The Vermont
Senate continues to receive grim news from their fiscal experts about the
state’s unsustainable spending trends. The use of the state’s “rainy
day fund” to fill budget holes in 2010 is being considered. Steve Klein of the
Joint Fiscal Office explained that the fund is used like overdraft protection on
a personal checking account to pay the state’s bills when revenues aren’t
available. The fund currently holds roughly $60 million. Klein explained that
over the next five years, the state is looking at a $1 billion budget deficit
and that it is difficult to know when decreasing revenues will bottom out. If
the Legislature were to use the rainy day funds for fiscal year 2010, it is
possible that the fiscal year 2011 budget could be even worse and there would be
no rainy day funds available. Klein also indicated that the state is expecting
to receive between $175 and $200 million in the Federal stimulus bill for
Vermont’s Medicaid program. He went on to say that those funds will likely help
cover Medicaid budget deficits in FY2009 and 2010, however come FY2011, they
could be faced with a $200 million deficit. He suggested spreading the federal
funding over four years if possible.

Tom Kavet, an
economist for the legislature, described the need for structural changes to the
education system to the Senate Appropriations Committee. He questioned
whether we would design the same system that we have today, knowing that
enrollment levels have declined by ten percent but our spending has doubled over
the same time span. He recommended that all options should be on the table
including looking for efficiencies, spending cuts, tax increases and money from
the Federal government.

Commissioner
of Labor Pat Moulton Powden visited several committees this week to explain the
Administration’s proposal to fix the state’s rapidly decreasing unemployment
insurance trust fund. The proposal contains several changes to employer
unemployment insurance payments, as well as employee benefits such
as:

• Raise the taxable
base wage from $8,000 to $14,000 in 2010
• Raise the taxable base wage from
$14,000 in 2010 to $20,000 in 2011
• Do not relieve employers that do not
respond within 10 days to the Department’s request for information relating to
the employee’s dismissal from experience rating changes
• Institute a 1% fee
on all charges to reimbursable employers (non-profits, local/state governments,
school districts) to cover part of the cost of administering benefits
•
Reduce the maximum weekly benefit for employees from $425 to $409
• Change
how the weekly benefit amount is calculated from 57% of wages paid to an
employee over the last 5 quarters to 50%
• Changes to: the number of weeks
worked in order to gain benefits, annual benefits paid out, and eligibility for
a person fired for misconduct and gross misconduct

The Federal Stimulus
Package is likely to contain some unemployment insurance funding for states,
many of whom are also experiencing dwindling unemployment insurance trust funds.
The Senate Economic Development Committee heard concerns from Vermont retailers
about the projected increase in rates. The retailers described the numerous
increases in costs (energy, fees, insurance, etc.) their businesses are
experiencing at a time when their business volume is declining.

Several
legislative committees dedicated time to learning more about the workforce
development needs of the state to determine if legislative changes could improve
existing programs. John O’Kane, Chair of the State’s Workforce
Development Council, joined Commissioner Moulton Powden to highlight the success
of various programs and to provide recommendations as to how they could be
improved. According to O’Kane, “Vermont cannot compete on the same level with
Iowa or Ohio in attracting new business to our state via incentives, therefore,
we cannot underestimate the importance of workforce skills and development for
our economic future.” Some recommendations discussed by various committees
included the following:

• Hold a forum to
connect laid-off workers with employers and seed/venture capital and technical
assistance providers to encourage new business start-ups and retain people in
Vermont.
• Retool funding allocations prescribed by statute to allow more
flexibility in the disbursement of workforce training funds.
• Eliminate
financial disincentives for high schools to send students to regional technical
centers.
• Create an educational system focused on the success of every
individual and tailored toward their learning style and interests.
• Work to
reduce poverty and mitigate the impacts of poverty.
• Provide funding and
leadership to develop curriculum for green building/energy efficiency and
weatherization techniques that can be used by technical centers or trainers for
people already in the field.

