Secretary of Administration Neale Lunderville today outlined the Governor Douglas s alternative budget approach for FY 2010. Lunderville called it a balanced, responsible and sustainable plan that addresses immediate fiscal pressures with long-term fiscal prudence. The Douglas plan reduces state spending by $32.8 million and raises $13 million in new taxes instead of $26 million. It also adds back $9 million in economic development and higher education-related spending. The administration maintains that its plan advances reforms necessary to tackle the Legislature's FY 2011 projected deficit of $67 million. The Douglas plan pays for an income tax cut by transferring the increase in the capital gains tax; and restores the sales tax holiday, which found favor with consumers but which was less popular with economists.
The governor and his team were particularly concerned with a raise in several taxes and an increase in spending, which they believe makes for an unsustainable fiscal situation in subsequent years. Particularly annoying to Administration is a new tax on liquor that they fear could drive consumers over the border to New Hampshire, which the Granite State open welcomes, because several of its state liquor stores, including those adjacent to Vermont, are losing money. Meanwhile, making Vermont's prices higher makes buying liquor in Vermont less appealing for Quebec, New York and Massachusetts consumers.
The Legislature s budget, the administration says, contains deficits of $67 million for fiscal 2011 and $141 million for fiscal 2012 - when federal stimulus funds are no longer available. If left unaddressed, they said it will "undoubtedly lead to over $200 million in higher taxes, deeper cuts or a combination of both.
"The Governor s budget has no structural deficit for fiscal 2011. For fiscal 2012, the projected deficit in the Governor s budget ($44 million) is nearly $100 million below the Legislature s plan and can be effectively managed by taking action on necessary, cost-saving reforms outlined in his budget."
This approach demonstrates that we can build a responsible budget that protects needy Vermonters, invests in job creation to grow our economy and provides the middle class income tax cut that I have been fighting for. And we can do all of this without raising broad based taxes and without pushing problems into coming years, said Governor Douglas in a written statement. My proposal is sustainable because it addresses the $67 million deficit in the Legislature s budget; it establishes a balanced interim plan to deal with the unemployment insurance trust fund deficit, and it provides a roadmap for containing property tax increases.
A written response by the Chairs of the Senate and House Appropriations Committees, Senator Susan Bartlett and Representative Martha Heath, said in part:
"After a cursory review of the proposal we have several significant concerns. First, the proposal would result in a monumental property tax increase. We are seriously concerned that their proposal to shift the teacher s retirement to the Education Fund would result in shifting the entire teacher s retirement liability, roughly $100 million, onto the property taxpayers. We do not believe that Vermonters can afford a property tax increase of this proportion.
"We believe in these difficult economic times, middle and lower income Vermonters need relief, which is why we proposed a tax cut for those making under $250,000. While Governor Douglas claims to be cutting taxes for middle income Vermonters, he is in fact not reducing taxes for any household making under $75,000. What s more, by reducing income sensitivity from $90,000 to $75,000, Governor Douglas is burdening an average $1,100 property tax increase on 13,000 middle income families. In fact, the actual impact on individual Vermont families could be as high as $8,000. It is disappointing that while Governor Douglas wants to cut taxes for the wealthiest Vermonters, he remains unwilling to join us in giving hard working, middle and lower income Vermonters the relief they need."
Governor Douglas has called the Legislature back into session June 2 to solve the budget impasse. He said he plans to veto the budget as is. He said that the first order of business on that day should be for the Legislature to sustain or override his veto.
Bullet points described in the Administration's proposal (see 2 attachments) include:
This proposal is a balanced, responsible and sustainable budget approach that addresses immediate fiscal pressures with long-term fiscal prudence. It meets legislative leadership in the middle on new revenue and advances reforms
necessary to address deficits in years to come. In fact, this budget approach deals with the Legislature s FY 2011 projected deficit of $67 million.
This proposal invests in job creation. It removes legislative tax increases counter to economic development such as the $5.5 million income tax hike on small businesses and farms. It makes reforms needed for the future such as instituting an R&D tax credit and addressing the challenge in the UI trust fund. It also invests in a workforce for the 21st century by restoring funding for workforce training and scholarships for 600 Vermonters.
This proposal gives Vermont families a needed break as they face higher gas taxes, electric rates and other costs. It provides a middle-class tax cut by returning every cent from capital gains tax changes to Vermonters in the form of lower income tax rates. It also restores the Sales Tax Holiday, which proved so successful last year and gives a needed break to Vermont consumers.
