Governor’s Budget Address

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Governor Jim Douglas’ Budget Address, delivered on January 20, 2004 in the Vermont House of Representatives.

Note: Audio and transcript of Governor Jim Douglas’ State of the Address, given January 6, 2004, are also online.


Mr. President, Mr. Speaker, distinguished Members of the General Assembly, my fellow Vermonters:

Vermont has a long and proud tradition of fiscal and social responsibility. In most cases our frugal forbearers would be proud of our commitment to the principles and practice of realistic and sustainable spending.

Calling for restraint in the budgeting process, this tradition requires us to make difficult but necessary choices on how best to spend the people’s money.

This approach has served us well. While other states grew their spending rapidly as revenues poured into state treasuries, Vermont practiced restraint. We should all be proud that today Vermont is able to balance its budget without severe cuts in important programs for our neediest residents, or large tax increases on families.

It is increasingly important to future generations-particularly when the economy is strong-that we not overspend. Vermont’s major funds should grow year over year, no faster than the rate of growth of our economy and spending decisions should always be viewed from a long-term perspective.

I submit to you today a balanced fiscal year 2005 budget consistent with our traditions of fiscal and social responsibility. General Fund growth in our base appropriations is held to only 2.8 percent, driven principally by investments in areas that will help spur job creation, protect Vermont’s most vulnerable and launch new initiatives to safeguard our environment.

My budget ensures that we continue to protect Vermont’s fiscal integrity by maintaining all of our reserves at their full statutory levels, and continuing to lower our long-term debt by adhering to the recommendations of the Capital Debt Affordability Advisory Committee. This plan also provides much needed property and income tax relief to Vermonters.

If fiscal fortunes continue to brighten, I urge you to direct monies to various pre-existing internal service fund deficits, and consider thoughtful one-time expenditures that do not increase the ongoing cost of government.

We have been able to ensure the fiscal stability of the state and meet the needs of Vermonters only by working together in a truly cooperative and bipartisan manner. Vermont’s continued economic security depends on our ability to continue to work in this spirit and adhere to our tradition of fiscal restraint


Last year, I proposed a major investment in our economic infrastructure to address ongoing job losses and a sagging economy. My Jobs Bill is helping to strengthen Vermont’s economy, but there is much work still to be done so that every Vermonter who wants a job can have a job.

For 2005, I again propose additional funding to the Agency of Commerce and Community Development. These resources will be invested in programs to empower workers with the skills they need to compete for 21st century jobs; they will support high technology business development centers; they will fund my telecommunications initiative; and they will support enhanced job retention and recruitment activities.

To improve economic opportunities in our traditional forest product industries, I have included funding in the capital bill for the Department of Forests, Parks and Recreation


Moderating our tax burden remains a key building block of our future economic success. In my State of the State address, I unveiled a major tax reform proposal that will improve Vermont’s ability to compete with other states by lowering personal and corporate income tax rates and bringing fairness to our tax structure. I urge you to move expeditiously to pass this proposal so we may take immediate advantage of these necessary reforms.


In addition to tax reform, we must continue our commitment to improve our roads and bridges. They are the arteries of our economy, moving goods and people, and they must be maintained. I will, therefore, continue my efforts to reduce reliance on the Transportation Fund for use in unrelated areas of state government.

Once again, the roadway and bridge programs, which include the construction of vital transportation projects such as the Circumferential Highway, the Bennington Bypass, the Missisquoi Bay Bridge and Route 7, are a key focus of the Agency of Transportation. And I will continue the higher level of commitment to town highway and paving projects that we established last year.


One key to a strong economy is an educated workforce. Higher education and life-long learning allow Vermonters to expand their opportunities, increase their marketability, command higher wages and gain personal fulfillment.

That is why funding for the University of Vermont, the Vermont State Colleges, and the Vermont Student Assistance Corporation must be a priority even in tight financial times. For the second year, while other states are cutting higher education, I am recommending a two percent increase.


Last year, we displayed to the people of Vermont just how well we can work together to solve a problem. With overwhelming bipartisan support, Act 68 replaced the previous education funding system. The new law repealed the divisive sharing pool that pitted town against town. But, best of all, it lowered property taxes for most Vermonters. To further our efforts to reduce the oppressive burden of the property tax, I am recommending that statewide rates be lowered five cents.