Several
groups representing the tourism and recreation industry appeared before the
Senate Economic Development Committee to describe the importance of this sector
to the State’s economy. Brian Cain, Chair of the Travel and Recreation
Council, described other states’ marketing efforts and investments in promotion
versus the declining amount budgeted for Vermont. He made a case for continuing
to invest in tourism and recreation as visitor spending supports 12% of all jobs
in Vermont and it was one of the few sectors to increase employment and revenues
for the state in 2008. The Committee expressed interest in improving promotional
efforts and asked the Council to come back with additional recommendations as to
how more resources could be dedicated to this sector.

GBIC
President Frank Cioffi presented an outline of ideas to stimulate the economy to
the House Commerce Committee. (See Week 2 at
http://www.vermont.org/chamber/legreports.aspx for more details.) He emphasized
the need for coming together as a state to grow our economy and create an
economic development plan that everyone will buy into and work as partners to
accomplish.

The House
Natural Resources Committee began a review of the Governor’s Permit Reform Task
Force’s recommendations for changes to streamline the State’s permitting
processes. The Land Use Panel of the Natural Resources Board has also
filed its proposed rules package with the Secretary of State. A public hearing
is scheduled for Tuesday, February 24, 2009 at the Natural Resources Board’s
conference room in Montpelier. The deadline for filing public comment is Friday,
March 6, 2009.

To view the package,
please click here:

http://www.nrb.state.vt.us/rulemaking/act250/act2502009.htm

Representative Helen Head (D- So.
Burlington), Co-Chair of the 2008 Basic Needs Budget Technical Advisory Council,
announced the 2008 Livable Wage Rates to the House Democratic Caucus on
Tuesday. The council determined that the average livable wage for a two-person
family with no children is $13.07/hour.

Representative Steve Maier (D-
Middlebury), Chair of the House Health Care Committee, provided the House
Democratic Caucus with an overview of issues they expect to focus on this year,
noting that there is no money to spend. He indicated that the Committee
will look at a Massachusetts-style health insurance mandate, though he does not
expect a vote on that issue this year, as well as the Governor’s proposal to
raise deductibles in the Catamount Health Insurance program in order to reduce
premiums. Representative Maier was also asked about the rumor that Vermont might
be one of five states chosen by the Federal government in the Stimulus Bill to
serve as a single-payer health care reform pilot project. He responded that
there are many people working to get Vermont included in the discussion of a
pilot program on health care reform but that he doesn’t expect anything in the
Federal stimulus bill.

During his
budget address, Governor Douglas noted that this was his seventh budget and by
far the most difficult, adding that “There is no joy in making cuts at such a
challenging time in our state’s history and I have agonized over many of the
proposals in this budget.” His proposed budget includes what he called
a realignment of our priorities in order to deal with declining state revenues
and protection of Vermont when the “Federal well runs dry.” Specifically,
revenues in the state’s General Fund are down $152 million from a year ago and
for Fiscal Year 2010, Transportation Fund revenues will be down $22.5 million.
The Governor also announced that he has created the Vermont Federal Recovery
Office to ensure Federal resources are deployed quickly and that he feels the
state is well positioned to take advantage of any package that is passed by
Congress to grow good jobs.

The Governor’s budget
relies upon a significant transformation of the state’s education funding system
including level-funding per pupil spending; a 2 cent reduction in the statewide
property tax rate; and paying the employer portion of the teacher’s retirement
fund with Education Fund dollars instead of General Fund dollars. This proposal
has already met with resistance from the Legislature.

Specific
proposals in the Governor’s 2010 budget include:

• Using funds
included in the Federal stimulus bill to fill 2009 and 2010 shortfalls in
Vermont’s Medicaid budget.
• Increasing the employer contribution to the
unemployment insurance trust fund while also reducing benefits under the program
in order to deal with a dwindling fund and increased need for benefits.
•
Increasing General fund support for higher education and early education by
20%.
• Several changes to Vermont Medicaid programs, including restoring
monthly premiums for programs like Dr. Dynasaur and the Vermont Health Access
Plan to 2007 levels; a 4% reduction in reimbursement rates to many Medicaid
providers; creating a new lower cost Catamount health savings account program;
and changing the plan deductible for the Catamount Health insurance program to a
sliding scale based on income.
• Eliminating 600 state government positions.

• Reducing all human service grants by 4%.
• Reducing the property
transfer tax to the Vermont Housing and Conservation Board by $8.3 million.

