The Vermont Senate gave preliminary approval to the Big Budget Bill on second reading Monday. Discussion on the $1.08 billion measure lasted about an hour before the bill was unanimously approved in a voice vote.
Senators will take it up for final passage today.
What little debate the legislation prompted revolved around the Challenges for Change government restructuring effort.
By contrast, heated exchanges went on for several hours in the lead up to the final vote on the miscellaneous tax bill. The sticking point wasn’t the 1-cent increase in the property tax rate, or even the new asset test for property owners who make more than $5,000 in investment income (those who earn more lose a proportion of their tax breaks under the property tax income-sensitivity program).
The holdup had to do with an amendment to the underlying miscellaneous tax bill that makes anyone who holds $1 million or more in assets – investments in land, cars, planes, art, jewelry, trust funds, etc. – ineligible for an income-sensitivity tax break. The amendment passed, 21-5. (Senate President Pro Tem Peter Shumlin sponsored the amendment with fellow Democrat Sen. John Campbell, Republican Sen. Randy Brock and Democrat/Progressive Sen. Tim Ashe.)
The debate had little to do with the populist argument: making millionaires pay their fair share (particularly in the aftermath of the nation’s post-Madoff recessionary climate). The senators had consensus on that score.
The question was, how to prevent the rich from enriching themselves further through tax breaks at the expense of other Vermont taxpayers and the Education Fund.
The question was, how to prevent the rich from enriching themselves further through tax breaks at the expense of other Vermont taxpayers and the Education Fund. The naysayers, including Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, fought the add-on language because the amendment was hastily drawn up on Thursday. Also, they argued, there wasn’t time to take testimony on how the state would impose the $1 million threshold since the Tax Department doesn’t have the capacity to conduct audits of taxpayers’ net worth.
The Miscellaneous Tax Bill passed on third reading, 24-2.
The budget
The Senate-passed version of the budget resolves the state’s $167 million shortfall – about 15 percent of the General Fund budget of $1.08 billion – including unexpected losses in federal funding for the Vermont State Hospital, the health care system under the new federal health care law and other changes that add up to $17.25 million. Nearly half of the money used to pay for these new costs come from transfers that would have been made to the Education Fund, in addition to the $20 million in new property tax changes.
The bill requires the administration to report proposals for a 5 percent or more reduction in any program, service or benefit to the Joint Fiscal Committee, made up of members of the House and Senate.
Perhaps most importantly, the appropriations bill makes permanent reductions in state spending that bring next year’s deficit of roughly $250 million down to $113 million.
The Senate’s Big Bill, like its House counterpart, restores funding for programs for seniors, children with disabilities and health care that were cut in the governor’s budget. It also maintains funding for two nongame wildlife conservation positions in the Agency of Natural Resources that were slated for the chopping block and adds five game wardens to the state’s rolls.
The bill requires the administration to report proposals for a 5 percent or more reduction in any program, service or benefit to the Joint Fiscal Committee, made up of members of the House and Senate.
In addition, it invests the additional Medicaid money from federal stimulus funding ($62.8 million) in one-time expenditures:
* $20 million in state information technology;
* $15 million in a 15-bed secure mental health facility;
* $13.5 million in a set aside for future “global commitment” payments
toward the Medicaid waiver for the state’s health care programs;
* $7.2 million in a set aside for fiscal year 2011 budget adjustment (in December the Legislature and the administration do an accounting to make sure expenditures and revenues are on target);
* $3 million in funding for hospitals;
* $2.1 million in long-term care obligations;
* $2 million for the Department of Corrections investments in the Challenges for Change restructuring plans.
Senators took turns explaining the budget section by section and praised the work of Sen. Susan Bartlett, D-Lamoille, chair of the Senate Appropriations Committee, who presented the budget for the last time. (Bartlett, a Democrat, is stepping down from her seat to run for governor.)
“How she was able to attain a 6-0 vote still has me scratching my head,” said Sen. Dick Sears, D-Bennington. “It’s a very good budget given the times we’re in. I want to compliment her on the budget. It’s been my privilege to serve with the senator for 18 years.”
Sears went on to talk about the influx of inmates in Vermont’s prison system, and how the Department of Corrections budget at $140 million now exceeds state expenditures of $85 million in higher education. He said the Senate will address corrections reforms when it discusses the Challenges restructuring bill next week.
His committee, Senate Judiciary, had considered eliminating the Vermont Commission on Women, which costs $300,000 a year, but decided against it.
“I’m seeing a big, big hole in this budget. We need to recognize at best $20 million has been identified; at worse somewhat less than that.”
Sen. Jane Kitchel, D-Caledonia, introduced the human services budget on the floor. She explained that $630 million in Medicaid funding is used to provide health care programs for 173,000 Vermonters through Vermont Health Access, Catamount Health, Dr. Dynasaur and VPharm.
After a cataloging of the detailed expenditures in the budget, there was a brief flurry of debate centered on the $38 million carve-out for the Challenges for Change government restructuring proposal. The administration presented $31 million in savings reductions, of which the House approved $20 million.
“I know there are questions about the anticipated savings the other body has recommended,” said Sen. Doug Racine, D-Chittenden. “I’m seeing a big, big hole in this budget. We need to recognize at best $20 million has been identified; at worse somewhat less than that.”
Racine, along with Shumlin and Bartlett also a Democratic candidate for governor, took issue as well with the clause that allows the administration to make up to 5 percent reductions in programs without notifying the General Assembly, particularly given the gap in the Challenges restructuring plan. “A 5 percent reduction in the Department of Mental Health or the Department of Aging and Independent living or the community mental health system is considered to be pretty devastating,” Racine said. “We may be walking out of here with a $20 million hole, without a means to fill it. They may end up cutting things we don’t agree with. It’s a great deal for this body to concede to the administration.”