Taxing and Spending
The Legislature s budget uses a combination of one-time ARRA funds and $26 million in tax increases - including $9.3 million in the income tax - to allow spending to grow to artificially high levels - 3.5% above fiscal 2009 - when state revenues are in fact below fiscal 2006 levels. While Vermont has the most generous human services programs in the nation, the Legislature s budget increases funding for human services by 5.5%.
The Governor s plan uses one-time ARRA funds for their intended purpose; to avoid drastic spending reductions and costly tax increases at the state level. And while he does not believe new taxes are needed in light of federal stimulus money and the fact that Vermont is already the highest taxed state in the nation, the Governor is prepared to meet Democratic leadership on common ground with $13 million in non-broad-based splinter taxes.
The Governor s plan addresses the rate disparity for unearned income (capital gains) while protecting farmers, loggers and Vermonters over 65 who rely on investments for retirement income. By making this change, the Governor s plan offers $13.3 million in income tax relief to low-to middle income Vermont families.
Further, the Governor s budget holds fiscal 2010 spending to near fiscal 2009 levels, thus avoiding building unreasonable spending expectations in the coming years. Rather than using one-time money to build-up base spending, the Governor uses these funds to invest in job creation and economic growth the surest way to grow revenues and protect state services in future years. And contrary to the rhetoric of some, Vermont would still remain at the top in terms of the quantity and quality of social services it provides even with the Governor s modest proposed reductions in some areas.
Reforms to Control Education Spending & Property Taxes
The Legislature s budget does not make essential reforms in the Education Fund that are necessary for a sustainable and affordable state budget. The Legislature s budget plan has no strategy for containing costs in this coming year and in the future that are required to hold down soaring property taxes.
Governor Douglas has made Act 60/68 reform and property tax relief one of his key initiatives this year. The effect of skyrocketing education spending over the past decade has fueled property tax increases that place significant pressure on the General Fund, which is struggling under the the General Fund budget is either transferred to the Education Fund or spent for education purposes. That constitutes over 25% of all available general funds. It is a matter of equity and transparency that education costs be placed in the Education Fund. Failure to address the growth in education costs risks the State s ability to provide for other General Fund expenses, especially human services.
Coupled with the transfer of teachers retirement from the General Fund to the Education Fund must be necessary cost-containment measures to prevent property tax increases. The two proposals cannot be taken alone. In fact, the Governor s plan reduces the statewide rate by 2 cents in the coming year instead of the 1 cent reduction in the Legislature s plan.
Investing in Job Creation
The Legislature s budget uses only $4.1 million in the discretionary State Fiscal Stabilization Funds (SFSF) from ARRA for job creation investments. Their plan will leverage $52 million in FY 2010 with no job creation plan or investment in FY 2011. The remainder $4.4 million of these one-time funds goes to on-going, business as usual, base spending. The Governor s SmartVermont proposal invests $11 million in SFSF money for fiscal 2010 in job creation initiatives. In fact, the Governor s plan draws down an additional $2.5 million in SFSF money above what the Legislature has proposed. Additional investments in fiscal 2011 could leverage another $83 million for a staggering economic development and job creation package of nearly $185 million over the next two years. Protecting Small Businesses and Farms
The Legislature s budget raises $9.3 million in new income taxes that will cost small businesses thousands of dollars in new taxes. The Legislature s proposed changes to our income tax system will only add to the struggles of these employers as they also face higher gas taxes, increased electric rates, and other rising expenses.
Rather than adding to challenges facing small businesses and farms, the Governor s budget does not increase their income tax burden. Instead, the Governor s plan includes initiatives to help employers weather this difficult economic time by reducing income tax rates. It includes the Sales Tax Holiday, which proved so beneficial to retailers and consumers last year, and a Research and Development tax credit to help emerging, cutting-edge businesses grow and expand here. Further, it eliminates the Estate Tax from the legislative proposal. Finally, the Governor proposes to address challenges in the Unemployment Insurance Trust Fund, because if this problem goes unaddressed businesses and the state will be on the hook for a $160 million deficit by the end of next year as well as the nearly 6 percent interest we ll have to pay on that deficit.
Investing in the Next Generation
The Legislature s budget reduces funding for workforce training - jeopardizing $7.2 million in federal stimulus money - and eliminates Next Generation scholarships for over 600 Vermont students.
Governor Douglas recognizes that in an economic downturn, it is critical that we continue to make investments in our workforce and the next generation. The long-term economic well-being of Vermont depends on a highly skilled and educated workforce. That is why the Governor s budget restores $750,000 for the Vermont Training Program and $2.6 million for scholarships.
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News GovBudgetAltplan_051909.pdf89.1 KB
News GovBudgetAltPlan_Attachments_051909.pdf29.44 KB