• Increasing the transportation construction budget through additional state
bonding in concert with federal funding and working with Speaker Shapleigh Smith
(D- Morrisville) on his transportation bonding proposal.
• Creating a new
infrastructure investment program by increasing vehicle registration fees and
changing vehicle inspections to every other year.
• Increasing the Agency of
Transportation’s preventive maintenance budget by 34% and base budget funding
for 45 interstate, state and local 45 bridges.

Earlier in
the week, Representative Mark Larson (D- Burlington), Vice-Chair of the House
Appropriations Committee, visited the House Health Care Committee to talk about
proposed cuts to the Medicaid budget. Representative Larson commented
that we “look forward and realize that we are kind of walking off of a cliff and
we need to be prepared for that.” He went on to explain that the gap in the
state’s Medicaid budget for Fiscal Year 2009 is approximately $51 million and it
is expected to grow to $144 million in FY2010 and $211 million in FY2011.
Several members of the House Health Care Committee are concerned that cuts to
Vermont’s health insurance programs for low-income Vermonters would be
short-sighted.

During the House
Democratic Caucus on Tuesday, Representative Donna Sweaney (D-Windsor), Chair of
the Government Operations Committee asked caucus members to question members of
the administration who appear before their committees to ask what jobs have been
reduced in agencies, what the affect of such reductions have on Vermonters, what
are the expected cost savings from the cuts and whether contracting is
increasing in light of the state reductions.

Representative Tony Klein (D-East
Montpelier), Chair of the House Natural Resources Committee, gave the House
Democratic Caucus an overview of issues affecting the future of the Vermont
Yankee Nuclear Plant and the likelihood of a vote to re-license the
plant this session. He indicated that Senate President Pro Tem Peter Shumlin
(D-Windham Co.), Speaker Shap Smith and the Vermont Department of Public Service
agree that if the price of power sold by Entergy, the owner of Vermont Yankee,
to Vermont utilities after 2012 is market price, and the only additional benefit
to Vermont ratepayers is a revenue sharing agreement currently in place, that
Yankee “might as well pack up and go home.” Representative Klein went on to
state that the Legislature will not spend time on the host of issues relating to
the relicensing of the place if they do not have a firm grasp on what that price
of power for Vermonters will be.

A legislative
study committee on smart growth issued their report this week. The
committee was formed as a result of outstanding issues that were not resolved as
part of the omnibus housing bill (Act 176/H.863) passed last session. The
committee included four legislators and was chaired by Senator Ginny Lyons
(D-Chittenden Co.). A variety of stakeholders, including our Government Affairs
staff, the development and environmental communities, and planners and
regional/municipal government were represented on the committee.

The committee’s
findings and recommendations include:
• Act 250 is ineffective in addressing
smart growth and sprawl due to the inability to address the cumulative impacts
of development on a project-by project review as well as the lack of a
coordinated land use planning framework to help guide Act 250 decisions.
•
The need for more innovative tools and financing to fund the infrastructure
necessary to encourage growth in desired areas.
• The need for a
comprehensive review of Act 250 criteria and their relationship to other
planning, land use and development regulation and policies.
• Consideration
of amendments to Act 250 Criteria 5 (traffic), 9 H (scattered development) and 9
L (rural development) that would promote smart growth and discourage strip
development.
• The need for better mapping of significant natural resources
as well as areas where growth should be encouraged.

It was difficult to
achieve consensus on specific language for the Act 250 criteria among the study
committee members. The legislature will discuss these issues again as they
review the report or a potential bill that will amend Act 250.

Jay Kenlan,
Chair of the Commission on the Future of Economic Development, and
Representative Bill Botzow (D-Pownal), Vice Chair of the Commission, presented
the Commission’s report to a joint meeting of the House Commerce and
Economic Development Committee and the Senate Economic Development Committee.
Mr. Kenlan commented that during their outreach, the Commission heard from
Vermonters across the state that “Despite years and years of permit reform, we
haven’t reformed the permit system and it’s not working.” He went on to say many
Vermonters feel there is a disconnect between the Legislature and the
Administration on creating a plan for economic development and no agreed upon
set of goals.