In addition, I recommend increasing the Education Fund by $10 million, principally by transferring revenues generated by the Telephone Property Tax from the General Fund. Most property taxes are currently in the Education Fund and it makes more sense to transfer this source there.


Our economic destiny is intricately linked to the choices we make affecting our environment. The character of Vermont is found in her natural beauty and in Vermonters’ unmatched appreciation for clean air, clean water and healthy communities.

That is why my administration continues to seek new solutions to our state’s environmental challenges that will improve our quality of life now and for future generations. Therefore, I propose the largest investment ever in our Agency of Natural Resources.

This new investment will address chronic shortages in the agency’s budget and will help it better perform its role as the chief steward of Vermont’s environment.

I have laid out an ambitious strategy to address the pollution of Vermont’s waterways. My Clean and Clear Water Action Plan is the most far-reaching statewide water quality initiative Vermont has ever undertaken. My budget includes nearly $14 million to jumpstart this important effort.

Included in this funding are resources to help our farmers further their long commitment to environmental stewardship.

This plan is about more than the precious natural resources of our lakes, rivers and streams. It’s about our way of life. We are at a critical juncture and we must act decisively to combat pollution that is contributing to the degradation of our waterways.


Outdoor recreation remains a thriving hallmark of our quality of life. This key component of our travel and tourism industry is also a priority in my budget.

We must continue to promote the cultural and economic value of traditional outdoor activities such as hunting, fishing and trapping. These activities have always been important to Vermonters and contribute significantly to the state’s economy. Hunters alone spend an estimated $71 million here every year.

That is why I am recommending the first major contribution of General Funds to the Department of Fish and Wildlife. With falling revenues from license sales, this injection of General Fund dollars is critical to maintaining our commitment to the outdoor community so future generations may continue to enjoy these traditions.


Responsible environmentalism begins with conservation, and state government must be a leader in reducing waste that jeopardizes the environment and adds unnecessary expense.

My administration is working to raise conservation standards and bring greater energy efficiency to state government. These efforts save taxpayer dollars and reduce greenhouse gas emissions.

Over the next two years, we will centralize the state passenger vehicle and light truck fleet. When fully implemented, this change should save state government $1 million annually and result in a reduction of at least 159 tons of greenhouse gas emissions per year. By 2012, state government can reduce its annual rate of greenhouse gas emissions by 25 percent.

To support a government-wide effort to promote green purchasing practices, increase recycling efforts and significantly improve energy efficiency of state facilities, my budget includes $1 million in capital funds and supports the creation of the Resource and Environmental Management Revolving Fund.


One challenge confronting our growing communities is how to accommodate development while protecting the landscape we all cherish.

The City of Winooski has been working very hard for many years to realize its vision for a revitalized downtown that will support job creation and affordable housing. Over the last year, my administration has worked with city officials and others to assist in transforming that vision into reality and making Winooski a model for responsible growth.

My budget includes resources to support this project and we will provide the guaranty required by the U.S. Department of Housing and Urban Development for the nearly $22 million loan that HUD will make to Winooski.

Policies that cultivate responsible economic and community growth-policies that balance our need for more and better paying jobs with our deeply imbued environmental ethic-may be dubbed Smart Growth, but in many ways are just the natural evolution of the Vermont Way.


Vermont is fortunate to have a highly skilled and dedicated public safety community. It is our responsibility to provide these brave women and men with the resources they need to adequately protect us. And when tragedy does strike, it is our responsibility to do what we can to lend a hand to their families. Therefore, my budget includes significant increases for those who risk their lives to protect us.

Last year, we funded 16 additional trooper vacancies. This year, I propose to fill ten more vacancies and to cover the loss of federal funding for ten troopers currently on the road.

In order to provide greater attention to fire safety, as well as improved training and coordination, I will present legislation to establish a Fire Bureau within the Department of Public Safety. And I propose that we offer the fire services over a half million dollars for new equipment and grants, and an increased appropriation for the firefighter’s death benefit fund.


It has been too long since we adequately recognized the needs and accomplishments of our veterans.

