Gov. Peter Shumlin and Statehouse leaders announced Tuesday afternoon that they will scrap all new tax proposals this legislative session.
Instead, the governor, House Speaker Shap Smith and Senate President Pro Tem John Campbell, all Democrats, said they would identify $10 million in expenditures and budget cuts to fill the gap between state spending and revenues for fiscal year 2014.
“We have come to an agreement on a revenue package that will allow us to leave this session without raising additional taxes,” Shumlin said at hastily arranged press avail in his ceremonial office at the Statehouse. “Instead, we have asked our budget conferees to reduce the budget or find other ways to get us to $10 million worth of savings.
“As you know we have been concerned about balancing the budget and about making education investments to make sure we have the best education system,” Shumlin said. “We need to balance our budget without additional revenue.”
Politically, the deal is a win-win for Democratic leaders who have been less than enthusiastic about raising at least $10 million more in General Fund taxes — on top of gas tax and property tax hikes that were approved earlier this session.
As Rep. Chris Pearson, P-Burlington, put it: “Everyone found a way out. The governor gets to say he held the line and legislative leaders can say they plugged holes in the budget and they all get to say they raised no new taxes — ignoring the fact that they raised gas and property taxes.”
The governor stole the thunder of Republicans who just an hour and a half before the announcement held a press conference to decry the House and Senate passed tax increases.
Sen. Joe Benning, R-Caledonia, told reporters: “We’ve reached the point we are today, literally in a patchwork cobbling a budget that consists of various things including a lot of federal money, we are ignoring the elephant in the room, which is looking down the room toward health care and how to pay for it.”
Though there were rumblings at the Statehouse that the governor had strong-armed lawmakers with the threat of a veto (betting on the political calculation that Smith and Campbell would be unlikely to get a veto override to support higher taxes), legislators insisted that it was the rosier revenue outlook that saved the day.
“We didn’t get boxed into a corner,” Smith said. “I think the governor sincerely believed in the proposal he put forward and he believed it was the right direction. We shared those goals and we had strong disagreements about the way they should be funded. The gap we faced in January is different than one we face now, and our deal now reflects changed circumstances.”
The deal was not without its compromises: The House and Senate spurned the governor’s proposal to use the Earned Income Tax Credit to fund a child-care subsidy; and they rejected his break-open tickets tax. The governor, meanwhile, got what he has said he wanted more than anything else: No new “broad-based” taxes.
As Campbell put it: “We all gave up something.”
“The legislature has a continuing obligation to assess where we’re at before we leave here up to last minute,” Campbell said. “If we find a rational to save money for taxpayers that’s why we’re here. If we learn we were able to not raise a tax and we did, shame on us.”
Smith said the agreement was worked out over the past several days, and he emphasized that it was the dramatic shift in the economic situation over the course of the legislative session that greased the skids. In January, the state faced uncertain federal sequestration cuts and an $11 million revenue downgrade. So far, congressional reductions to state program funding have been less than anticipated (roughly $5 million) and the revenue picture has improved. Smith also pointed to a congressional Internet sales tax bill that passed the U.S. Senate Monday and has a good chance of being approved in the U.S. House of Representatives. The legislation would generate $15 million to $20 million in Vermont.
Most important, however, the announcement to kill the House and Senate tax packages that had been carefully calibrated over the course of months of testimony, discussion and compromise and “find” $10 million in budget adjustments, comes on the heels of news on Friday that April tax receipts were higher than expected. Personal income revenues were up $32 million over projections; overall the budget was $26.8 million above estimates. About $16 million of that amount will be counted as a surplus for fiscal year 2013, and will be distributed into two reserve funds ($4 million for federal sequester cuts and $4 million for a “rainy day” fund; $8 million is automatically assigned to the Education Fund).
Smith and other legislative leaders in the House have made it clear that reserves are of utmost importance to their members. The original House tax and budget package included $9 million in reserves, and the surplus money that will automatically flow to set-asides made them more comfortable with the governor’s proposal to rescrub the budget in search of reductions.
Still, it’s no small task. After months of going over the budget line by line, members of the appropriations conference committee for the House and Senate have just four days to identify line items that add up to the magic number of $10 million. Though the Shumlin administration has “ideas,” ultimately, it will be the six conferees who approve the final choices from a list of options totaling $15 million to $20 million.
The money is likely to come from three places — the fiscal year 2013 surplus ($8 million), additional monies the Senate set aside for the Low Income Heating Assistance Program ($500,000) and a 3 percent additional Medicaid reimbursement for health care providers originally proposed by the Shumlin administration ($10 million). The latter, which is worth $1.75 million for every half a percent, could be used to make up the difference. There is also a laundry list of small budget items that have yet to be resolved between the House and the Senate.
Meanwhile, the tax conference committee, which has been been working for months on a variety of proposals for the miscellaneous tax bill, will forgo any revenue generating proposals for fiscal year 2014 or 2015 and concentrate on revenue neutral changes to tax statutes, including a property tax expenditure proposal that would require nonprofits to submit insurance appraisal information to the state and would sunset any property tax break that does not include an express legislative purpose in state statute.
An 80-cent tobacco tax is in a separate Senate proposal, but Smith says it’s unlikely to be taken up this legislative session.
Rep. Janet Ancel, chair of House Ways and Means, and Sen. Tim Ashe, chair of Senate Finance, said their goal was to meet the needs of the budget. Now that the budget gap number has been reduced to zero, raising more taxes is a moot point, they say.
Editor’s note: This story was updated with a quote from John Campbell at 7:38 a.m. May 8.