The
Commission’s recommendations on permit reform include: setting
realistic time limits on projects so that the process is quick and allows
businesses to carry out their plans; eliminating or reducing redundancy so that
applicants do not have to go through the same process several times; and
changing the combative nature of the process by requiring a mediation process to
solve disputes at the outset. GBIC Board Member, Mary Lintermann, a member of
the Commission, added during testimony that most of the input was gathered prior
to the economic downturn this fall and that she felt many of the comments they
received would be even more emphatic now.

The Workforce
Development Council held a press conference to tout the many benefits of the
Next Generation funding passed two years ago. Legislative leaders and
Lt. Governor Dubie joined Council Chair John O’Kane to express their support of
the program and describe how it has changed the lives of Vermonters who have
gained new skills in an ever changing work environment.

The week began with a sobering presentation by the state’s economists, Jeff Carr and Tom Kavet. The cumulative downgrades in revenue projections total more than $120 million in FY09 and $200 million in both FY10 and FY11. Both experts described the situation as a very dire situation where there is no bottom in sight. Therefore, they expect us to be in a recession for 21 months at minimum with the biggest declines occurring in 2009, which would make this the longest recession since the Great Depression.

Findings from their report include:

• Business expansion is not occurring and new business hires and startups are affecting the unemployment rate, which is not usually the case. Business is dependent on credit, which is difficult to obtain right now.
• Last month, we saw the steepest decrease in retail sales in 40 years. Previous economic stimulus checks were saved or used to pay debt instead of consumption.
• A bright spot was that rooms and meals tax revenue and the tourism/hospitality/leisure industry were actually up in 2009. The industry was up 500 jobs in contrast to construction being down 2,000 jobs and manufacturing down 900 jobs. Meals and rooms revenues have been solid, although it is difficult to predict if this trend will continue- some say people will vacation in Vermont, closer to home, while others say vacations will be reduced or eliminated altogether.
• Corporate tax revenues fell from $80 million in late 2007 to just over $50 million in the most recent quarter and are expected to continue to decline in 2009 and 2010.

Legislators were very interested in the growth of those with higher incomes as it outpaced the growth of lower income groups since 1980. Personal income tax revenues in 2009 and 2010 are expected to decline. Vermont is very reliant on high income households for tax revenue and therefore, a projected 15% decline – the steepest on record – will have a significant impact on revenues. To read the entire report, click here.

Secretary of Administration Neale Lunderville presented the Governor’s proposal to transform the education system to several committees. He explained that one-third of all tax dollars go toward funding education and the teacher’s retirement program. Therefore, the Education Fund should be part of the solution to the state’s fiscal problems. The Governor proposes level funding local education spending for 2010 at fiscal 2009 levels and lowering the household income sensitivity threshold for property taxes from $90,000 to $75,000. Senator Bartlett, the chair of the Senate Appropriations Committee, described the Governor’s proposal as “a sledgehammer,” but also said that in these dire times, it is a conversation worth having. She expressed a commitment to helping the Senate understand the structural issues associated with education funding and the need for sustainability and accountability in the system.

Frank Cioffi, President of GBIC, testified before the Senate Economic Development Committee this week to present several economic stimulus proposals developed by our organizations in cooperation with other economic development professionals. The ideas included:

• Collaborative economic renewal legislation including an economic sector analysis
• Creating a strategic employer designation
• Better deployment of Community Development Block Grant funds
• Changes to the state’s growth capital and financing programs
• Support for Governor Douglas’ economic proposals
• Wiring the state via the Vermont Telecommunications Plan
• Realigning and reforming the state’s tax system
• Encouraging entrepreneurship and innovation
• Encouraging higher education to interact with value-added businesses to retain graduating students

The statehouse is buzzing with guesstimates as to how much the federal economic recovery plan will bring to the state and for what purpose. In the Governor’s weekly press conference, he proposed using a significant amount of these funds to assist with a $51 million dollar gap for the current fiscal year. The Senate Economic Development Committee heard from David Dill, Secretary of Transportation, about the Agency’s list of possible federal stimulus projects. The Committee called for projects that would put Vermonters to work and utilize a variety of small contractors. Senator Doug Racine (D-Chittenden Co.) questioned whether larger out-of-state contractors use in-state subcontractors and whether bridge repairs and replacements are typically handled by in-state contractors. Committee chair, Senator Vince Iluzzi (R-Essex/Orleans Co.) asked Secretary Dill whether the project list would look different if other projects had permits in place. Secretary Dill responded that while every project on the “shovel-ready” list is worthwhile, other projects of higher priority would be on the list if not for lengthy permitting delays.