That is why I propose an increase for the Military Department that will restore the Tuition Grant Program; provide funding for additional veterans’ medals; continue assistance for survivors of casualties in the war on terror; and enhance the Disabled & Needy Veterans Fund.

This funding, along with my reinvigorated Veterans Advisory Council, will begin to address veterans’ needs in a more comprehensive manner-our Veterans deserve no less!


Living within our means is a shared principle among Vermonters: families must balance a checkbook, just as government must not spend beyond its means. However, our government health care programs rest well outside our tradition of fiscal responsibility.

There are many factors driving health care costs. Chief among them are the cost shift, prescription drugs, increasing utilization, and high overhead. One thing is certain though: the skyrocketing cost of care is a heavy burden on employers’ bottom lines, families’ pocketbooks, and Vermont’s budget.

Today, too many Vermonters are left uninsured and face the unsettling prospect of a chance illness or accident driving them into bankruptcy.

Over the years, government has recognized this problem, but it has yet to recognize the solution. Instead, government has chosen to adopt the problem rather than resolve it, creating a vicious cycle.

To help those Vermonters who are most vulnerable is an important and noble goal. To meet this goal, government sought to reduce the burden of insurance costs by creating taxpayer-funded programs that provide coverage to those who can least afford it. This led to expanded Medicaid programs. Right now, 22% of Vermonters – more than one of every five – is enrolled in a state-funded program.

When government cannot afford to pay for the program it created, it simply does not pay the bill. To balance their books, doctors and hospitals shift the unpaid government bill to individual Vermonters with private insurance. This cost shift requires private insurers to raise premiums on families and businesses.

As premiums skyrocket, more families are left unable to afford health insurance, so the cycle repeats itself, and government expands the original program in order to insure higher income families who could once afford private insurance, but now cannot.

In the meantime, some wonder why premiums are rising and advocate legislation to regulate insurance companies to force them to charge less. Many insurance companies find the regulatory burden is too great and stop doing business in Vermont. With few companies left in our state, competition and options decrease, and prices increase.

The whole problem is akin to a rusty bucket, where a patch here and a patch there might hold water for another day–until the bucket itself is a patchwork–leaking from every soldered joint. For health care in Vermont, it’s time to face reality: we need a new bucket.

Projections show that in two years, the Health Access Trust Fund – the account that funds Medicaid – will go into deficit by $38 million. If meaningful corrective action is not taken, that deficit will accumulate to $245 million by 2009.

Some are advocating a further expansion of these programs, forcing more Vermonters into government run programs, exacerbating the problem we seek to cure, and beginning the cycle yet again. We must resist plans that take health care decisions out of the hands of doctors and patients and into the hands of government bureaucrats.

This should not be a choice between enlarging already unsustainable government programs and leaving Vermonters without affordable health insurance options. There is an alternative; there is a Third Way.

We can reform the health care system to make it more affordable and accessible for all Vermonters, but we must do it by taking a comprehensive approach to the health care patchwork. We must embrace innovative solutions to meet real world needs of everyday Vermonters.

Today I outline a far-reaching health care vision for Vermont. My vision is founded on a bold public-private partnership that empowers Vermonters with more choices, more affordable health insurance, better access to quality care, and new long-term care options.

The immediate and long range changes that I propose address fundamental flaws in Vermont’s health care delivery system; I will not push these problems off to future generations. Unaffordable health insurance coverage is no coverage at all.

My vision encompasses four main areas: building an affordable health care partnership; empowering the patient; providing prescription drug relief, and encouraging healthy choices.

First, we must stabilize our volatile insurance market and lower premiums for the most overburdened Vermonters.

Individuals and small businesses bear a disproportionate percentage of premium costs. As premiums in these smaller markets shoot skyward and more people are forced out, premiums for all markets increase as insurance companies seek to balance their risks.

Despite a dramatic increase in Vermonters enrolled in taxpayer funded, government run programs, there are more uninsured Vermonters today than six years ago.

To curb this damaging cycle, I am proposing a Small Market Access Reinvestment Trust-a reinsurance plan-that will bring immediate cost relief and more affordable coverage to small businesses and individual Vermonters.

