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In his fourth budget address, Democrat Gov. Peter Shumlin outlined a spending plan that increases spending by 5 percent without raising sales or income taxes, and resolves a $71 million budget gap with no cuts to programs.

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In his speech to the Vermont Legislature on Wednesday, Shumlin touted the state’s economic gains during his tenure as governor, citing the state’s low unemployment rates, higher wages and job gains of 11,000 over the last three years in Vermont. Shumlin also hailed the state’s investments in the local food movement, renewable energy and the state’s aging transportation infrastructure.

“The good news is that as we have been creating jobs, our General Fund revenues have been recovering, up to $178 million in the past three years and projected to be more than $250 million after this next fiscal year,” Shumlin said.

The governor said while the economy is growing, his budget is “balanced and fiscally restrained.” Tax receipts are just now beginning to mirror the annual federal stimulus fund investments that enabled the state to weather the Great Recession.

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“It invests in areas critical to our most vulnerable and to our future job growth, while rejecting broad-based tax increases on hardworking Vermonters,” Shumlin said. “It keeps our reserves full, and our pension contributions funded at the recommended levels. It matches Montpelier’s appetite for spending with Vermonters’ ability to pay.”

Shumlin left growing concerns about property tax rates – statewide rates increased 5 cents this year and will go up 7 cents next year – for local taxpayers to resolve.

“I urge Vermonters at town meetings across our state this year to carefully scrutinize school budgets that increase per-pupil spending and grow faster than our incomes,” Shumlin said. “Look hard to see if you can achieve savings for better outcomes at lower cost.”

Shumlin’s address was warmly welcomed by Democratic lawmakers who dominate the House and Senate. Lawmakers who gathered to listen to the governor in the House Chamber enthusiastically applauded the governor’s address and gave him a standing ovation at the conclusion. The speech, and the budget, had something for almost everyone in this election year: economic development incentives, increases in human services programs, education investments and expenditures on transportation infrastructure.

The General Fund budget of $1.444 billion represents a 5 percent increase over last year’s budget of $1.373 billion, according to a spreadsheet from the Joint Fiscal Office. Shumlin administration officials said the increase is a 3.5 percent in the base budget, after one-time funds are deducted.

The overall budget for all of state government – including transportation, special funds and other funds – is $5.5 billion, an increase of 4.74 percent in overall spending.

The governor’s budget includes a tax increase, $14 million derived from a 0.8 percent health care claims assessment. The money is to be used for costs associated with the state’s health care exchange.

The $71 million gap in funding between state expenditures and revenues is filled by $30 million in one-time receipts, a $5 million reduction in debt service payments, and $36 million from a variety of federal and special funds.

Shumlin did not make cuts to the largest area of state spending, human services programs, this year. (Last year his surprise attempts to cut Reach Up and to siphon off funding from the Earned Income Tax Credit program were roundly defeated in the Legislature.) Before the legislative session started, Shumlin made peace with poverty advocates and agreed to spend $4.3 million on rental subsidies, emergency housing, child-care subsidies and substance abuse and mental health treatment services for Reach Up recipients.

The governor’s signature program outlined in his State of the State address – a new initiative to address the state’s “opiate epidemic” – will get a $10 million boost, and $8 million of the total will go to substance abuse recovery centers.

Shumlin’s budget also includes investments in the following:

A 2 percent increase in higher education funding

A 2 percent increase in Medicaid reimbursement rates for health care providers

Funding for the 25-bed Vermont Psychiatric Care Center in Berlin

Increases in funding for caseload pressures in human services programs

“Record level” transportation investments of $686 million (an increase of $33 million) in infrastructure, including $140 million for repairs to bridges

A plan for shoring up the teacher’s retirement fund

House Speaker Shap Smith, a Morrisiville Democrat, described the budget as “reasonable and responsible.”

“It makes investments we need to make in our infrastructure, in our people and in our education system,” Smith said. “I also appreciate the fact that it reduces the amount of reliance on one-time money. Overall, the direction it’s heading is the right one.”

