Gov. Scott warns lawmakers of fiscal hard times ahead

MONTPELIER — In his second address to the state, Republican Gov. Phil Scott on Thursday offered few sweeping initiatives and homed in on his message of no new fees and taxes.
Scott urged lawmakers to rein in spending on education, restructure the state’s economy and find ways to boost business. Affordability was the mantra of the day (with 13 references in the 35-minute State of the State speech), and much of the rhetoric was a rehash of austerity themes he has expounded on since his inauguration a year ago.
The governor emphasized his humble beginnings in Barre and talked about his early career in construction where he “learned that when you find yourself in a hole and have a problem, the first thing you do is stop digging.”
“Well, I’m proud to report that last year we stopped digging,” Scott said.
Scott took credit for improving the state’s fiscal health last year by closing a budget gap of $60 million and limiting spending growth to 1 percent. The governor pledged to repeat that performance this year, cementing a new era of government austerity that he believes will restore the economy and ultimately lead to more prosperity for Vermonters.
That lean approach to budgeting must continue, he said, in order to restore economic growth, which has lagged in the post-Great Recession period.
Scott reeled off sobering statistics that put the state’s economic situation in stark relief. He detailed how the workforce has shrunk as young people have left to seek employment elsewhere and the remaining population has aged. There are 23,000 fewer people under the age of 20 in Vermont than in 2000, and 30,000 more people over the age of 65, Scott said.
The solution, he said, is to attract more workers to the state. “Until we’re able to increase the size of our workforce and grow the economy, we will not have the revenue to meet current or future needs,” Scott said.
The governor underscored demographic data points as he made a case for fiscal discipline “because Vermonters still cannot afford higher taxes or fees.”
He promised to block attempts by the Legislature to increase fees or taxes — including a 7 percent projected increase in property tax rates for K-through-12 public schools.
“I, along with my administration and members of the Legislature, stand ready to prevent taxes and fees from increasing again this year,” Scott said. “And, just so I’m clear, that includes statewide property taxes and fees.”
The governor said lawmakers must “face facts” about the state’s shrinking student population. Despite the fact that the state has lost 30,000 students over the past 20 years, costs at local schools have continued to rise, he said. Vermonters currently spends $1.6 billion a year on 76,000 students.
He urged the Legislature to “transform” public schools and shift money from the K-through-12 system to workforce training, technical education, child care and higher education — “without raising the price tag on Vermonters.”
Scott was adamant that he will not tolerate an increase in property taxes.
“We cannot let this happen,” he said. “Vermonters can’t afford it, the state cannot sustain it, and I will not accept it.”
In practically the same breath, Scott then told lawmakers that the state must find funding to support new business initiatives for startups, workforce education, tax increment financing for communities and job creation.
“In my budget, I will propose flexible ways to support small businesses and other pro-growth initiatives and investments,” Scott said. Economic development efforts should be focused on small towns that have suffered the most in the post-recession period, he said.
He said his administration will develop a workforce expansion plan for students, families and veterans. As part of that proposal, he will offer free tuition to members of the Vermont National Guard. The governor also wants to eliminate the income tax on military pensions.
Scott’s staff, which occupied the second floor gallery of the House chamber, interrupted the speech with frenetic applause, while members of the Democratic majority in the Senate and House, many of whom feel burned by Scott’s bait-and-switch tactics on school spending last year, did not clap.
The governor punctuated his speech with military references, including a description of marching orders from Gen. John Sedgwick that turned the tide at Gettysburg.
In a speech in which he told lawmakers that “this is our time to move ahead and keep the column tight,” Scott also called for civility in what has been described as the most divisive time in America’s political history.
The governor also made cursory reference to moderating health care costs, funding a cleanup of Lake Champlain and identifying strategies for addressing the opiate crisis.
Critics said Scott’s speech was flat, light on details and riddled with inconsistencies.
Senate President Tim Ashe, D/P-Chittenden, said the administration is sending mixed and contradictory messages. Other senators poked holes in Scott’s call for lawmakers to hold the line on spending and “stop digging,” including no increase in the statewide education property tax.
On myriad issues, from water quality to economic development, “we hear administration commissioners and secretaries say they need more resources and more needs to be done. And then we hear that their leader is saying we can’t produce more resources to do it,” said Ashe.