Agency of Commerce and Community Development Secretary Kevin Dorn presented ideas for permit reform to the Senate Economic Development Committee. The proposals included:

• Expanding the consideration of the concept of public benefit to four other criteria in Act 250
• Allowing on the record review of District Commission decisions at the request and expense of the applicant
• Giving greater weight to Agency of Natural Resources permits
• Expansion of alternatives to traditional individual permitting including permits by rule and self-certification

The House Ways and Means Committee got an overview of Vermont’s tax rates from the Joint Fiscal Office. Much of the Committee discussion had to do with whether Vermont’s personal income tax rates were high in comparison to other states. Members discussed whether Vermont is losing revenue because the top income tax rate is driving Vermonters to declare residency in lower-tax states, and whether there is capacity to raise income tax rates.

Brian Searles, Chamber Board member and chair of our Transportation Study Committee, presented our position statement to the House Transportation Committee. He spoke of the need to reinvent the Transportation fund and its existing revenue sources by reducing our reliance on the gas tax. Mr. Searles advocated for reducing the transfer of funds from the Transportation Fund to the General fund over time as well as improvements to project planning and implementation. At a minimum, in order to address the $150-$200 million funding gap in transportation needs, we have to change the flat per gallon gas tax, and move toward assessing impacts on infrastructure based on the use and weight of vehicles. He noted that if prioritized projects were fully funded and projects were built, this action might help with the deterioration of local roads. Given the prospect of cuts to rail service, Mr. Searles stated that rail on the western corridor is important to the state’s economy particularly when ridership had been increasing. (Public input on the possible substitution of train service for bus service on the Ethan Allen route is being sought.) Committee Chair Westman (R-Cambridge) said he is concerned that the anticipated federal stimulus money will not be available forever, and that we will still need to address our declining revenue sources.

John O’Kane, Government Relations Manager for IBM Vermont and member of the Chamber’s Board of Directors and Executive Committee, testified before the House Commerce and Economic Development Committee this week. He provided the Committee with an overview of IBM’s presence in Vermont and spoke about the importance of low-cost, reliable electric power supply to IBM’s operations. He noted that IBM Vermont spends an average of $37 million per year on electricity costs.

Legislative consultants provided an overview of several studies relating to the Entergy Vermont Yankee contract renegotiations. Members of the House Commerce and Natural Resources Committees as well as the Senate Natural Resources Committee reviewed information on the Vermont Yankee Plant’s potential economic impact on Vermont over a twenty-year period.

Finally, the legislative Summer Study Committee on Smart Growth met to finalize and approve their report. A summary of the findings will be provided in next week’s edition of our legislative report.

On day one of the session, Representative Shap Smith, (D-Morristown) was elected Speaker of the House in his fourth term as a House member. Our organization proudly claims Speaker Smith as an alumnus of our Leadership Champlain program in 1999 and he is an example of why our Chamber initiated this important leadership training. Speaker Smith wasted no time in getting down to business by announcing committee assignments and outlining three priorities – keeping Vermonters working, warm and well. With respect to the first priority, he mentioned the importance of ensuring access to education and training and helping growth opportunities for business (especially small business).

He also announced a proposal for a $150 million bond-based Economic Recovery package, “to keep Vermonters working now and in the future.” He described the plan as being modeled after a program crafted by Governor Richard Snelling in 1983. Improvements in the state’s roads, bridges, and other capital needs would be made under the plan.

Senate Pro Tem President Peter Shumlin (D-Windham Co.) outlined transportation, health care, job creation, high speed internet access and clean energy sources as his priorities citing the possible opportunities in President-elect Obama’s stimulus package. He encouraged Senate committees to develop ideas for creating jobs.

