State budget battle resolved, shutdown averted
MONTPELIER — Gov. Phil Scott will let the Legislature’s third attempt at a budget bill become law, he announced Monday night, ending a weeks-long impasse over state spending and the looming threat of a government shutdown.
Scott’s decision to break the budget stalemate assures that Vermont will have a spending package in place by July 1 — the budget deadline for the next fiscal year — and ends the legislative game of chicken that has played out during a special session that began last month.
“While I do not support raising any tax rates in a year we have a $55 million surplus, this debate has gone as far as it can responsibly go,” Scott said in an emailed statement.
“I’m left with no choice but to allow this bill to become law without my signature. Make no mistake, however, that I will be fighting to address these tax rates, and others, in the future — especially as our economy and our surplus continue to grow,” he said.
The governor’s decision breaks his pledge to hold the line on taxes next year, a stance that led him to veto the first two budgets the Legislature sent to his desk this session.
“I am frustrated, and disappointed for Vermonters, that Democrats in the House and Senate have forced through a non-residential tax rate increase in a year we have a growing surplus,” he said in the statement. “But, I’m pleased to have achieved about 75 percent of the property tax rate relief I fought for this year, including a second consecutive year of level statewide rates for residential payers.”
The Legislature’s first budget proposal increased property taxes in 2019, the second created the possibility of a nonresidential tax hike, and the third moved about halfway between the Democrats initial position and Scott’s insistence on level rates.
The latest budget proposal was drafted in the Senate and passed in both legislative chambers on Monday. Scott could have signed it, vetoed it, or taken no action and let it automatically pass it into law after five days. The bill was delivered to Scott on Monday, and will become law without the governor’s signature on Saturday, just a day before the budget deadline.
The bill harnesses $20 million of surplus revenue to buy down the residential tax rate next year, and also includes language to create a statewide teacher health benefit and a task force to drive down staff-to-student ratios at preK-12 schools.
But while the bill would prevent a residential property tax hike, it will allow the nonresidential property tax to increase by 4.5 cents. The nonresidential rate is assessed on properties like camps, second homes and small businesses. About a third of nonresidential tax revenue comes from Vermonters.
Democratic leadership in the Legislature urged Scott to sign the bill they passed Monday, arguing that they had made significant movement in the governor’s direction since their initial proposal.
“This represents more compromise than the Senate would have ever entertained from the starting point, and the House I think would say the same thing,” Senate President Pro Tem Tim Ashe, D/P-Chittenden, told reporters after Monday’s budget vote.
“So now we’re at the point where people should say both sides have gotten out of their comfort zones which reflects real compromise, and it’s time to move on,” Ashe said.
Speaker of the House Mitzi Johnson, D-South Hero, said the bill ceded ground to the governor on property taxes, while allowing lawmakers to make a large investment in paying down retired teachers pension debt, which they say will save taxpayers millions of dollars over 20 years.
“We are not so terribly far apart,” Johnson said. “The governor gets a win in how far property taxes have come down. The Legislature gets a win in how much we’re able to buy down our debt.”
While Democrats touted the budget bill, House Republicans said Monday that they were disappointed with the latest proposal because it comes on the heels of a series of botched budget negotiations and a deal spoiled by Senate leadership.
On Friday, Scott said that he and House leaders had reached a budget deal to end the spending impasse. The plan would have taken the Senate’s budget bill but also split a large pot of anticipated surplus revenue — giving half to the governor’s priorities and the other half to Democratic priorities in fiscal year 2020.
The governor, who had previously refused to consider any agreement that raised property taxes next year, said he was on board with the plan. But Senate leadership rejected the idea of the use of more money from surplus tax receipts to buy down property tax rates.
“We as a team said that the use of further one-time money was something that we were not supportive of,” Ashe said on Monday.
Lawmakers have resisted using one-time money expected from this year’s large surplus to artificially buy down tax rates, dismissing the practice as bad fiscal policy. Democrats in the past, however, have frequently used one-time money as needed to fill budget gaps.
The Joint Fiscal Office projected that Scott’s latest plan to buy down tax rates with about $40 million of one-time money would lead to a $50 million hole in the education fund next year.
The bill passed on Monday would use about $20 million in one-time funds and create a $35 million hole in the education fund next year, based on the JFO’s revenue and spending projections.
While Scott said Friday evening that there was “no doubt” that his administration and lawmakers had reached a deal that morning, Johnson said that no agreement was set in stone.
“I was very clear with the governor that it was something I was willing to work with, but that the Senate was not yet involved,” Johnson said.
“It was my own initiative, the Senate wasn’t involved and for an all-around deal that we know gets to the governor’s desk, the Senate has at some point be on board.”
A second compromise amendment was proposed by Rep. Kitty Toll, D-Danville, on Friday evening, but Democrats backed away from it before it made it to a vote on the House floor. Toll said they were passing the bill to the Senate for further negotiations.
The governor said in his statement that he was disappointed by the Democrats’ about-face.
“By abandoning two agreed-upon compromises and rejecting multiple proposals to fund government beyond July 1, legislative leaders have now pushed us to the brink of a shutdown, just to unnecessarily raise tax rates on non-residential property tax payers, which includes renters, small business owners, camp owners and more,” Scott said.
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