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December 19, 2008

Legislators Reject Douglas Budget Cuts, Approve Counter-Proposal

This just in: The legislative Joint Fiscal Committee has rejected many aspects of Gov. Jim Douglas' proposal to trim $19.7 million from the current fiscal budget.

As we pointed out this week, there is increasing debate on whether the state can simply cut its way out of the current budget deficit. That's not what we've done in the past (1983 and 1991). Everyone knows there will have to be drastic cuts, but others hope to balance those cuts with use of the rainy day funds, targeted tax increases, and potential federal aid.

Here's a portion of today's release about the committee's decision this morning: "After hearing the testimony of those who would be affected by the Douglas Administration’s proposed rescission, the Joint Fiscal Committee determined that the state cannot solve its budget shortfall by disproportionately placing the burden on the backs of the most vulnerable Vermonters." 


The committee's package still cuts $19.7 million from the current budget, it just shifts which programs will bear the current burden. 

The committee rejected some of the cuts aimed at the mental health community, working parents, and small businesses.

The committee's plan reduces these impacts by asking the mental health and developmental disabilities agencies to accept a 5 percent half year cut, instead of an 8 percent half year cut; postpones the implementation of the childcare eligibility change until April 1, 2009 instead of eliminating the eligibility change; and accepts only half the reduction in the Individual Development Accounts and Micro business lending program.

These measures not only reduce the impact on vulnerable and working Vermonters, but send $2.2 million more into the community than the administration’s proposal, due to federal matching funds, according to the committee's release.

Leading the effort to craft a counter-proposal was Senate President Pro Tem Peter Shumlin (D-Windham): and incoming House Speaker Rep. Shap Smith (D-Morrisville).

“In these difficult times, we must make many difficult decisions now so our choices and their impacts do not become even more painful in the next year,” said Shumlin. “Yet, these decisions must be measured and thoughtful.”

“We made these changes with an eye to the future," added Smith. "Without adequate mental health services, vulnerable Vermonters may end up on our streets and in our hospitals, which costs more in the long run.  Working parents rely on access to affordable child care and the micro businesses program is more important than ever as Vermonters pursue lasting economic opportunity in these difficult times."

To achieve the $19.7 million rescission, while restoring funds to the programs listed above, the committee cut funding to the Vermont Housing and Conservation Board funds, retained the unallocated Next Generation funds, transferred unused energy loan program funds, accepted the Judiciary’s proposed savings, changed the funding source for the drivers’ education grants and the technical center leadership education grants to the education fund, and re-assessed the value of the 5 percent reduction to exempt employees to reflect benefits and non-general fund savings.

Here is a download-able list of the changes (Download PDF20081219124605 ).

Shay - Your reporting on this issue has been excellent (and righteous). So I was surprised that you wrote "Everyone knows there will have to be drastic cuts"

I don't know that. Here is a message I posted on GMD in response to a note from Rep. Floyd Nease.

"you suggested we have few resources and must do triage; I disagree

let's assume the FY09 & FY10 shortfall is $250 million; let's further assume that we need another $250 million to get serious about roads & bridges (and to help jump start the economy)

$500 million is a lot of money

however, it seems especially scary if we only think of it as a one or two year hit

why not think of it in a somewhat longer time frame?

if we bond for $500 million over 15 years, the quarterly bond payments are $9.5 million ($38m per year); how do we get the funds?

1. raise the gas tax three cents; according to JFO that raises $10.2 million; OK, drop it somewhat due to reduced driving and it's $8.5 million (three cents would cost the avg. driver less than $2.00 per month)
2. eliminate the 40% capital gains exclusion (with safeguards for the one time hits from the sale of small businesses & farms/woodlots; do this by redefining "long-term" capital gains as five years or more instead of one year as the feds do); this should raise at least $8.5 million in a bad year (the first year of the exclusion - right after the last recession - we gave up almost $15 million in lost revenue so I think $8.5m is conservative; BTW - when things pick up, this will provide a LOT more revenue; according to the last tax expenditure report we lost $48 million in 2005 alone)
3. add a surcharge to the personal income tax of those who earn more than $500,000; a 1% surcharge should raise at least $5m even in bad times (I don't think it would change their vacation plans)
4. raise the rooms & meals tax by 1%; much of this would be paid by tourists; a 1% increase would raise the cost of a $100 hotel room by $1.00; JFO estimates this would raise $14.1 million; let's assume it would be only half that - $7m
5. extend the sales tax to selected services (not health care); JFO estimates it would raise almost $75 million; so let's not scare people and make it only one penny instead of six and assuming somewhat less than the estimate because of hard times we get $8 million (BTW - build in a modest exclusion - perhaps $1,000 - so regular folks who need a lawyer or an accountant for unexpected reasons don't get clobbered)

that's $37 million; the goal was $38 million so we're basically home free

obviously, you don't get bond proceeds overnight so we need to bridge part of the gap now with rainy day funds + a little deficit spending (gasp!)

in addition, any federal funds ($100m to $200m seems likely) can be used to buy down the debt or do more road & bridge work or catch up on school construction or build out the telecom infrastructure or invest more in energy efficiency, etc.

in any case, I'm convinced we can avoid the deep cuts under discussion

of course if we can't sell the bonds we're back to square one; the other option is to only sell bonds for $250 million and just wait for the federal money for the infrastructure; that would mean only half of the revenue options outlined would be necessary

in any case, my scenario assumes sufficient votes to override the Governor's veto; now that's a morality play..."

Snelling versus Douglas
Gov.Snelling as we all know raised taxes with the help of the legislature in 1991 during the recession .This is held out as a necessary and bold step by a principled man ,which helped lessen the damage of the poor economy back then .
Our current Governor is quoted today saying "Economists are quite clear-- raising taxes in a recession will make it longer and deeper so we have to do everything we can to meet the needs of Vermonters without taking more from their hard-earned paychecks,". Where is the truth in his statement?
If Douglas is correct Gov.Snelling's increase in taxes should have made the 1991 recession deeper and longer .

I got a grant from the federal government for $12,000 in financial aid, see how you can get one also at

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