When lawmakers began their legislative session in January, they confronted a number of impossibly high hurdles — any one of which could have waylaid the Legislature for an entire session.
There was a $154 million hole in the budget for starters – more than 10 percent of the state’s annual budget in fiscal year 2011 — and a whopping $250 million deficit projected for fiscal year 2012. And though the administration has significantly cut the state’s workforce over the last several years, it wasn’t enough to counteract an ongoing drop in tax revenues.
In addition, the unemployment fund went bankrupt in January: The state has been borrowing $4.1 million a week to pay out benefits to laid-off workers, and is expected to incur $54 million in debt for the fund this year alone.
Both of these problems were caused by the onset of the worst recession in the nation’s history since World War II.
Add to that the bad blood between the Democratic Legislature and the Republican administration over last year’s difficulties — the governor’s historic veto of the budget, reductions in the state workforce and a veto override – and you had a combustible mix of fiscal and political issues.
In spite of these apparently intractable problems, however, lawmakers and administrative officials slogged through a compromise on the unemployment fund and negotiations on budget details that ranged from closing state prisons to increases in deductibles for the state’s Catamount Health program.
The Legislature adjourned last night with an unemployment fund fix, a government restructuring plan and no new broad-based taxes. A balanced budget is contingent on $38 million in projected savings from the Challenges for Change government reorganization plan and includes a number of one-time expenditures based on $62 million in yet-to-be distributed federal stimulus funds. The total state budget is $4.77 billion, about $82 million more than the governor’s original proposal. Next year’s estimated budget gap is $122 million.
Lawmakers kept the statewide property tax at 2010 levels, 86 cents for the homestead rate and $1.35 for the nonresidential rate. The Legislature also passed a $128 one-time fee for all landowners who have property in the current use program, which gives owners a tax break in exchange for conserving land.
In addition, legislators took on a number of other complicated issues that will have long-term impacts on the state: They launched a new health care reform effort, a complete overhaul of the state’s court system and an incentive program for voluntary school district consolidation.
They also decided not to give the Public Service Board permission to relicense Vermont Yankee, the state’s nuclear power facility in Vernon.
In midnight adjournment speeches, Gov. Jim Douglas and House Speaker Shap Smith echoed the same sentiment: Four months earlier, it didn’t seem possible to achieve so much with so little rancor in such a short period of time.
Get along to go along
In January, Gov. Jim Douglas, House Speaker Shap Smith and Senate President Peter Shumlin held a joint press conference announcing the government restructuring initiative — Challenges for Change — that will alter the way services are delivered to children and seniors, as well as to Vermonters who are poor, physically disabled, mentally ill or who have been in and out of the state’s prison system. The reorganization is supposed to create permanent savings in General Fund expenditures of $38 million in fiscal year 2011 and $72 million in fiscal year 2012.
The three leaders set a tone of mutual cooperation as they held up the state’s financial crisis as the prod for legislators and state officials to move past their political differences. To get along, they’d have to go along.
The chairs of House committees stayed on message, and rank-and-file lawmakers followed suit. Committee by committee, legislators chewed through the details of their options – raising taxes, cutting services or changing programs – and found ways (many of which were suggested by the Douglas administration) to moderate impacts on taxpayers and Vermonters who rely on the government for support. By the end of March, the House Appropriations Committee had found a way to mitigate essential program cuts to seniors and disabled Vermonters and, remarkably, to fill the $154 million budget gap. The Vermont Senate made some changes to the House budget last week, but largely kept it in tact.
Much of the budget debate throughout the session revolved around the Challenges. Lawmakers grumbled about the administration’s approach to the government restructuring plan and complained that officials, in many cases, were attempting to outsource cuts to state-funded programs, such as the community mental health agencies, and were trying to get policy proposals through that lawmakers had previously rejected and that didn’t save money or provide better services for Vermonters (the point of the restructuring plan).
As the session wound down, Douglas warned lawmakers he wanted them to impose cost-cutting mandates on schools and pare down more human services programs. But the Legislature didn’t budge when he pushed to undercut the time-honored tradition of “local control” of the state’s educational system, nor did they accept the administration’s most punitive proposals to cut programs for poor Vermonters (such as permanently cutting general assistance to families that don’t meet state requirements).
Still, in a remarkable show of force for a lame-duck governor, Douglas managed to press Smith and Shumlin for a compromise on last year’s tax increases. Yesterday, in a deal that led to adjournment, the three leaders announced a rollback of the capital gains and estate tax increases enacted last year.
As Floyd Nease, Democratic majority leader of the Vermont House, succinctly put it in closing remarks last night, “This has been kind of a bipolar biennium: Last year we had two historic veto overrides, and this year we have two historic agreements.”
Those two agreements between the governor and the Democratic leadership – the tax-cut deal (capital gains breaks for businesses — $3.2 million in 2011 and $11 million in 2012 and a higher threshold for the estate tax) and a fix for the unemployment fund (that raises taxes on businesses and cuts benefits to workers) — took weeks of back-and-forth negotiations.
In committee rooms and the floor of the House and Senate, the legislative process wasn’t always pretty, either, but lawmakers stayed on task. There was some bickering, a lot of debate and behind-closed-doors dealmaking.
But in spite of the political cross-currents left in the wake of the three Democratic senators and Republican Lt. Gov. Brian Dubie, all four of whom are running for governor, legislators managed to fit together the complex pieces of the big money bill puzzle – the capital, miscellaneous tax, Challenges and budget bills — to resolve the state’s enormous budget shortfall in fiscal year 2011.
Douglas, with Dubie by his side, ratcheted up pressure for tax cuts for businesses and wealthy Vermonters, and in the last week of the session used his bully pulpit (he gave five press conferences) to kill a Democratic effort to block a pass through of a federal tax exemption for corporations and won his campaign to repeal estate and capital gains taxes enacted last year over his veto. The Democratic leadership eventually relented on both fronts.
The night of adjournment, Dubie, an announced Republican candidate for governor, released a statement criticizing the budget compromise as “only the first step on a hard journey to bring state taxes and spending into line with Vermonters’ capacity to pay.” The state, he said, has failed to address “structural problems” that will create a $122 million deficit next year. “State spending is growing roughly three times faster than the rate of inflation,” Dubie wrote. “It has to stop.”
Senate President Pro Tem Peter Shumlin, Sen. Doug Racine, D-Chittenden, and Sen. Susan Bartlett, D-Lamoille, all three Democratic candidates for governor, found ways to play the budget crisis in different ways.
Bartlett, chair of the powerful Senate Appropriations Committee, sought a “reasonable” approach. As one of the architects of the Challenges plan, she believes the government reorganization plan will create structural changes to state programs that will lead to long-term savings.
Shumlin polished his pro-business credentials by arguing for keeping a lid on new tax increases. He maintains that the budget agreement puts “Vermont on a fiscally responsible spending path, and doing so without raising broad-based taxes, and doing so while growing the economy.”
The Challenges portion of the bill, which still contains an $8 million gap, troubles Racine. On Friday, Shumlin and House Speaker Smith had announced they would use $10 million of the “rainy day funds” – the state’s stabilization fund — if the government restructuring savings failed to materialize. On Wednesday, however, the Democratic leadership dropped the backup plan in their negotiations with the governor and gave the administration more authority to make cuts to fill the budget hole.
“The budget bill gives unprecedented authority to the governor and his administration,” Racine said in a statement. “I cannot support an unbalanced budget, and I do not support giving the Legislature’s authority to set the budget to the administration.”
