The $5.8 billion budget passed by the Vermont Legislature late Saturday night is supposed to fund government through the middle of 2019, but the spending plan will more likely have a shelf life of only a few days.
That’s because the state budget is headed for an almost certain veto from Republican Gov. Phil Scott, who has vowed to axe any proposal that fails to avert an increase in statewide property tax rates.
Democratic leaders in the House and Senate say they’ve put forward a fiscally responsible spending plan that offers some relief from the pending property tax hike, while paying down long-term debt obligations.
“I am confident affordability, protecting the most vulnerable, and strengthening Vermont’s fiscal health are all priorities in this budget,” says Danville Rep. Kitty Toll, who chairs the House Appropriations Committee.
In his ceremonial post-adjournment speech to Senate lawmakers shortly before 11 p.m. Saturday, Scott said their budget does not meet the no-tax-increase edict he issued at the outset of the 2018 legislative session.
“As I stand before you tonight, I acknowledge a fundamental disagreement remains, as I simply can’t support adding to the tax burden of Vermonters,” Scott said.
The Legislature adjourned the session late Saturday, after a whirlwind of eleventh-hour bargaining that saw some bills eke over the finish line, and others cut down at the last minute.
It was a contentious end to a contentious session in which an already uneasy relationship between Democratic lawmakers and the Republican governor fell into deeper disrepair.
Lawmakers may have adjourned for now, but the business of 2018 is far from over. And with lawmakers and the governor still fundamentally at odds over foundational budget issues, they’ll reconvene for a special session later this month or next to try to find an elusive middle ground.
Scott has drawn a political line in the sand over the issue of tax increases. Specifically, Scott says he won’t sign a budget or tax bill that would result in an increase in statewide property tax rates.
“As too many of our families and businesses are well aware, the affordability crisis in Vermont is real,” Scott says. “Working to reverse this trend is one of the primary reasons I ran for governor. Since taking office, I’ve talked a lot about how important it is to moderate costs in state government.”
The disagreement over the budget comes despite a banner year for revenues.
The state balance sheet is well in the black, thanks to organic growth in state revenue, an unexpected financial settlement from tobacco companies, and a $44 million surplus that will be left over after the current fiscal year expires on June 30.
Lawmakers and the governor, however, are of very different minds over how to spend the money.
Scott wants to use much of that money - $58 million to be exact - to buy down property tax rates in fiscal year 2019. Based on the school budgets passed by local voters back on Town Meeting Day, statewide property tax rates are set to jump by about 5 cents next year. By pouring $58 million into the education fund, Scott says elected officials could obviate the need for that increase.
“Vermonters understand we can’t make our state more affordable by making it more expensive to live in,” Scott says.
Lawmakers, however, say the governor’s plan is a fiscally irresponsible waste of one-time money that could be put to far better use - namely buying down future pension obligations. Senate President Pro Tem Tim Ashe dismissed Scott’s plan as an attempt “to trick taxpayers” by negating the property tax increase, “because it’s an election year.”
“The temptation is always to trick the voters, and our goal is to be honest with the voters,” Ashe says.
Washington County Sen. Ann Cummings says it’s important that voters feel the financial consequences of their votes on school budgets. Those school budgets are set to rise by about 1.5 next year - less than the rate of inflation or the rate of growth in the state general fund.
Cummings says if voters don’t see a commensurate hike in property tax rates, it will only encourage higher spending in the future.
“As long as we use one-time money to buy down the decision of the people to raise spending on the property tax, we are cushioning them from the consequences of their action,” Cummings says.
Lawmakers also say buying down tax rates is a misuse of $58 million that could otherwise be put toward unfunded pension obligations. House Appropriations Chairwoman Kitty Toll says lawmakers’ budget puts about $35 million toward that purpose.
“We’re saving Vermonters over $100 million [in avoided interest payments] by taking this one-time money and paying down this pension,” Toll says. “We have a long way to go, but this is a really good start we were able to do with this one-time money.”
Scott says lawmakers could achieve all the fiscal goals they’ve set out to accomplish and still adhere to his no-new-taxes directive. In order to do it, Scott sys, they need to agree to an education savings plan he unveiled in the waning days of the session.
The plan, according to Scott, would reduce education spending by as much as $400 million over the next five years, primarily by reducing the number of staff working in public schools.
Scott says there will be more than enough from those savings to pay back the $58 million in one-time money, and still have enough left over to keep tax rates stable in the future.
There’s no mandate to reduce staffing levels in Scott’s plan, however; the administration is assuming that student-to-staff ratios will rise naturally as a result of workforce attrition. And while Democratic lawmakers say they’re hopeful payroll costs will moderate in the future, they say they refuse to make a $58 million gamble now, under the assumption that education costs will go down enough to pay it all back later.
“And those things, in their entirety, to the magnitude he’s talking about, are just a non-starter with us,” House Speaker Mitzi Johnson says.
The budget passed with unanimous tri-partisan support in the Senate, a triumph Ashe says speaks to the reasonableness of the Legislature’s proposal. Only 14 people voted against the budget in the 150-member House.
“The odd party out here, if you will, has been the administration, who for some reason that’s not good enough. And it’s very hard to actually understand why they wouldn’t support the budget,” Ashe says.
Scott says it’s lawmakers that are out of touch.
“[Their] approach is not acceptable to me. And honestly, it doesn’t make any sense to me either,” Scott says. “And based on what I’ve heard over the last two years and really, for most of my political career, it’s unacceptable to most taxpayers.”
The relationship between legislative leadership and the governor is as fraught now as it’s ever been. During the final week of the session, neither the House speaker nor the Senate president had a one-on-one meeting with Scott to try to resolve the differences that have led to the veto showdown.
It’s a dynamic that prompted Republican Minority Leader Don Turner to offer an amendment to a bill that deals with contracts with the state workforce. The current fiscal year expires on June 30. Turner’s proposal would have authorized state employees to continue working with pay, in the event that lawmakers and the governor don’t reach a consensus budget deal before then.
“We should do the responsible thing and make sure no matter how long this goes on, Vermonters will not face a government shutdown,” Turner said. “This is simply an insurance policy. Vermonters did not elect us to play games with government services.”
House Appropriations Chairwoman Kitty Toll urged her colleagues to oppose the amendment, saying it would allow for “a departure from government process.”
The amendment failed by a vote of 45-89. And with that, the countdown to June 30 has begun.