By extending existing premium assessment measures to all private insurance companies in Vermont, the state will partner with insurers to share risk across the board and stabilize the marketplace. This program is both efficient and fair; no single group or insurer will bear the extraordinary burden for high cost care.

As premiums become more affordable, more uninsured Vermonters will be able to purchase coverage.

Reinvestment in the health insurance market is the first step in creating affordable health care for Vermonters.

The next step is to motivate small businesses to provide insurance for their workers. In Vermont today, businesses with fewer than 25 employees are far less likely to offer coverage. I propose a tax credit for these small businesses so that offering health care to every worker is an affordable option for every business.

This tax credit proposal will reduce the number of uninsured Vermonters by encouraging small businesses to become partners in keeping their workers healthy.

The plan will be designed around a Health Savings Account where the employer and employee can deposit a portion of wages tax-free. Like a debit card, the worker then uses the money in the HSA for co-pays and deductibles. The tax credit is a hand-up, not a handout.

Access to quality affordable health care also depends on our ability to maintain reasonable health care spending levels, which must be addressed through aggressive cost containment efforts. State government should do all that it can to minimize the costs of the health care system, since these costs are ultimately included in the premiums paid by individuals and business.

My administration will review its rules for the purpose of promoting greater efficiency, without weakening any regulations essential for the protection of the public. Further, we will scour interagency and public-private relationships to trim excessive costs. Such coordinated efforts will occur in connection with Certificate of Need proceedings, hospital budget reviews, cost containment strategies for prescription drugs, health insurance rate-setting and provider reimbursement negotiations.

To take a meaningful step to reduce the cost shift that government imposes on our network of health care providers, I propose approximately $1 million for increased physician reimbursements under the Medicaid program.

We will further work to reduce the gap between the cost of providing care and the amount that Vermont’s program pays providers. We will seek approval from the federal government to secure matching funds for the value of the uncompensated care that providers render to the uninsured. If approved, the state would return these federal dollars to the many providers who are underpaid by the system.

Mental health care is a key component of the state’s health care system. In recent years, the Vermont State Hospital has not received the attention it deserves. That is why I increased staff and funding at the hospital last year and will support efforts to do so again this year.

Over the long term, we must continue to work toward a comprehensive mental health care system that meets the needs of all individuals with mental illness. Toward this end, I propose $2.1 million of state and federal resources to enhance our community mental health care system and support these important providers.

Part of making health care accessible and affordable is empowering the patient to make more informed choices about his or her health care needs. Right now, you can get more information about the quality and price of household appliances than you can about a surgical procedure. I propose to give Vermonters the information they need to make educated decisions about the cost and quality of care.

We will stimulate and strengthen health care information accessibility through internet-based solutions that will encourage wide usage. Vermonters deserve access to accurate price and quality information for health care services.

I also want to give them the tools they need to make wise decisions to stay healthy and prevent health problems. As part of our chronic care initiative, these tools will help patients successfully manage their chronic condition should they become ill.

As we empower patients to make informed and healthy choices, we also want to give them a full range of options as they plan for their future.

Last year, I announced an initiative to refocus the delivery of long-term care and give elderly and disabled Vermonters the choice they desire, increase the quality of their care and reduce costs.

Today, I am adding to that initiative with a proposal to protect the nest egg of aging Vermonters. That money is better spent as the down payment for your child’s first home or your grandchildren’s college education.

Taking advantage of an anticipated Congressional action, I propose legislation that will protect low and middle income Vermonters with private long-term care insurance from having to spend down all of their hard earned resources before becoming eligible for Medicaid.

Our seniors shouldn’t have to spend their entire life savings to pay for the high cost of care in their final years.

Another piece of the health care puzzle is the high cost of prescription drugs. As part of my strategy for reducing the cost of pharmaceuticals in our Medicaid program, we formed the nation’s first multi-state buying pool for prescription drugs with Michigan, providing leverage to get the best price for needed drugs.

Following our lead, other states have expressed an interest in joining the pool. And we continue to petition the federal government for access to the Canadian prescription drug market. But we can’t stop there to get the best price for prescription drugs.

