemployment benefits to workers who have been fired for misconduct, reducing the maximum unemployment benefit from the current $425 per week to $409 per week, and raising from the current $8,000 to $10,000 the taxable wage base next year.

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