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Douglas budget makes cuts, proposes no new taxes

Governor proposes ways to fill $150 million budget gap

MONTPELIER – In his final budget address as the state's chief executive, Gov. James Douglas proposed cuts to human services programs, reductions in the state's property tax income sensitivity program and a bit more spending on telecommunications infrastructure, higher education and police.

What was not included in his tough proposed budget, drafted to fill a more than $150 million hole in next year's spending, were any increases in broad-based taxes or use of the state's "rainy day" reserve funds.

Though this is Douglas' last budget – he is not running for another term – the governor Tuesday sounded more like someone at the start of his tenure rather than the end of it, talking about the state's fiscal and economic situation years from now and unveiling changes that would take more than one budget cycle to implement.

Putting no gloss on the state's revenue situation, the governor compared the state's economic and fiscal situation to the catastrophic 1927 flood and its aftermath, and said the state must show foresight in dealing with the crisis.

"Just as Vermonters did more than 80 years ago, we must rebuild better than before," Douglas said. "This year we will be judged not just by our ability to pass a balanced budget, but by whether that budget prepares our state and its people for a stronger tomorrow."

Doing that will mean widespread changes – and cuts – in some of the prized and long-protected programs and sections of state spending under the plan laid out by the governor. Rather than wholesale elimination of programs, Douglas recommended spreading the pain across a large number of people and programs. An example would be raising deductibles in the Catamount Health insurance program from $250 a person to as much as $1,200, but not throwing people off the program.

Douglas also proposed going back to a 40 percent capital gains tax exemption, a move that would actually cut state revenues, and rolling back estate tax increases. Both moves together effectively amount to a $9 million tax cut. He does not want to return the top-tier income tax rates that were lowered by lawmakers last year as part of that package, however.

The governor also would lower some caps and make other kind of reductions for those who receive state services. For instance, those on state health insurance would be eligible for a dozen annual emergency room visits that do not result in hospitalization; the state would not pay for visits that exceeded that number, under the proposed budget.

Hospitals and other providers of services would also pay more under the governor's proposal, a move likely to be opposed by those concerned about the "cost shift" onto those with private insurance.

The administration is also again proposing changes to the state's successor to welfare. Those changes – such as more stringent measures to cut benefits for those who decline to work or do other requirements of the program – were turned down by lawmakers last year.

One of the most surprising things about the budget address was not contained in the cuts or spending proposals, but that, for the first time in recent memory, the speech was accompanied by the statutory language of the budget, the draft of the so-called "big bill." Normally the budget speech is accompanied by spreadsheets, but the actual bill comes in dribs and drabs sometimes weeks or more after the outline is given. That early delivery and the early arrival of the budget adjustment bill in December was one more sign that – so far – legislative leaders and the governor are reading from the same hymnal.

Another subtle sign of cooperation was in what was not included in the budget proposal. While he proposed consolidating affordable housing agencies to save overhead and proposed changes in the education fund and school grants, those areas were targeted with less radical proposals than Douglas has asked for in the past. No school spending cap was recommended, neither was a cut in Vermont Housing and Conservation Board funding, which was long a target.

Legislative leaders responded in kind, offering little or no criticism of the governor's budget proposal.

There were still, however, proposals to reduce expenses in those areas even if they were not as sweeping as in past years.

On education spending, Douglas asked lawmakers to move the teachers' retirement obligations from the General Fund to the Education Fund over the next four years. Without other changes that would result in a property tax increase, the governor acknowledged. But combined with other measures he is asking for, the statewide property tax rate – now slated for a two cent increase – could be reduced by a cent instead, according to Douglas' calculations.

Those other changes would include proposals such as reducing income sensitivity property tax assistance for residents near the top of the $90,000 annual household income limit, eliminating small school grants and other changes.

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