January 8, 2009 Gov. Douglas calls for changes in education, Medicaid Play video

(NECN: Montpelier, VT) - Governor Jim Douglas was sworn in for a fourth term Thursday. In his inaugural address, he said the the costs for Vermont's public education system have gone through the roof over the past years. Douglas called for a reform of school funding to deal with the current economic crisis.

He also says the state needs to cut spending on Medicaid. He wants to accomplish this by cutting back on covered services, rather than removing people from the rolls.

Douglas: Pride does not excuse us from changes

Douglas: Realities of crisis demand immediate reaction

The following is prepared text of Governor Douglas' inaugural address:

One hundred seventy three years ago farmers, businessmen, and lawyers from across Vermont met here for the 1836 session of the General Assembly. Among them, a minister and headmaster of the Orleans County Grammar School took his seat as the member from Brownington.

Alexander Twilight was a pioneer. A native of Corinth, Twilight's life was devoted to public service as a preacher, educator and legislator. When he took his oath so many years ago, Twilight made quiet history as the first African-American to serve in a state legislature.

In less than

two weeks we will observe the swearing in of our next president, opening a new chapter in America's history. We can all be proud of how far we have come to this momentous occasion - one that Alexander Twilight could barely have imagined when he served in this body over a century and a half ago. Let there be no doubt that our system of government, the institutions of our nation, and the American spirit endure stronger than ever.

Each time I climb the steps to this podium, I am reminded of the many great leaders whose footsteps I trace, and am humbled to share this honor with them. I am deeply grateful for the confidence Vermonters have placed in me and for God's grace that touches us all. I am blessed to have such a wonderful family, many of whom join me here today, including my wife, Dorothy, and my son, Matt.

As I look out across this chamber, I see old friends and new faces, all of us charged by the people to address the great challenges that face our state. I offer my sincere congratulations to new and returning members of our legislature, as well as Lieutenant Governor Dubie and other statewide elected officials. I also want to offer my congratulations to Speaker Smith.

Voters have again returned a legislature controlled by one party balanced by an executive of another and they expect us to work together. Whether you sit as a Democrat, Republican, Progressive or Independent, we are all Vermonters first; and to a person we have been entrusted with a monumental task - to steer our state through rocky shoals. Together, we shall not fail.

We gather today for the time-honored rite of inauguration, an important symbol of our vibrant democracy. An inauguration marks a gateway between past and future, an occasion of starting anew. Indeed, a time of transition is where we find our state.

On factory floors, in small businesses and around kitchen tables, and even in this very hall, we share the anxiety of a nation on edge. As moms and dads, friends and neighbors, we feel the painful effects of recession sweeping across our country and around the world.

Vermont has been pulled into this national downturn, the depth and breadth of which we have not seen for generations. The foundation of our economic security has been fractured. We have seen pyramids built on greed crumble and institutions thought indestructible disappear.

For too long, too many have held the mistaken belief that we could live beyond our means - that we could buy now and pay later - convinced that easy credit would allow us to have what we could not afford. Many thought revenues would always rise and difficult decisions could be deferred.

That misguided notion has brought us to this time of great collapse. If we ignore the modern parables of Wall Street and Washington, we risk their fate - and a future that spurns our Yankee forbearers who carved this state from the granite of "temperance, industry and frugality."

Today, I present a plan for Vermont to direct its own future, free from the ties that bind us to the status quo. Rather than follow blindly, we will lead boldly.

The discussion about how to balance a lean state budget will consume the greater part of this biennium - and appropriately so.

Consider the realities we are facing: we have already trimmed $43 million from our current year budget and, in the coming weeks, the legislature will consider an additional $46 million in rescissions. When the state's economists meet next week, we could again see revenues decline; further requiring cuts to balance our budget. And our challenges don't stop there; in fiscal 2010 we expect to have a shortfall of more than $150 million.

In the past, we have looked to four primary fixes to mend holes in our state balance sheet - spending down reserves, relying on federal aid, raising taxes, and deep spending cuts - but none of them, whether alone or taken together, are adequate to address the current economic crisis.

The most oft-cited approach is to use the state's stabilization reserves - that is, the "rainy day funds" - as a quick patch to the problem. There is no doubt it's raining, but no one knows just how long this storm will last. To use the rainy day funds now is to ignore the severity of this recession in hopes the danger passes. Once we use our reserves, they are gone and it will likely take us years to replenish them. There is a right time to use the rainy day funds - when we experience an unanticipated drop in state revenues - but now, when other choices remain, is not that time.

Following the recession of 1991 the state had no reserve funds and few alternatives but to cut programs deeply and raise taxes sharply. Eighteen years later, the economic conditions we face rival that downturn - but that's where the similarities end. State government is much better suited to weather this storm with full reserves, years of balanced budgets, and the highest bond rating in New England - all variables absent from the 1991 equation.

Further, working Vermonters are exposed to the risk of volatile markets, more so than in previous downturns. Families have watched college savings dwindle and their modest investments falter. Folks who have worked their whole lives have seen retirement accounts lose half their value. The personal reserves of average Vermonters have suffered, leaving smaller and smaller nest eggs.

In addition to that, Vermonters have no capacity for higher taxes - another approach advanced to shore up state coffers. In previous recessions, the state has raised taxes calling the increases "temporary" or under the guise of a "tax shift." But when our fortunes improved, some taxes remained and the revenues were spent. Economists across the political spectrum agree that to raise taxes now would only slow a recovery, especially in Vermont, where our total tax burden is among the very highest in the nation.

I have heard recent proposals that would raise the top marginal tax rate by 37%, placing Vermont at the top of the tax heap - 26% above the next highest state - a dubious distinction especially as we compete with our neighbors for jobs and industry. Our earned income tax rates would be 90% greater than New York, 145% greater than Massachusetts, and infinitely greater than New Hampshire, which has no such tax. How many employers - especially in difficult times - would willingly choose to curb returns in order to pay more taxes?

It is unfair and unacceptable for us to expect the people of Vermont - who are making difficult budget choices everyday in their homes and businesses - to pay for an unwillingness to make tough budget decisions.

While I look forward to working with President-elect Obama and his new administration in coming the years - waiting on Washington to pass an economic recovery package is not a responsible stand-alone option. Although we are preparing for an influx of federal money, we must remember that any help is only temporary. If we do not get our fiscal house in order today, we will find ourselves on a cliff's edge when the money runs out - forced to make more drastic decisions tomorrow.

Given the magnitude of the growing budget gap, it would be shortsighted to only cut our way out of this problem. While economic contraction demands belt-tightening and we cannot avoid rescissions in nearly every area of government, this approach alone will not position us to emerge from this downturn ready to grow. If we nickel and dime services to keep the budget in balance, we will quickly reach a point where our programs are no longer able to serve their purposes.

Now is not the time to rest on old notions. Now is not the time to spare sacred cows. Now is the time we must summon the courage to forge lasting solutions and reject the patchworks of the past.

From great collapse, we must rise again with a new framework for progress - one that sets government on a sustainable path through the transformation of education, human services and economic development. