RutlandHerald.com - We Are Vermont

Budget passed, but much in flux

Lawmakers look for answers as shortfalls expected to continue

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MONTPELIER – The Vermont State Senate approved a tax increase and a state budget Thursday, but the action in the Statehouse felt more like the middle of negotiations than the end.

A conference committee of House and Senate members – likely in discussions with members of the administration of Gov. James Douglas – will now have their say on the much-discussed budget for fiscal 2010, which has already passed the House in different form.

The passage comes against a grim fiscal backdrop with expected state revenue likely being reduced once again dramatically, both for the current fiscal year and the next one, when the state's Emergency Board meets today.

As a result, budget writers face more tough choices: raise more taxes, increase the cuts they have made, or tap reserve funds – or do all three.

The $1.1 billion general fund budget passed by the Senate on Thursday (part of an overall spending plan totaling nearly $4.6 billion) has a list of additional cuts to be considered if – as expected – new revenue estimates today come in far below expectations.

Those possible cuts include a variety of measures, including reducing the amount of money to be transferred from the General Fund to the Education Fund, a shift of some amount of teachers' retirement obligations to the Education Fund and more cuts to health care providers.

Those suggestions – along with the variety of taxes being considered and the expected revenue downgrade – will likely mean that the end of the session conference committees will have a great deal of say over the state budget and taxes.

At the same time, hanging in the balance is the fate of more than 300 state workers whose jobs face the chopping block. The first reduction in force (RIF) notices have already been sent out to some of those workers, but lawmakers are still hoping to forestall at least some of those cuts.

Negotiations between the Douglas administration and the Vermont State Employees Association (VSEA) aimed at eliminating layoffs through union concessions have not been successful. The Senate has recommended a proposal to achieve that end, and while for the most part that recommendation does not have the force of law, it offers a strong suggestion to negotiators.

It would save about $15 million by reducing contracts with private companies, reducing pay and other benefits to non-union workers and temporary workers and some classified workers and institute eight unpaid furlough days for other state employees.

"We are all concerned the negotiations between the administration and the union have broken down," Senate President Pro Tem Peter Shumlin said.

Sen. Doug Racine, D-Chittenden, said the measure achieved some of his goals in recommending such a provision.

"It says we are going to spread the cuts across state government personnel and not just focus on the front line classified personnel," Racine said.

One portion of the section – directing about $1.7 million in cuts to exempt and contract workers – would have a direct say in how state money is spent.

Douglas said exempt workers have already given up pay and that the administration has already cut state contracts to private companies.

The House is expected to propose a related measure today. That resolution would urge the administration and the union to enter mediation.

Douglas said he still hopes for a resolution that will not involve as many layoffs as are now on the table. But the situation "is going to be exacerbated tomorrow" when new revenue estimates come out, he acknowledged Thursday.

Also included in the Senate version of the budget – with a total of $4.5 billion in spending of federal, state and other money – was a change in how the Community High School of Vermont is funded. That school, primarily for incarcerated Vermonters, would be paid for through the Education Fund, not the General Fund, under the Senate version of the budget.

The Senate on Thursday also gave final approval to a tax increase bill that would raise about $26 million to balance the current version of the next fiscal year's state budget. Although an amendment to remove a proposed tax on flavored malt beverages – opposed by grocery store owners – was successful, other requested amendments were not.

The bill in its current form – likely to be changed in conference committee – would tax a variety of things, including liquor, tobacco products, satellite television and clothing.

Douglas again, as he has in the past, said the taxes, included the so-called "sin taxes," would be unnecessary if lawmakers cut more state spending.

"What I think is a sin is all the tax increases being proposed," he said.

But members of the Senate said, in response to proposals from their colleagues, that they have worked and searched for all possible cuts already.

"I challenge anyone to come up with the $2 million in cuts," said Sen. Richard Sears, D-Bennington.

Another portion of the tax bill would increase the state taxes on capital gains and use the money to lower income tax rates. Vermont is one of only a few states with a lower rate on capital gains than on wages.

Sen. Hinda Miller, D-Chittenden, says that increase is a mistake, even though it's revenue neutral, because farmers, store owners and other business people make capital gains when they sell those businesses.

"I speak up for those who build up and sell an enterprise," Miller said. "I speak up for those people who risk their money, most of whom are not high earners. They are hoping when they sell this asset they will get back money for their retirement."

But the Senate did not eliminate the tax change. Shumlin said that given reductions in federal capital gains taxes the proposed state change was not onerous.