MONTPELIER – A week after a decline in expected state revenue made balancing the state's budget much more difficult, legislative leaders made a new proposal for dealing with the problem.

That solution, still very much a rough draft with a week left in the scheduled lawmaking session, would involve $16 million more in what are likely to be very painful cuts and changes that would likely have an effect on the Education Fund as well.

Gov. James Douglas, Lt. Gov. Brian Dubie and legislative leaders met again Friday before the new idea was proposed. However, they have not yet been able to reach an agreement, they said.

The list of possible cuts includes areas that lawmakers have so-far protected, or other ideas that are likely to be very unpalatable.

The Vermont Housing and Conservation Board would lose $3 million, nursing homes and hospitals would be hit and inflation increases for the blind and elderly would be on the chopping block. The current-use program would face a cap and the Legislature itself would lose a quarter million dollars of its budget.

Part of what makes the cuts difficult is that the least damaging options have either been taken or are precluded by federal stimulus legislation that requires that states continue to spend as much as they have been on many programs.

A proposed reduction for hospitals, for instance, would save about $1.6 million in state money but result, with federal and other funding included, in a $5.2 million reduction to hospitals.

"These are horrific choices, and we recognize that," said Senate President Pro Tem Peter Shumlin, D-Windham.

David Yacovone, of the Vermont Association of Hospitals and Health Systems, said that money will be paid, since the care it provides for will be covered by the hospitals as required by law and obligation. It will just be paid through private insurance rates.

"Health insurance in Vermont just got more costly," Yacovone said. "Vermonters still have to be served and it gets shifted to commercial policies when employers can least afford it."

"It will involve difficult choices in programs and services that not only we care about but that Vermonters care about," Speaker of the House Shap Smith, D-Morristown, said.

The new list of cuts, which lawmakers working on the state budget will consider and likely change over the next week, do not replace any of the measures in the versions of the budget already passed by the House and Senate.

Those budgets already have between $24 million and $26 million in new taxes and revenue of some kind (whether a collection of taxes including increases in taxes on liquor and tobacco or an income tax depends on the version). They also include $11 million to $14 million in cuts to the personnel costs of state government.

Douglas has proposed more than 300 layoffs of state workers, and some layoffs will likely be necessary to reach the savings outlined in the legislative budget versions.

Even including those cuts and the new $16 million proposal would not be enough to solve the nearly $40 million problem caused by the decline in state revenue announced last week.

Closing that gap in the state's main General Fund will mean finding about $22 million more – likely through some kind of change to the Education Fund.

That fund, supported through the state lottery, property taxes and money from the General Fund, has, lawmakers said, not been hit despite a series of revenue downgrades and cuts to the state budget over the last year.

"We need to get to $40 million and this is $16 million," said Sen. Susan Bartlett, D-Lamoille. Doing so will require "moving some costs to the Education Fund, even if it is temporary."

"The Ed Fund has been held harmless" so far, she added.

Secretary of Administration Neale Lunderville declined to say if the proposal would be acceptable to the administration.

"Some of the ideas on this list are ones that the governor proposed," he said.

Earlier in the day Douglas said he will continue to work with lawmakers toward a budget that both sides can agree to so the legislative session can conclude next week.

louis.porter@rutlandherald.com