For those who believe state government is facing an enormous gap in our current biennium budget, the Governor has responded. He sees a $220 million deficit and has come up with some new revenue, $85 million in spending cuts and over $40 million from refinancing some state debt.
The day before he formally announced his budget cuts last week, the Governor had me come into his office so he and his budget director could give me a briefing. It was my chance to see his plans and offer any input.
The next day he held a press conference in the Executive Council Chambers with the big double doors closed. At the conference, he gave the press the information you saw on the evening news and on the front page of the next dayís newspapers.
His next meeting was with a group of Republican leaders to further explain his budget plans. But the Governor found a few minutes to break away and talk with 4th grade students visiting from the Goshen Lempster School. Normally, he meets with students in the Executive Council chambers but there was simply too much going on so the students got to meet their governor in the 400 seat Representativesí Hall.
Then, with the Executive Council Chambers cleared from the press conference, he could meet with the Republican legislative leaders on his budget cuts and new financing plans.
Budget cuts and changes for the current fiscal year that ends on June 30 will be handled by the 10-member Joint Legislative Fiscal Committee. The changes for the next fiscal year will come as an amendment to a bill currently in the House. The Governor will present his plans to a joint meeting of the House and Senate Finance Committees on Thursday. Because of the scale of the proposed changes, work will likely continue right up to our expected adjournment date of June 2.
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What are some of the details of the Governorís budget plans?
There is an increase in the cigarette tax of 20 cents that will bring in $10 million. But the Governorís plan has a revenue reduction of $15 million in the next fiscal year from repeal of the campsite tax and the LLC tax. To me, that means he will sign the two tax repeal bills when they get to his desk.
Clearly department heads looked in every nook and cranny to find savings and revenue. The agriculture department will increase the subscription price of the Weekly Market Bulletin to cover costs. And it will increase pet shop licensing fees to handle inspection costs. The Department of Resources and Economic Development will save money next year by hosting no international trade missions.
Those little changes are balanced by the big ones. State spending will be reduced by $85 million as part of the Governorís $220 million plan.
Over 40 percent of the stateís budget is transfers and payments to towns, cities and school districts. Money for catastrophic aid to school districts will be cut by $7.8 million. Those are the funds reimbursed to districts for special education expenses above certain cost benchmarks.
Local governments and school districts will see a $9 million reduction in the stateís contribution for their workersí retirement. The state is currently paying 25 percent of municipal and school district retirement costs; that will fall to 20 percent under the Governorís plan.
Another direct hit on towns and cities will be a reduction of $6 million of their current share of the meals and rooms tax collected by the state.
The cuts are spread across the state and in every imaginable category. Thousands of citizens and dozens of organizations are going to feel the impact of the planned spending reductions.
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Listening to the Governor in the budget briefings and reviewing the nearly 40 pages of backup documents was pretty grim duty. I did have to smile a bit, however, when I saw the reduction in revenue in anticipation of the repeal of the campsite and limited liability company taxes. These taxes were added to help fill the gap last June when the biennial budget was being completed.
Within hours of committees of conference adopting the campsite tax, campground owners and their association became active in presenting their case for repeal. They have a compelling story and they have told it well.
Small business owners and business associations jumped on the unfairness of the "LLC tax" and have lobbied their legislators successfully, too. As a co-sponsor of a bill to repeal the tax, we have also attempted to make some changes in the way "reasonable compensation" is determined for tax purposes for proprietorships and partnerships.
The entire subject of reasonable compensation is complicated and the inability of the Department of Revenue to come up with firm revenue projections on the different approaches to determining reasonable compensation means the legislature may only be able to deal with the repeal of the LLC tax this year.
It should be noted the Governor, who supports the LLC tax repeal, has a provision in his budget plan to create a commission to study all of our business taxes. With one of the highest business profits tax rates in the country and a unique business enterprise tax on payrolls and the costs of borrowing money, I think there is agreement we should take a look at our business tax structure.
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