Budget clash leads to talk of shutdown

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MONTPELIER — As a state budget impasse drags on into another week of negotiations, an uncommon threat looms over the Statehouse: the possibility of a government shutdown.

Democratic lawmakers and Gov. Phil Scott, who fundamentally disagree over the use of a budget surplus and a property tax rate hike, would have to iron out a deal and pass a budget by July 1 in order to avert a government shutdown.

If there is no agreement, it would be up to the Legislature to authorize emergency spending in a continuing resolution to keep government operations up and running.

The Scott administration, which has adamantly refused to accept any increase in property taxes, insists that an agreement with lawmakers is close at hand. Officials say a government shutdown isn't in the cards.

But the governor hasn't been willing to guarantee that a shut down won't happen, raising concerns that come July, agencies could be forced to stop providing critical public services.

One major consequence of a shutdown scenario is a hit to the state's credit rating.

Unlike in Washington, D.C., where threats of government shutdowns have become a common occurence, they're a rarity in Vermont.

In fact, this was the first year in memory that legislators have left the Statehouse without a budget deal.

The only time in the state's history lawmakers have needed to make an appropriation to extend budget negotiations into another fiscal year was in 1961, according to Stephen Klein, the Joint Fiscal Office's chief fiscal officer.

On Wednesday, Scott summoned lawmakers back to Montpelier for a special session, and pressed them to adopt a proposal that uses $58 million in surplus money to buy down tax rates.

The plan would also enact education policy changes the administration says would yield $300 million in savings over five years and keep property tax rates at 2017 levels.

Democrats have rejected the idea of using one-time money to buy down tax rates. They want to use a $34 million state surplus to pay off retired teacher pension liabilities — a move they say will save taxpayers $100 million over 30 years.

Adam Greshin, the commissioner of the Department of Finance and Management, said the administration won't budge. He believes lawmakers will come around soon and craft a proposal that meets with Scott's approval.

"Until we work that out with the Legislature, we'll be talking with them. But we do not anticipate going into July," he said Friday.

On Thursday, Scott told reporters that lawmakers would be equally responsible for a government shutdown.

"I don't want to see a shutdown But it's as much in their hands as it is mine," he said. "I'm telling them what I'm going to do. I'm not signing a bill that raises taxes and fees, end of story."

Senate President Pro Tem Tim Ashe D/P Chittenden, told reporters Wednesday that lawmakers will try to avoid a shut down. But he said they won't be beholden to Scott's demands and hopes the governor will "move in [their] direction."

"The truth is, we will do everything we can to keep government operating because it will be a huge embarrassment if we find ourselves in that position," he said. "However the governor is not the only party in these discussions that is entitled to a non-negotiable position and so the Legislature will keep trying to do the fiscally sound thing."

In a memo to the governor and legislative leaders on May 18, Vermont State Treasurer Beth Pearce urged the parties to avoid a government shutdown and resolve the budget impasse as quickly as possible.

Pearce painted a dire picture of the consequences a shutdown could have on state government and said it would likely harm the state's credit rating.

"Other states have seen credit downgrades after they have not been able to work together to pass budgets," she wrote. "The costs of these failures are borne by their citizens in the form of higher interest costs and greater difficulty in accessing capital. We do not want to go down that road."

Pearce said even the threat of a shutdown could harm the state's credit rating.

Deputy Secretary of Administration Brad Ferland said that while an impasse may pose a temporary risk to the state's bond rating, putting the administration's five year education plan into place will make it even stronger.

The administration says that by enacting its five-year education financing plan, it will be able to pay back the one-time money it uses to buy down tax rates and invest millions into early child care, higher education and technical learning.

The plan would generate savings through reforms to the special education system, a statewide teacher health care plan, a task force to accelerate school consolidation and a threshold that penalizes districts that spend above a certain level on their schools.

"We may have a short-term impasse, but at the end of the day playing the long game here it absolutely will lend itself to solidify our AAA rating," Ferland said.

But for the second time this month, the Joint Fiscal Office and Democratic lawmakers have called the administration's projected savings into question.

Analysts with the JFO told lawmakers they can't figure out how the administration has arrived at the savings targets.

Only 11 percent of schools statewide would meet the governor's proposed 1 to 5.75 staff ratio. This ratio excludes special educators, bus drivers, cafeteria workers and janitors.

The lion's share of the net savings would come from changes to student-teacher ratios, but there is no mandate for districts to meet those ratio thresholds, and legislators argue that because the administration's plan would reinvest local savings in pre-K and higher education programs, there is little incentive for districts to cut costs.

In the event July 1 approaches and a budget deal isn't materializing, Ferland said he would expect the Legislature to make an emergency appropriation to ensure critical government operations like correctional facilities and state hospitals are up and running.

Ferland doesn't think it will get to that point.

"We can get beyond this in the next couple days," he said.

"We have over a month to go. That's an eternity in the world of what can happen in that building under the Golden Dome," he said.

The special session's first overture of compromise came Thursday, when the House Ways and Means Committee floated a proposal that would would harness surplus money to buy down property tax rates for households next year.

The proposal would place $14 million of one-time money into the education fund to level property tax rates. Nonresidential property tax rates would still see a 5.5 cent increase.

The administration panned the latest plan from the Legislature.

"If there's still an increase of 5.5 cents then we still have some work to do," Rebecca Kelley, a spokesperson for the governor, said.

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