by Anne Galloway, www.vtdigger.org May 5, 2011 After several days of intense negotiation, leaders of the House and Senate agreed to a tax package last night that the Shumlin administration can apparently live with.
The proposal raises $27.48 million in new taxes to help fill the state’s $176 million budget gap. The agreed upon increases include $5.85 million in new taxes on hospitals; a 38-cent hike on cigarettes (bringing the total tax per pack to $2.62); and a new 0.8 percent ‘claims assessment’ on the number of medical claims processed for Vermonters that will generate about $11 million. The miscellaneous tax bill does not increase income, sales or property taxes.
Sen. Jane Kitchel, chair of the Senate Appropriations Committee. VTD/Josh Larkin
The handshake deal that was struck last night at about 9 p.m. opened up a logjam of bills that got clogged in the Senate Finance releases all the other bills that have been on hold ‘ the budget, the jobs bill and the recidivism bill. The capital bill is also ready to go. All four will be signed early Thursday morning.
The three parties ‘ House Speaker Shap Smith, Senate President pro Tem John Campbell and Gov. Peter Shumlin and their surrogates ‘ spent hours wrangling over the big ticket items on the tax bill in closed door meetings at the same time that the Miscellaneous Tax Bill conferees wallowed in the weeds of the miscellaneous tax bill. The chairs of House Ways and Means and Senate Finance trooped up to the governors’ office, the senate president pro tem’s office or the speaker’s office, a half dozen times over the course of the day.
Senate President Pro Tem John Campbell said each party had to make some compromises. ‘I think we’ve reached an accord that will be acceptable to Vermonters,’ Campbell said.
House Speaker Shap Smith said: ‘This is a difficult bill to resolve. Everybody had a number of issues they cared a great deal about and everyone on the conference committee had to give on particular items they didn’t want to give on. I’m grateful conferees and admin able to come to agreement on the revenue and the substance of the bill.’
Talks broke down numerous times over the cigarette tax, TIF districts and the so-called ‘Amazon’ tax, that would assess the sales tax on Internet sales.
The Shumlin administration opposed the Amazon tax altogether and was unwilling to negotiate the cigarette tax any higher, according to several sources. Officials were not available for comment after the deal was struck.
Smith and his committee conferees pushed back. The House got two of its priorities in the end-game negotiations ‘ a tax increment financing plan for the city of Colchester and an Internet sales tax plan that would be triggered when 15 other states have imposed taxes on Web retailers.
‘We stood firm even when we did compromise,’ Smith said. ‘I think when we see an erosion of the sales tax because of online sales, at some point you have to take a stand. It’s not being addressed at the federal level so unfortunately we have to address it on the state level.’
The deal was so tenuous last night that Smith and Campbell sat on either end of Senate Finance as lawmakers from the House and the Senate committee continued to find fault with the details of each others’ proposals during the final review of the draft of the miscellaneous tax bill. Both leaders stepped in to mediate disputes as they arose.
One of the sticking points included property tax breaks for recreation centers and hockey rinks. The Senate introduced the tax expenditure; the House won its case to wean the groups off. It proposed a 50 percent reduction in the tax break next year.
The cigarette tax, however, appeared to be the most difficult negotiating point. The Joint Fiscal Office passed out a spread sheet in the late afternoon that solidified the number at 38 cents. At that rate, the cigarette tax would generate $4.63 million in revenues. The House started at 27 cents, while the Senate pushed for a $1 per-pack tax, which the governor negotiated down to 53 cents in behind-the-scenes meetings.
‘It was difficult because the governor didn’t want the cigarette tax,’ Smith said. ‘The legislature would have been willing to have a higher one.’
Nicole Lukas, a lobbyist with the American Heart Association, said Shumlin refused to meet with anti-smoking groups. She described the unwillingness to meet the Senate halfway with a 55 cent tax was a ‘missed opportunity.’ The lower rate will not prevent Vermonters, especially teenagers, from smoking.
‘It feels like this is taking sides with big business and big tobacco over the health of our kids because we know high cigarette taxes are the best way to curb smoking,’ Lukas said. ‘Thirty-eight cents is a revenue grab, and not much revenue at that.’
Lukas said Shumlin’s approach ‘ keeping cigarette taxes low and increasing hospital taxes ‘ doesn’t make much sense as public health policy. Smoking, she said is the No. 1 preventable cause of death. The $1 per-pack tax would have raised $10 million in revenues, including $3 million from New York State cigarette buyers who would still take advantage of Vermont’s lower cigarette tax rate, according to figures from the Joint Fiscal Office.
‘Every time the governor talks about the Joint Fiscal Office projections, it has been suggested we’ve been smoking something other than tobacco,’ Lukas said.
Provider taxes
There were also changes to the way the state will assess taxes on hospitals. The tax rate goes down a bit, from 6 percent to 5.9 percent, and the base rate is derived from a more conservative total revenue figure for hospitals for fiscal year 2011.
The hospitals will be required to pay $5.852 million in unreimbursed Medicaid pass-through money, according to a conference committee report spreadsheet. Shumlin had proposed a $17.39 million increase in assessments on hospitals; both the House and the Senate agreed to $7.39 million. They were able to lower the tax to $5.852 million by increasing the state’s Medicaid payments for medical treatments.
The tax bill also includes increases in a claims assessment, or tax on medical care claims processed by insurers. A 0.199 percent assessment is already being used to fund health information technology improvements. The new tax is .8 percent, which brings the total to 0.999 percent. The tax, which will also be imposed on dental insurance claims in the coming fiscal year, raises $11.82 million.
The Colchester TIF
A tax increment financing designation was reauthorized for the city of Colchester as part of the late-night deal. Rep. Jim Condon, D-Colchester, was at the center of the secret negotiations between the House and Senate leaders.
The designation enables municipalities to forgo 75 percent of what is owed in property tax payments to the state’s Education Fund for development projects.
The Senate Economic Development Committee had originally included tax increment financing designations for South Burlington, Barre, Milton, Williston and Hartford, according to the chair, Sen. Vince Illuzzi, R/D-Essex-Orleans.
The reauthorization of the TIF for Colchester was an anomaly, according to Illuzzi. He preferred an all in or all out approach. The senator pushed for the all in tack because ‘it’s the only economic development the state offers towns.’
‘Those other communities are going to feel they got thrown overboard by one community and I think that’s a real shame,’ Sen. Tim Ashe, D/P-Burlington, who was on both the tax and jobs bill conference committees.
There was no explanation in committee deliberations or in conversations with Smith and Campbell about why Colchester was made the exception to the rule.
Slight budget changes
The House appropriations conference committee members agreed to the Senate’s proposal, which included $200,000 for Choices for Care, a program that provides home care for elderly Vermonters, and $319,145 for high school substance abuse counselors.
The Choices for Care program still, in theory, could see a $800,000 cut, but Rep. Martha Heath, chair of House Appropriations. The program has saved $10 million so far this fiscal year, and Heath said some of that money will be used to restore services. The remainder, she said, will go into the human services caseload reserve fund.
The overall budget included a 2.5 percent cut to mental health services and programs for developmentally disabled Vermonters.
Anne Galloway is editor of vtdigger.org