Firm News
February 27, 2015

Legislative Update | Feb. 27, 2015

Vermont is one of the few states with no statutory or constitutional balanced budget requirement.

With the state facing its largest budget gap in years, one might expect that flexibility to tempt Gov. Peter Shumlin and legislative leaders to forestall some of the painful choices that lie ahead.

Originally forecast at $94 million, the gap has grown to $113 million following a revenue downgrade in January.

In the face of those daunting numbers, it was extraordinary on Thursday to see administrative staff and House leaders join together in releasing an eye-popping list of potential budget cuts that places some of the most sacred cows on the chopping block. The document is more a statement of will than a budget blueprint since the laundry list of cuts, taken together, far exceed the amount that will ultimately be needed. It includes substantial reductions in health care assistance, elimination of entire state divisions and dramatic reductions in others, closure of a state prison, and even the bold suggestion to reduce the size of the House from 150 to 120 members.

The largest area of proposed cuts is in the category of state employees, with nearly $11 million in reductions. The Vermont state employees union historically has had enormous influence with Democrats in Montpelier, so the fact that the governor and House Speaker Shap Smith have linked arms on the employee budget savings target illustrates a sea shift in Statehouse union politics.

There continues to be surprisingly little talk about raising taxes to fill the budget gap, which is indicative of the conservative mood swing that has occurred in the last few months. The tax aversion also is a recognition of the state’s systemic budget problem that has been largely caused by spending growth that has consistently exceeded revenues by two percent.

Although the governor’s budget proposed a 0.7 percent payroll tax to reduce the Medicaid cost shift, that proposal is moribund in the legislature despite an intense campaign by the administration to garner support.

The likely death of the payroll tax increase opens up an additional $16 million hole in the General Fund budget, since part of the increase would have been used to pay for higher Medicaid enrollment. Lawmakers will be looking for another revenue source to fill that gap. A proposed sugar sweetened beverage tax has gained some traction in recent weeks but still faces long odds. It is anyone’s guess what other taxes may be considered.

The institutional budget cooperation in Montpelier this week presented a stark and refreshing contrast to the continuing dysfunction in Washington, D.C., as the Department of Homeland Security faced a potential shutdown on Friday. Gov. Shumlin, House Speaker Smith, and new Appropriations Chair Rep. Mitzi Johnson, D-S. Hero, deserve credit for putting political gamesmanship aside and addressing the state’s budget challenge head-on.

View the full DRM Legislative Update for February 27, 2015

To receive Downs Rachlin Martin’s full Legislative Update hot off the press when it is issued on Friday evenings during the Vermont legislative session, please contact John Hollar or Joe Choquette.

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