Legislative Update – April 2020

Revenue and Spending: Focusing on Structural Changes

Developing a state budget is about much more than numbers. A balanced budget affects peoples’ lives, provides the backbone of our civic life and charts a path to our future. The budget and revenue bills we passed this past week reflect over ten weeks of testimony, analysis, public hearings as well as input from the policy committees. I heard from many of you and the diversity of perspectives in our community is what makes us vibrant. For some, this budget cuts too deep.  For some it relies on too much revenue.  Unlike the story of Goldilocks and the Three Bears, there may not be a “just right”… but there is compromise. You expected us to work together and unlike Washington we did.

In crafting a budget the Appropriations Committee was faced with an enormous gap between anticipated spending and revenue of $113 million.  How did we get there? Like many other states, when the recession hit, our priority was getting people through the worst of it with short terms solutions and the help of federal stimulus money while waiting for revenues to return to our former 5% growth rate. Trends nationwide don’t support that hope and band aid solutions are no longer the answer. Addressing the structural issues is a multi-year process. Pressures on the budget growth are most notably in health care costs, labor costs and making up for under-funding retirement in past decades. In closing the $113M gap, there are  $53M in General Fund reductions, $35M in revenue and $25M in one time money to bridge us to more thoughtful, strategic solutions.  This budget creates a path towards long term sustainability and accountability.

The revenue bill makes structural changes in the income tax code to make it fairer and more progressive, recognizing the growing income inequality in this state. It eliminates the deductions for state and local taxes from the previous years. It caps income tax deductions at 2.5 times the standard deduction which for an individual would be $15,500 and for a couple filing jointly would be $31,000. While this plan is unpopular with many non-profits who do not like the idea of capping donations, we learned that over 75% of the benefit from charitable deduction comes from the federal income tax and that this proposal puts us much more in line with our neighboring states. Massachusetts, Connecticut and Rhode Island offer no state deductions for charitable deductions and Maine has a cap of $18,000. (New Hampshire has no income tax).

The budget we passed this past week (with a vote of 90-53 and I voted yes) makes real progress in addressing structural spending problems and the revenue bill we passed (with a vote of 90-50 and I voted yes) represents significant tax reform.  I think it is important (and interesting) to note that there were democratic, republican, progressive and independent legislators on both sides of each of these votes.  The two bills are now in the Senate where the analysis and testimony will continue and some different decisions may be made. This is important and essential because Vermonters deserve a robust debate about what investments and cuts to make because doing nothing differently or just saying no is irresponsible.

The days are getting longer, warmer and sunnier and we are moving out of winter hibernation.  I hope you can get out and enjoy all the beauty this state has to offer. If you would like a copy of the mid-session legislative update that the four of us wrote please contact me by email, phone or snail mail and I’ll get you one.  I hope to see you at our next monthly legislative forum on Monday April 27 at 7pm in the SB Community Library and if you can’t get there please continue to reach out.  Thanks!