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Lawmakers ready to cut state budget

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By JOHN FLOWERS

MONTPELIER — State lawmakers on Wednesday began reviewing a menu of $46.3 million in potential spending cuts and revenue adjustments to compensate for an estimated $24.5 million shortfall in Vermont’s fiscal year 2009 general fund budget.

The potential spending/revenue adjustments were developed by the Joint Fiscal Office and representatives of the House, Senate and Douglas administration. Released at around 11 a.m. on Wednesday, the proposed adjustments seek to remedy a major revenue shortfall predicted on Tuesday by state economists.

Since lawmakers and Gov. James Douglas have vowed to not raise any broad-based taxes this year, the Legislature will have to find economies within the $1.2 billion spending plan passed earlier this month by the House.

Red ink is also looming in the state’s transportation and education funds, which pushes the total potential fiscal year 2009 revenue shortfall to around $30 million.

“People are working cooperatively to do the dirty job of looking where to cut,” said Sen. Claire Ayer, D-Weybridge, who serves on the Senate Finance Committee and is Senate majority whip. “I don’t think there will be anything held sacred, except for the education fund.”

The menu of potential cuts unveiled on Wednesday included:

• $5.6 million from the executive branch, including hiring freezes, possible job cuts and a 25 percent reduction in the travel budget.

• $20.5 million from human services, including elimination of state-only prescription programs under Medicare Part D; closing the Northwest State Correctional Center in St. Albans and sending those inmates out of state; and limiting inflationary increases to 1.25 percent for nursing homes, mental health care agencies and developmental services agencies.

• $9.9 million from the Vermont Agency of Natural Resources and the Vermont Agency of Commerce and Community Development, including $4 million from the Vermont Housing and Conservation Board and $3.85 million from the state’s “Next Generation” scholarship program.

Local lawmakers discussed the tough budget road ahead at a legislative breakfast in Middlebury on Monday. While they were, at the time, not aware of the menu of cuts, they knew the news would be bad.

“I can predict (the cuts) are going to hurt and it’s going to be very hard for the lowest-income folks, and it’s going to be very hard for our infrastructure,” said Rep. Mike Fisher, D-Lincoln, who serves as vice chairman of the House Human Services Committee.

“We’re talking the ‘ain’t got no money blues,’” said Rep. David Sharpe, D-Bristol and member of the House Ways and Means Committee.

And money isn’t going to get more plentiful given the current state of the economy and a widespread opposition to raising taxes, Sharpe noted.

“I believe that the way we ought to fund government is broad-based taxes — income, sales, property taxes — done fairly, across the board, so each of us carries our fair share,” Sharpe said. “Our Constitution requires that people pay for government based on our ability to pay. We’re not doing that this year, I don’t believe, unless things change.”

Sharpe said that while the Legislature has taken a “no new taxes” approach this year, it has nonetheless passed on increases to Vermonters in other forms.

He cited recent fees imposed on homeowners’ insurance (to pay for increased training of fire department personnel); on health insurance (to pay for electronic cataloguing of medical records); and court services (to keep the judicial system solvent) as examples of increases Vermonters will face that won’t show up on their tax bills.

“That’s the box that we’re in, in the Ways and Means Committee,” Sharpe said. “We have dozens of these little bills; everyone wants their dedicated little piece of money, because if you have a little dedicated chunk — a surcharge on an insurance policy or a little fee for this kind of service — then you can be a little bit protected from this $25 million shortfall in the general broad budget.”

Rep. Willem Jewett, D-Ripton, also criticized the current trend of raising fees.

“All this talk about not raising taxes is fine, but let’s be real here,” Jewett said.

Fisher suggested the state could find some additional revenues by closing the current loophole in Vermont law that allows Vermonters to exempt 40 percent of their investment earnings from the capital gains tax. Gov. James Douglas has also suggested such a move, though it has failed to gain traction in the Statehouse.

Closing the capital gains loophole could generate around $21 million.

“For Vermonters who earned over $1 million in 2006 … they earned $300 million tax-free,” Fisher said. “That’s a phenomenal number, that we’re willing to let that kind of earnings be non-taxed while we are taxing every single dollar Vermonters earn with their wages. I have a very hard time living with that and I will continue to raise it, especially in the context of a time when we’re very short.”

Sharpe said it is unlikely the Legislature will choose to dip into the state’s “rainy day fund” — a savings account that it maintains for emergencies — to avoid cuts. He explained the rainy day fund is designed to address any unforeseen shortfalls that may surface after lawmakers have put the state budget to bed.

“It’s time for us to either raise revenues or bite the bullet and make cuts so that we leave with a balanced budget this legislative session,” Sharpe said.

Rep. Steve Maier, D-Middlebury, expects the Legislature will proceed carefully, making sure to maintain the programs and services it holds most dear.

“I think the only way to do this that makes any sense is to bring yourself up above the fray for a moment and have a conversation and ultimately agree upon what your values and principles are, and hold onto them as long as you can,” Maier said.

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