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A Taxing Session: Shap Smith's $113 Million Problem


Published March 18, 2015 at 10:00 a.m.

Fair Game is Seven Days’ weekly political column.
House Speaker Shap Smith - JEB WALLACE-BRODEUR
  • Jeb Wallace-Brodeur
  • House Speaker Shap Smith

The day after one House committee voted last Thursday to increase health insurance subsidies for low-income Vermonters, the chair of another proposed slashing them to balance the budget.

As one committee voted to create a new, two-cents-per-ounce tax on sugar-sweetened beverages, a more powerful panel lined up against it.

And as a popular bill to clean up Vermont's rivers and lakes won swift passage in several House committees, it was stripped of the revenue necessary to fund it.

Conducting this dissonant orchestra — or, at least, trying to — was House Speaker Shap Smith (D-Morristown), who must get his players in tune by the end of this week. That's when most money and tax bills are due on the House floor, so they can make it through the Senate by the legislature's early May adjournment.

What emerges from the House next week could have a lasting political impact on the 49-year-old speaker, who is expected to run for the state's top office in 2016, if Gov. Peter Shumlin calls it quits. And that's a problem for Smith, because the budget ain't looking pretty.

"Look, you don't always make a lot of friends in this job. If you make any, you're lucky," Smith says. "I'm just hoping that my wife and kids will speak to me after the session is over."

Complicating matters for Smith are several factors: As a result of underperforming income taxes, the budget gap has widened to a frightening $113 million and shows no signs of abating in the coming years.

Second, House committees have taken the lead on nearly every major piece of legislation being debated this year, from education finance to water quality to health care reform. The situation, prompted by the Senate's chronic dysfunction, has led to a bottleneck in the House Ways and Means Committee, which must sign off on new funding sources.

Third, Shumlin himself never really proposed a plan that would, you know, balance the budget. His January budget address tackled the state's then-$94 million gap, but when a revenue downgrade upped that number to $113 million the very next week, the gov declined to say how he'd make up the difference.

That led Rep. Mitzi Johnson (D-Grand Isle), who chairs the House Appropriations Committee, to complain last Friday that her committee was being forced to come up with $18.6 million worth of cuts on its own — on top of those proposed by the governor.

Her recommendations, which will be debated and finalized by her panel this week, include sizable reductions to the state's health insurance, foster care, information technology, tourism, corrections and housing programs. In total, her plan and Shumlin's would cut nearly $57 million from the state's $1.4 billion general fund budget.

In a letter sent Tuesday to Smith and Senate President Pro Tempore John Campbell (D-Windsor), Public Assets Institute executive director Paul Cillo and a coalition of liberal lobbyists implored legislators to eliminate tax breaks enjoyed by the wealthy instead of slashing state services.

"Cuts over the past decade or more have already undermined the state's ability to competently deliver the services that Vermonters need and want," wrote the group, which calls itself One Vermont.

But the speaker appears disinclined to heed that advice, and he doesn't appear likely to issue a reprieve to state workers facing more than $10 million worth of job cuts or salary reductions proposed by the governor. Smith, Johnson and House Ways and Means Committee chair Janet Ancel (D-Calais) all say they've agreed to raise just $35 million to balance the budget, with the rest coming from cuts and one-time funding.

"I think we're pretty clear that that's the right number," Ancel says. "I haven't heard discussion about raising it or reducing it."

Ancel hopes to collect that cash in a progressive manner, in part by capping itemized income tax deductions at $15,500, or 2.5 times the standard deduction. She would also eliminate an individual's option to deduct last year's state and local taxes from this year's tax bill, an idea advanced by Shumlin.

While those revenue sources would plug the budget hole, they wouldn't pay for new programs proposed by other House committees, such as the roughly $13 million bill to clean up the state's rivers and lakes. To come up with that cash, legislators have considered everything from taxing fertilizer and commercial feed to raising the rooms and meals tax.

The biggest kahuna to emerge last week was a $47 million bill passed by the House Health Care Committee, which would address the so-called Medicaid cost-shift and increase health insurance subsidies for low-income Vermonters.

The committee would finance the bill by levying a 0.3 percent payroll tax, which would raise nearly $40 million in state funds, and a sugary drink tax, which would raise nearly $31 million. It would also repeal an $18 million tax on businesses that don't provide health insurance to their employees.

"I'm under no illusion this will be the last proposal," Rep. Bill Lippert (D-Hinesburg), the committee's chair, said last Wednesday as his colleagues signed off on the plan.

He's right. Before the ink was dry, critics lambasted the committee for contemplating nearly $50 million in new spending during such tough fiscal times.

"As Howard Dean once said, that bill is in la-la land," says Vermont Chamber of Commerce president Betsy Bishop.

"The health committee is across the hall from appropriations," echoes Rep. Patti Komline (R-Dorset). "They're not in a bubble. I just don't know what they're thinking."

Ancel puts it more diplomatically: "It was more money than I had anticipated," she says. "There are many things in that bill that I fully support and would love to find a way to accomplish. The question with everything is: How do you raise the money to do it?"

She's not sure a new payroll tax — a far larger version of which was first proposed by Shumlin — is the best approach: "I've had questions about it from the beginning, and I still have questions about it," she says.