Governor James H. Douglas was sworn into his fourth term as Governor of the State of Vermont Thursday afternoon. In his inaugural address, Governor Douglas focused on the economy presenting several measures that he hopes will set Vermont on a sustainable path and rebuild our economy.

Governor Douglas noted that spending on general education and Medicaid account for 63 cents of every taxpayer’s dollar spent in Vermont. His proposals included:

• Establishing a collaborative process to redesign the school funding system while looking at issues like school consolidation, governance and special education as well as other efficiencies. In the interim, Governor Douglas proposed freezing per-pupil spending at fiscal year 2009 levels.
• Ending property tax income sensitivity for households making over $75,000/year.
• Increasing spending for early and higher education by twenty percent.
• Integrating the University of Vermont and the Vermont State Colleges into a single system.
• Realigning Medicaid benefits to reduce costs and maintain coverage for the most beneficiaries.
• Reducing Medicaid costs by rewarding Medicaid beneficiaries for healthy actions through lower premiums.

Governor Douglas also asked the Legislature to approve his economic development plan within the first 100 days of the session and highlighted several measures:

-Creating Green Growth Zones
-Providing regulatory certainty for Smart Grid energy improvements
-Offering expanded Vermont Employment Growth Incentive benefits to more industries such as software developers
-Permit reform in order to allow businesses that want to grow in Vermont to do so.
- Working with the Legislature to create a Vermont Economic Response Team to bring all available resources to businesses in distress.

Senate President Pro Tem Peter Shumlin (D-Windham Co.) and Speaker Shap Smith (D-Morristown) responded to the Governor’s proposals immediately following the inaugural address. Senator Shumlin remarked that they disagreed with the Governor’s proposals to freeze education spending as it would shift the burden onto local taxpayers. Senator Shumlin also indicated that the Legislature plans to work diligently to prepare for the expected Federal economic stimulus package adding that all committees will be charged with thinking creatively on how to draw down the maximum assistance through the stimulus.

The Legislature is made of 150 House members and 30 Senators. The Democrats gained one more seat in the House this year at 95 members and Republicans now have 48 members, with the balance of the membership made up of Progressives and Independents who can, and do, vote either way on issues. The Senate is overwhelmingly Democratic with 23 members. Even with these numbers, the Governor has been able to use the threat of a veto in the past on key issues to press for changes in legislation.

Only two House Committee Chairmanships changed this session with Representative Carolyn Partridge (D-Windham) appointed chair of the House Agriculture Committee and Representative Johannah Donovan (D-Burlington) taking over as chair of the House Education Committee. Chittenden County is well represented in leadership positions with Representative Martha Heath (D-Westford) as chair of the House Appropriations Committee, Ann Pugh (D-So. Burlington) chair of Human Services, Representative Helen Head (D-So. Burlington) chair of House General, Housing and Military Affairs and Bill Lippert (D-Hinesburg), chair of Judiciary. Other changes of interest include:

• Representatives Kurt Wright (R-Burlington) and Tim Jerman (D-Essex Junction) will now serve on the House Natural Resources Committee.
• Representative Jason Lorber (D-Burlington) was moved to the renamed House Commerce and Economic Development Committee.
• Representative Ira Trombley (D- Grand Isle) and newly-elected Representatives Suzi Wizowaty (D-Burlington) and George Till (D- Jericho) were assigned to the House Health Care Committee.

• Representative Bill Aswad (D-Burlington) was moved from Ways and Means to the Transportation Committee, a committee he has served on in the past. David Zuckerman (P-Burlington) now serves on Ways and Means.

Senate President Pro Tempore Peter Shumlin announced the Senate Committee assignments on Thursday morning. With only three new members this session, most Senate Committees remained largely unchanged. Chittenden County Senator Doug Racine (D) remains chair of the Senate Health and Welfare Committee and Senator Ginny Lyons (D-Chittenden Co.) remained chair of the Senate Natural Resources and Energy Committee. Senator Richard Mazza of Grand Isle County remained chair of the Senate Transportation Committee and Senator Vince Illuzzi (R- Essex/Orleans) remained chair of the Committee on Economic Development. Newly-elected Senator Tim Ashe (D-Chittenden Co.) was assigned to the Committees on Economic Development and Institutions.