Statehouse budget battle bogs down, veto more likely
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By LOUIS PORTER Vermont Press Bureau - Published: May 12, 2010
MONTPELIER – Talks between Gov. James Douglas and legislative leaders broke down late Tuesday evening and a veto of the state budget appeared increasingly likely.
As a third adjournment deadline for the year loomed, legislative leaders and Douglas appeared close to an agreement in the budget to repeal a part of the capital gains tax increase put into effect last year by legislators. The agreement, worth roughly $3 million, would have taxed capital gains from investment in Vermont companies at the old rate before the change was made last year – about 60 percent of the rate at which income from wages is taxed.
But that agreement fell apart at about 9:30 p.m. over the question of what companies would be allowed to qualify. Legislators, wanting to restrict the benefit to small companies, would limit it to those owned by 10 or fewer people. Douglas, who said that version would not reduce taxes or spur investment enough, wanted the exemption to go to those investing in companies of any size which pay Vermont taxes and are not publicly traded.
While it is possible they could return to negotiations today, by last night the two sides appeared to be on a collision course ending in a state budget veto.
"We have not come to an agreement with the governor," Senate President Pro Tem Peter Shumlin said.
In part the question is how large an exemption to capital gains can be passed in the Democratically controlled Legislature, lawmakers said.
"They want a bigger exemption on capital gains than we can agree to and still have a conference committee that will sign it," Speaker of the House Shap Smith said.
"It is doing what is right to employ more Vermonters," Douglas said of reinstating the capital gains exemption. The $3 million capital gains exemption would have been "a tremendous signal to those who choose to invest in our state."
Two major differences – and a series of smaller disagreements – have remained between lawmakers and Douglas on the budget. Besides the repeal of capital gains and estate tax increases put in place last year, the other key difference was over how much was being done to control future school spending.
Lawmakers defused another sticking point, deciding last week to pass through all of an increase in a federal manufacturers tax credit to Vermont companies rather than use that $1.7 million in the state budget.
Had legislators and the governor agreed to roll back $3 million of the capital gains change, it would be paid for from several sources, including $1 million from the state's fee-for-space fund. When the state's Department of Buildings and General Services offers other departments space, it collects money from them. Heat, maintenance and plowing are included, so the mild winter means additional money is left in that fund, according to Commissioner Gerry Myers.
Another $1.6 million would come from delaying investments in information technology. The final $400,000 would come from the state's abandoned property fund. Because the stock market has done better recently than expected, there is more money in that account – set up to store and return mislaid investments and other money to Vermonters – than had been expected, State Treasurer Jeb Spaulding said.
Not everyone who owns that money is found, so the fund always provides some help to the state's main General Fund, Spaulding said.
Legislators, who returned to Montpelier Tuesday, now hope to adjourn by late tonight. But beside work still remaining to be done on the state budget, also unfinished are a tax bill, a bill dealing with the state's Current Use program and the Challenges for Change measure designed to help balance the budget by finding $38 million in government streamlining.
"There are a lot of issues still in play," Douglas said earlier in the day. "There are a number of issues still to be resolved."
The budget was far from the only thing worked on in the Statehouse Tuesday. Lawmakers also completed their work on another bill that may be vetoed, this year's health care measure.
That bill would make a variety of changes to the health care system, including launching three designs of a new health care system for the state. The bill, as modified by the House and approved by the Senate late Tuesday night, would also require the disclosure of free drug samples given to doctors by pharmaceutical companies. That measure had been opposed by some, including some state Senators, because it was feared doctors would be reluctant to offer samples to needy patients if it was included.
However, in the end the House version of the bill with the disclosure provision, supported by Sen. Doug Racine, the chairman of the Senate Health and Welfare Committee, was approved.
"This is an important piece of legislation. We are in a health care crisis in this state and in this country," Racine said. The Senate approved the measure by a 25-4 vote.
Gov. Douglas has given strong indications he may veto the bill over the pharmaceutical disclosure measure and the health care study, which he believes in unnecessary. However, the governor also likes some aspects of the bill strengthening the state's Blueprint for Health chronic care program.
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