And while Ancel backs the excise tax on sugary beverages, she admits she doesn't have the votes for it and claims she's "not lobbying for it."

By Seven Days' count, it's opposed by seven of her committee's 11 members: Komline and Reps. Carolyn Branagan (R-Georgia), Bill Canfield (R-Fair Haven), Jim Condon (D-Colchester), Adam Greshin (I-Warren), Jim Masland (D-Thetford) and Sam Young (D-Glover).

"I'm not going to vote for it as proposed," says Young, who was previously on the fence. "And my estimation of the committee is that we wouldn't have the votes to pass it."

Says Masland, another swing voter, "I don't believe the tax will work as proposed."

Both say they'd be open to a more limited plan, such as extending the sales tax to soda and candy, but that wouldn't raise nearly enough to pay for the health care committee's priorities.

So in the next week, the speaker and his leadership team will have to decide which to advance and which to scuttle. Like everything this year, the decision won't be easy and the outcome won't be popular.

"Given the current landscape, there are no opportunities to be a political winner if you want to pass a budget, so I can't really be that worried about politics," Smith says. "What I need to be worried about is the long-term implications for the state of Vermont."

Miller's Tale

After almost losing reelection last fall, Shumlin responded not by cleaning house but by promoting three of his top political staffers.

The only major leadership change came in January, when Shumlin's longtime secretary of administration, Jeb Spaulding, left to run the Vermont State Colleges, a move long in the making.

But according to several sources around the Statehouse, Shumlin chief of staff Liz Miller is on her way out the door, perhaps within months. Only problem is, those sources say, the administration is having a mighty hard time finding anyone to replace her.

Miller declined to comment on the speculation, but an email she sent Associated Press reporter Dave Gram last month provided a clue.

In February, Sen. Patrick Leahy (D-Vt.) formally recommended Miller's husband, Sheehey Furlong & Behm attorney Eric Miller, to succeed Tristram Coffin as Vermont's U.S. attorney. Given that the job oversees investigations of elected officials, Gram wondered how he would handle a potential conflict involving Shumlin's office.

Liz Miller responded: "In the event he is nominated and confirmed, and I am still in this job when he starts service, U.S. Attorneys offices have well-established procedures in place for handling conflicts for all attorneys in the office, including the U.S. Attorney."

"In the event" she's still in the job?

Leahy spokesman David Carle says the White House vetting process typically takes three months, after which the Senate would quickly confirm the president's pick.

An attorney and former Department of Public Service commissioner, Liz Miller was an unconventional choice to head up Shumlin's fifth-floor staff when she was appointed in November 2012. Though widely respected for her intellect and policy chops, she did not bring to the very political office a background in electoral politics.

Who replaces her will say a lot about Shumlin's priorities, his electoral future and whether he's still able to recruit top talent to a tough job.

Media Notes

Caught in the crossfire of the budgeting process are two media outlets that receive support from the state.

Mitzi Johnson, the House Appropriations chair, has proposed cutting half of Vermont PBS' $560,000 appropriation next year and the rest the year after that.

Holly Groschner, the station's new president and CEO, says the impact on its $6.5 million budget would be "quite devastating," particularly given that the federally funded Corporation for Public Broadcasting provides a 25 percent match to state grants.

"I can't tell you we would lose Big Bird or Elmo, but I can tell you there are going to be significant choices to make," she says.

Johnson also pitched a $750,000 cut to the Department of Tourism and Marketing, specifically citing the state's money-losing Vermont Life magazine.

Secretary of Commerce Pat Moulton says the state-run magazine has "done a fair amount of things to cut costs," including axing its products catalog and trimming its staff. She says subscriptions are up, the age of its readership is down and it continues to be "a very powerful lure piece" for out-of-staters.

"Everything is trending in the right direction for Vermont Life, which for a print publication is pretty good," Moulton says. "But things have changed in the print media world, as you know."

I'll say!

Speaking of which, as we reported last week, Montpelier's twice-monthly newspaper, the Bridge, has been trying to raise money to keep its presses running. Last Wednesday, the free paper reached its $10,000 goal on Kickstarter, the crowd-funding site. As of this writing, some 173 donors have pledged $12,567.

That should be more than enough to keep the paper in business for the next four to five months as it transitions into a nonprofit, according to editor and publisher Nat Frothingham.

Down the road from the Bridge, the Barre-Montpelier Times Argus is preparing to welcome Gina Conn as its next Montpelier city reporter. You may remember Conn for the explosive story she and Hannah Palmer Egan wrote for Vice magazine in December 2013 on heroin use in Vermont.

The piece came out a month before Shumlin devoted his 2014 state of the state address to opiate abuse and launched a wave of national stories about Vermont's drug problems. A Colorado-based freelance writer, Conn spent part of her childhood in Barre and previously worked for WCAX-TV. Palmer Egan now works for Seven Days.

Lastly, Reuters reported Monday that the private equity firm Apollo Global Management "is in advanced talks" to buy Digital First Media, the conglomerate that publishes the Brattleboro Reformer, Bennington Banner and Manchester Journal.

Whether that'll make any difference to the southern Vermont papers isn't yet clear. After all, the papers are currently owned by another private equity firm, Alden Global Capital.

And so the world spins on.

The original print version of this article was headlined "A Taxing Session"

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