Bartlett said the 5 percent clause was boilerplate language that ensures the administration doesn’t take actions the General Assembly doesn’t approve of. “We will, as we work through the Challenges, make sure we end up with language … we all feel comfortable with,” Bartlett said. “We’ll make sure the language doesn’t bring us back to cut, cut, cut.”
“We knew … it was going to be a very difficult session,” Sen. Brock, R-Franklin-Grand Isle, said. “I think all of us knew if we do our job this session, everybody is going to be mad at us when we go home. I think it’s imperative that we make everyone mad, that we make the hard decisions that we have to make in order to come up with a balanced budget.”
Sears said it’s inevitable that uncertainty about the state’s balance sheet will continue once the Legislature is adjourned. For example, the judicial restructuring bill, he said, has come up $270,000 short of its $1 million goal, according to new figures from the Joint Fiscal Office. “We continue to hear good news or bad news, and I have no reason to believe that that won’t continue after we leave here,” Sears said.
The budget bill is up for third reading and final passage today.
The miscellaneous tax bill
Senators approved the tax bill 24-2 after several hours of debate on amendments. Racine and Sen. Peg Flory, R-Rutland, voted against the measure.
The tax bill includes $22 million in new revenues — $20 million in property tax increases and $2 million in a cap on a production deduction for corporations. The Senate raised the property tax by one penny in order to generate $10 million and passed an asset test provision that reduces property tax income sensitivity payments to Vermonters who make more than $5,000 in investment income.
Racine said he will urge lawmakers to use $20 million to $30 million from the rainy day fund to help fill the budget gap.
(The property tax is designed to support the Education Fund; however, to make up for various budget shortages, the Senate voted to allocate those new revenues to the General Fund.)
In addition to increases in the property tax, which is levied by municipalities statewide, the Senate gave preliminary approval to two other General Fund shifts — it decided to retain $6.89 million in Medicaid
money for special education students and to renege on a $2.3 million payment to the Education Fund.
Racine objects to the use of property tax revenues to shore up the General Fund. “This has been the slippery slope, and it’s been going on for several years,” Racine said on the Senate floor last week. “We do have alternatives. They’re a whole lot more painful than this one.”
The senator said on WGDR on Tuesday morning that he will urge lawmakers to use $20 million to $30 million from the rainy day fund to help fill the budget gap.
The big debate, however, was not about the proposals in the underlying bill.
Senators spent more than an hour discussing the “millionaire” amendment, the provision requiring Vermont property owners holding more than $1 million in net assets – boats, businesses, land, trust funds, homes – to be ineligible to receive an income sensitivity discount on their property taxes.
The bill was introduced by Senate President Pro Tem Peter Shumlin.
“The beauty of this program is that it’s a middle class program,” Shumlin said. “All this says is that if your household has assets, not including debt, in excess of $1 million, not including the value of your primary residence, you should pay your property taxes. It’s that simple. If you have stocks, bonds, securities, boats, airplanes, businesses and the rest valued at $1 million after your liabilities, you pay your property taxes.”
Shumlin explained that property owners, and their tax preparers, would sign an agreement on the tax form that states their net worth (minus the value of their primary residence). Assets could also include personal belongings, such as jewelry, paintings, antiques and vehicles.
“It’s a way to ensure that millionaires aren’t benefitting from the income sensitivity,” Shumlin said.
Sen. Cummings, chair of the Senate Finance Committee, said a similar amendment had been brought forward to her committee last week. She said they declined to consider it because the “Tax Department does not deal in assets, they deal in income.” The earlier version of the bill required audits.
Shumlin argued that “Vermonters tell the truth” and won’t lie to the TaxDepartment.
It’s a matter of fundamental fairness, in Brock’s view. “If you walk down Main Street, and you ask every Vermonter you meet, are you worth $1 million?” he asked. “Most of them don’t have to think a second to be able to give you the answer. This is not designed for the average Vermonter. An average Vermonter would be absolutely offended if they learned that a middle class and modest income tax benefit was going to people who are millionaires.
“Millionaires know that they’re millionaires,” Brock said. “And their tax preparers know that they’re liable for false statements on certain forms like this. I don’t know how much money this will bring, but I know it will cure abuses that anecdotally almost every one of us is well aware that are occurring. Millionaires who have $1 million and above in assets should not be getting tax welfare.”
Cummings said she has a teddy bear collection, and she has no idea what it is worth. “If you asked me if I were a millionaire, I’d say no,” Cummings said. “But some people are going to go over that bridge that they don’t know they’re on.”
Sen. Ashe, D/P-Chittenden, said the state should scrutinize high-end recipients of the state’s largesse in the same way it does Vermonters who receive welfare benefits.
“I met some success,” Shumlin said. “I always thought I should pay my fair taxes. That’s what you’re supposed to do is pay your taxes. I don’t think anyone is going to come and count your teddy bears. I have seen my neighbors and friends do everything they do in their power to make sure they don’t pay their share.”
In an aside, Shumlin told his colleagues the most embarrassing moment of his political career came last week when he was obliged to make his tax returns public. (He earned more than $900,000 and paid more than $200,000 in taxes.) He said the amendment was about fundamental fairness.
“I met some success,” Shumlin said. “I always thought I should pay my fair taxes. That’s what you’re supposed to do is pay your taxes. I don’t think anyone is going to come and count your teddy bears. I have seen my neighbors and friends do everything they do in their power to make sure they don’t pay their share.”
Racine proposed to strike out language that would have made both the preparer and the owner subject to “the pains of the penalty of perjury,” because the Tax Department wouldn’t have the authority to audit property taxpayers.
The “millionaire” amendment, and the bill, passed handily Monday afternoon.
