Gov. Scott sets his budget priorities

The pledge is dead.
After a first term in which Gov. Phil Scott categorically opposed any new tax and fee increases, the governor has proposed a fiscal year 2020 budget that includes several.
Going forward, Scott will almost certainly continue to vigorously oppose increases of broad-based levies, like the income, sales and property taxes.
But in a marked departure from his administration’s budgeting practices for their two years in office, Scott has proposed several tax increases and new fees, the goal of which, officials say, is to “modernize” state government.
In last year’s budget address, Scott was emphatic about his no new tax and fee campaign pledge — even at a time when there were significant state budget surpluses. And he underscored that stance when he threatened to veto a dozen bills from the Legislature that contained taxes or fees.
While he sounded a theme of fiscal restraint again in the speech on Thursday before lawmakers, this time around Scott has reneged on his pledge not to raise state revenues.
“Without any new investments — just paying the bills — we began building this budget with about a $40 million gap,” Scott told lawmakers. “That’s just our basic obligations — debt service, pension funding, contracted salary increases, caseload pressures at AHS [Agency of Human Services], clean water and others.”
Scott said he asked his team to “think differently,” “question assumptions” and innovate “so that even with these spending pressures, we can make a difference and emerge stronger and more sustainable.”
To that end, he asked lawmakers to “face our unfunded liabilities,” and urged them to use $22.2 million to pay down a loan for retired teacher health care costs.
Scott’s overall budget, however, is up by 4 percent over last year’s proposal, which came in just shy of $6 billion. This year, the governor’s budget crests that high water mark for state spending.
Revenue growth is up by $73 million. That increase is due to an uptick in current and projected tax receipts tied to the state’s economic growth.
The governor’s budget proposal includes about $10 million in new fees — including a $6 million hike on the fees the state charges broker-dealer agents, mortgage brokers — and $250,000 on the state’s burgeoning hemp industry.
The Scott administration hopes to reap $7 million from online marketplaces like E-Bay and Amazon by passing a law that expands the boundaries of the U.S. Supreme Court’s Wayfair decision that allows states to collect online sales tax from companies that don’t have a physical presence in a given state. That money would go directly toward child care subsidies.
The governor is also looking to levy $2 million in new taxes on online hotel companies for reservations made in Vermont that are not already taxed locally.
In addition, Scott is proposing a $1 million tax on e-cigarettes. He said in the past two years “1.5 million more kids began using e-cigarettes and vape products across the nation.”
“Right here in Vermont, use among young people nearly doubled,” Scott said. “I think you all know it’s not my first instinct to add a tax, but with a growing health risk for our kids, I’m proposing to levy the same tax as we do on tobacco products. Let’s learn from the past, let’s not make the same mistakes with e-cigarettes or anything else.”
Scott is also proposing a reduction in the estate tax from about $20 million on average per year to $11 million over a five-year period — achieved by increasing the exemption from $2.75 million to $5.75 million over four years. The administration says that threshold is more in line with other states.
At the same time, the governor proposes to use $8 million of estate tax revenues to fund the gap needed for clean water funding projects starting in fiscal year 2020.
The governor’s estate tax proposals will likely face pushback from Democratic lawmakers who have said they believe the revenue generated by the estate tax is not a reliable source of ongoing funding because it varies each year. The money currently goes to the general fund.
There are no sweeping cost cutting proposals — as there were in the first biennium — to the state’s education fund, though he does suggest dipping into the fund to pay for child care subsidies. State funding for schools is otherwise untouched in Scott’s budget. In the previous biennium, the governor fought lawmakers over teacher health care and payments on teacher retirement. Last year, he vetoed the budget over school spending.
It was no surprise that Scott continues to oppose a carbon tax. Instead, the governor says he wants to address transportation emissions by incentivizing the purchase of electric vehicles with $1.5 million in subsidies.
Scott struck a conciliatory tone with lawmakers and joked at the beginning of the speech: “I’d like to thank the speaker for not cancelling my budget address.”
There were a number of other olive branches to the Legislature, from some form of paid leave to paying down teacher retirement liabilities.
In a briefing before the speech, Susanne Young, the secretary of the Agency of Administration, and Adam Greshin, the commissioner of the Department of Finance and Management, said the Scott administration worked with lawmakers on some of the proposals.
That’s a first for the governor’s office. In years past, the Scott administration has had a contentious relationship with House and Senate Democrats and has not reached out in advance to House Speaker Mitzi Johnson and Senate President Pro Tem with proposals. Instead, the governor’s office played a game of cat and mouse with lawmakers over budget proposals.
Faced with a Democratic supermajority in the House and Senate, Scott seems to have done a strategic about-face, attempting to ensure buy-in from the beginning.
Near the end of the speech, Scott was interrupted by Vanessa Brown, a protester from East Montpelier, who complained she was being arrested for booing when she was simply exercising her right to free speech.
Scott said in response: “Let me return to civility.” The chamber broke into applause and drowned out the protester.

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