In an interview after the speech, the Senate leader again attempted to take back the “affordability” mantle from Scott.
“The issue of affordability is critical to every legislator in this building and has been for years, and every year we do what we can with our limited resources,” Ashe said, adding that “we’re already working on all of these things. The question is how can we take it to the next level. Each year we return we attempt to take it to the next level.”
On Scott’s shot that lawmakers had prioritized marijuana legalization legislation over other issues, Ashe noted the bill came up the first few days of the session because of a “fluke” and was the result of Scott’s veto.
Ashe agreed legalization was not the biggest issue, but also pushed back, saying the governor had put more resources into study groups on pot than other issues.
“On my list of 100 priorities, it’s No. 101,” Ashe said.
Senate Majority Leader Becca Balint, D-Windham, and Sen. Anthony Pollina, P/D-Washington, tried to turn Scott’s “stop digging” argument against him.
“When he says, ‘I’m not digging anymore,’ he also means we’re not growing anymore, we’re not thinking ahead, we’re not thinking about how we are going to” rebuild the economy, Balint said.
Pollina went further.
“When they’re stuck in a hole, let’s throw them a rope,” Pollina said of Vermonters facing financial trouble. He added: “Let’s help them find a way out of that hole, not just sort of tell them to stop digging and stay in the hole until we come up with an idea.”
Balint and Pollina criticized Scott’s call for no new taxes and fees again this year as unrealistic. Ashe said Finance and Management Commissioner Adam Greshin called the no-taxes pledge a commitment for Scott’s first term.
“He’s interested in holding the line on everything. The line is not where we want to be,” Pollina said.
Sen. Joe Benning, R-Caledonia, applauded the speech and said Scott had “set the tone” for the upcoming budget speech, focusing on keeping taxes as low as possible and growing the economy.
Benning, a member of the Education Committee, noted Scott didn’t roll out a specific way to hold the line on education spending.
“There’s not any clear understanding how to do that, but we know it must be done. So if you stay on the ‘must be done, let’s figure it out,’ and remain civil with each other, we’re Vermonters, it’s a small place, we’ll figure something out,” Benning said.
Benning grew emotional when saying he supported Scott’s call to reduce income taxes for veterans, which Benning said would cost about $3 million a year. Benning said he was motivated to sponsor a bill after he worked in a soup kitchen in Lyndonville over the holidays and served three veterans, one a World War II vet who Benning said always marched in the town parades.
“The look on his face … knowing that I had seen him in that situation, was absolutely heartbreaking,” Benning said.
House Ways and Means chair Rep. Janet Ancel, D-Calais, said she believed last year there were circumstances that allowed the state to adopt a “responsible budget” without bringing in any new revenue.
“I don’t know that those same set of circumstances still exist,” she said.
Ancel said that changes in funding as a result of the recently passed federal tax reform package could mean Vermont budget writers face a difficult session.
“If the eventual result of the federal changes is that programs get cut, then we need to make some decisions about what we decide to backfill,” Ancel said.
Ancel noted that officials will have a better sense of the state’s revenue projections for the next fiscal year after the Emergency Board meeting later this month, and said she believes it’s best not to “lock ourselves into” a position before the financial picture is clear.
“It’s a nice sound bite. It doesn’t surprise me that that’s where the governor starts the conversation,“ she said. “I’m not sure that that’s where we’re going to responsibly going to end up.”
However, Ancel said she was interested in Scott’s proposal to find ways to attract more people into the state — not just to bring in jobs.
“I think that makes some sense,” she said.
Members of the Scott administration touted the governor’s plan to try to draw more workers to the state after his speech.
Vermont Department of Labor director of workforce policy Sarah Buxton said the administration is seeking ways to enable more people who are interested in moving to Vermont to follow through.
“They want to move, but they don’t know how to actually get there,” she said. “They don’t know how to locate that job, and make the decisions about the trailing spouse, and all of other the decisions that go into coming back home.”
The state will seek to work with businesses as well as realtors, players in the education system and others to make resources more available to people interested in moving to Vermont.
The administration hopes to bring 1,100 new workers to the state by 2020 through this and other initiatives, including offering new perks to those who serve in the National Guard.
Editor’s note: This story was written by VTDigger’s Anne Galloway, Mark Johnson and Elizabeth Hewitt.

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