Most patients and many physicians are unaware of the costs associated with the products they consume or prescribe. This lack of pricing information prevents the patient and the physician from factoring price into their health care decisions.

I have directed my administration to develop commonsense mechanisms for meaningful price disclosures for Vermonters and their doctors. The current drug pricing system is also very cumbersome and complex. To empower employers and insurers who rely on pharmacy benefit managers to contain the spiraling costs of pharmaceuticals, I have directed my administration to explore policies that offer employers pass-through pricing alternatives. This will enable employers to conduct a full contract audit to ensure they are receiving all rebates and savings to which they are entitled.

Finally, no comprehensive reform of Vermont’s health care system is complete without discussing how to influence healthy choices among Vermonters.

By now, you have heard of my Fit and Healthy Kids initiative aimed at promoting coordinated school health programs, and teaching the value of good nutrition and regular exercise.

My budget fully supports this important initiative, including funding for a Fit and Healthy Kids Director, resources to expand youth activity programs, $150,000 in additional support for childhood nutrition, and operating assistance to jumpstart the Green Mountain Games for Kids.

In addition to nurturing children to live healthy lives, we need to encourage adults to take responsibility for their choices.

Vermont law does not allow a health insurance company to offer premium discounts to Vermonters who take individual responsibility for promoting their own health through healthy choices, such as not smoking and preventive care.

I will ask the Legislature to reward these Vermonters by allowing a “healthy choice discount” to those eligible. The discount will be focused on choices such as smoking, which have a clear impact on health care costs, and which involve the personal choice of the insured rather than circumstances over which the individual has no control.

Part of making healthy choices is making drug-free choices. Substance abuse impacts all Vermonters – predominantly our youth – and carries enormous long-term costs, both human and monetary. Last year, the Legislature approved my DETER program. This was the first serious effort to comprehensively combat the growing drug problem in our state. But this is a continuing and long-term effort. We cannot claim victory after one year. There is still much to do.

I propose to build upon the work begun in DETER with over $1 million of new funding. This funding will be directed across the spectrum of needs. We will add clinicians and case managers to meet increasing demand in our outpatient treatment and drug courts. We will place additional student assistance counselors in our schools. We will support the prevention work of community coalitions. And we will expand support for opiate treatment and recovery centers.

In addition to addressing our illicit drug problem, I will continue my strong support for tobacco cessation programs. I have worked to maintain the integrity of the Tobacco Trust Fund for future program needs, and reinforced the level of the Tobacco Settlement Fund for health programs and critical drug addiction prevention and treatment.

As I have said, reforming our health care system is a complicated undertaking that requires a comprehensive solution. We must be deliberate and determined as we work to address the root causes of unaffordable health care and save Medicaid. I look forward to working with you to enact these necessary reforms.


Encouraging economic indicators point to improving fiscal conditions for the state and for our people. Personal incomes are up, as are General Fund revenues.

Given the toll the recent recession took on Vermont’s finances, these signs of improvement are very welcome indeed.

While Vermont continues to enjoy a healthier fiscal situation than most other states, we still face many difficult budget choices. Desired programs, which vie for appropriations, vastly outpace the available resources.

In my budget, I have chosen to address these choices directly so that we may continue to lay the foundation for a prosperous tomorrow. While the revenue outlook is encouraging, I have purposely restrained spending in my budget. Vermont will continue to face a host of difficult fiscal decisions in the year ahead.

We must not forget the lessons of the very recent past. The states that overextended themselves with excessive spending and imprudent borrowing eventually had to undertake drastic budget cuts to important programs and institute large tax increases, which only impaired job creation. We are proud that Vermont has so far avoided these draconian measures.

The budget that I present to you today is responsible, forward thinking and compassionate.

It addresses today’s fiscal choices while meeting our obligations to the most vulnerable among us; fostering enhanced public safety; investing in education; combating our growing drug abuse problem; offering relief to all property and income taxpayers; encouraging economic development and job creation; making a large investment in our natural environment; and addressing our need for affordable and accessible health insurance options.

Last year, my administration and this General Assembly were partners in positive change. I ask that you join me in pursuing the course I have laid out so that, together, we can continue to lead our state along the path to prosperity–thank you.

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