The budget and the governor’s economic development programs got a mixed review from Republicans in the Statehouse.

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Rep. Don Turner, minority leader of the House, held a press conference after the governor’s speech and he complained that the governor has not held the line on expenditures.

“Again this year the governor is proposing a budget that includes spending above and beyond the state’s current projected revenue capacity, depletes reserves, relies on more federal dollars and utilizes one-time revenue sources to balance,” Turner said. “Further, he recently called upon our local school districts to limit their spending to 3 percent, yet today he is proposing in excess of 5 percent or $70 plus million in new spending. Proposing a budget that exceeds the growth of Vermont’s economy and the paychecks in taxpayers’ wallets is bad policy and is not financially sustainable.”

Lt. Gov. Phil Scott, a Republican, says he was encouraged by the governor’s increases in spending on transportation and economic development initiatives.

“I do, however, have many questions about the sources of revenue that will be tapped to pay for the increased spending proposals the Governor laid out,” Scott said in a statement. “Items such as the 9 percent increase for VHCB and the $35 million in the transportation bill, amongst many others, are big ticket items and it isn’t clear how we’re going to pay for them. I also wonder how the $71 million budget gap was filled when you consider the additional spending coupled with the Governor’s promise to not increase taxes.”

Scott was disappointed that Shumlin did not address dramatic increases in property tax rates and the state’s overall economic competitiveness. “We are sandwiched between states who are actively trying to recruit Vermont companies to relocate within their borders. Our workers and businesses are competing in a regional and global economy, and have many choices of where to call home and make a living,” Scott said. “Vermonters look to their leaders for creative ideas and solutions to our toughest problems. Last week, the governor laid out a bold plan to address opiate addiction. I was hoping today we would hear an equally bold plan to address our economic problems. We simply can’t afford to wait any longer to prioritize work on these issues.”

A list of the governor’s economic development initiatives follows:

Shumlin proposes to address the problem of the state’s shrinking labor force in part by directing $3.3 million to the Next Generation Fund, which is geared toward encouraging young Vermonters to stay in-state.

A special workforce development study group in 2013 found that internships are generally an underutilized resource. Shumlin indicated he would like to expand the state’s Registered Apprenticeship and On-the-Job Training programs, but did not specify how much money he wanted to put behind that growth.

Regional development corporations would get a 9 percent budget raise under his plan, as may the the Vermont Employee Ownership Center and the Small Business Development Center. This increase would come from the state’s property transfer tax, whose performance has recently picked up. Under state statute, the extra revenue would be directed to the Vermont Housing and Conservation Board, but Shumlin has proposed increasing their budget by only 9 percent and directing the remainder toward other programs.

Shumlin wants to encourage specialized global financial services to do business in Vermont. Technically “legacy insurance” is already permitted under Vermont law; it allows an insurance company to essentially sell off its closed policies, but the process is lengthy. The Legacy Insurance Management Act would provide a fast-track program for commercial insurers. The idea behind H.198, which passed the House in 2013 and Shumlin hopes will pass the Senate this spring, is that the state’s Department of Financial Regulation would make money on administrative fees, and a specialized “alternative risk financing” industry would bloom similar to the way the captive insurance industry has.

To promote more local capital investment in small businesses, the Department of Financial Regulation is expected to raise the cap on local investments eligible for exemptions from securities registration requirements. The Small Business Offering Exemption cap would double to $1 million.

Shumlin also made a reference to research & development, citing success stories such as Dealer.com and the high-tech hub emerging in Burlington. His officials sounded a similar note in a budget briefing earlier Wednesday when they mentioned that the governor is looking for new R&D incentives — perhaps related to high-tech manufacturing — to keep Vermont attractive in an environment of increasing competition among states to lure business.

The Working Landscape Initiative, which provides grant funds for new agriculture and forestry products, would get a 5 percent increase and be folded into the state government’s base operations in Fiscal Year 2015. It’s been funded with one-time appropriations for the past two years.

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