Governor Scott vetoes budget, property tax bill

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Governor Scott vetoes budget, property tax bill

Tue, 06/06/2017 - 4:53pm -- tim

Vermont Business Magazine Governor Phil Scott today vetoed H 509, a property tax bill, and H518, the Legislature’s proposed state budget. In a statement issued Tuesday afternoon, the governor said that in combination, these bills forgo up to $13 million in savings for Fiscal Year 2018 and up to $26 million in annual education savings, worsening the unsustainable trajectory of continuously rising property taxes at a time when student enrollment continues to decline by, on average, three pupils each day. The governor proposed in April to roll the many local teacher health insurance plans into one state plan. The teachers' union and Democratic leadership in the Legislature rejected Scott's plan because it disrupts the collective bargaining process and reduces local control. They also complained that such a sweeping proposal came too late in the legislative process to get a reasonable hearing and that, in any case, teachers are not state employees.

However, despite no new talks, Scott said last week that he would not close down the government and would eventually sign both bills. A veto session will be held June 21.

Scott had urged legislators during the session to roll the many local teacher insurance plans into one plan to save up to $26 million a year. He said the savings of about $75 million in premiums would be offset by $50 million put back into the plans to offset teacher out-of-pocket costs.

His mantra has been that this is “a once in a life-time opportunity” because of health insurance restructuring under the Affordable Care Act (Obamacare).

The governor said that while he would take the $26 million in sustained savings without changing the local collective bargaining process, he just didn’t see how it could get done.

Leaders of the Legislature’s majority party have so far, he said, refused to take advantage of savings available to school districts through new, lower cost health insurance plans adopted by the Vermont Education Health Initiative (VEHI), a nonprofit intermunicipal trust that administers healthcare benefits to Vermont schools.

The savings opportunity is due to VEHI’s transition to new school employee health plans beginning in January 2018 to avoid a federal “Cadillac” penalty that would be applied to its current plans.

Despite first learning about this savings opportunity in 2015, taking additional testimony from VEHI throughout the 2017 legislative session and receiving multiple proposals to secure the savings from the Scott Administration, he said the Legislature failed to implement a policy mechanism that would achieve these savings. While there is agreement on the available savings, they were not accounted for in the budgets passed by the House in March, the Senate in April, or the final budget on May 18, Scott said.

In his veto message, Scott said, “Vermont faces an immediate and growing crisis of affordability, and recapturing the available savings – without asking school employees to pay more or cutting programs for kids – can only happen during the unique set of circumstances at this moment. Without a mechanism to ensure the savings are achieved, these bills currently create an environment that will eat away the available savings and, therefore, our ability to lower property tax rates.”

The veto message details these, and other, fiscal problems within the current budget and property tax bills. The budget passed by the Legislature: 

  • Reduced the Education Fund’s “rainy day” stabilization reserves by $9.2 million, which represents the Fund’s statutory minimum;
  • Created a shortfall by using $26.1 million in unallocated and unreserved balance in the Education Fund, which relies on an anticipated surplus that the Agency of Education reports will not be available after this year;
  • Increased the non-residential property tax rate from $1.535 per $100 of assessed value, to $1.555. This increase will impact Vermonters, including employers, renters and camp owners. According to the Vermont Department of Tax, most property classified as “non-residential” has a Vermont owner; and
  • Added a 1 percent transfer of sales and use tax to the Education Fund, which creates a General Fund shortfall in Fiscal Year 2019 and beyond.

Scott said these decisions by the Legislature – without a sustainable plan in place to fill shortfalls now or in future years – all but ensure higher property tax rates for Fiscal Year 2019 when, instead, there is an opportunity to reduce rates through savings captured from transitioning health plans. Further, decisions to use one-time money instead of utilizing the available savings could be of concern to rating agencies – who are already expressing concern about Vermont’s unsustainable demographics – and are difficult to understand in a political climate where federal funding for school districts could be drastically reduced.

“The use of rainy day funds, coupled with the continued reliance on one-time funds predicated on a surplus that’s unlikely to materialize in future fiscal years puts us at risk of future property tax increases,” said Gov. Scott. “I cannot support a budget that makes expenditure choices that knowingly result in higher property tax rates in future years.”

The appropriations made from the Education Fund in the budget are contingent upon the revenue provided by H 509, fundamentally tying these bills together, which is why Scott said he vetoed both bills. Initially the Clerk of the House returned the veto letter from the governor because the rejection of both bills was contained in a single letter. Because there were two bills, they both required separate letters from the governor. The governor subsequently sent letters for both.

“If the veto is sustained, I’m confident we can come to an agreement that ensures Vermonters benefit from this unique savings opportunity, and when we do, these bills will be improved, we will be more fiscally secure, and Vermonters will be better for it,” Scott said.

H. 509 Veto Message

H. 518 Veto Message

Source: Governor 6.6.2017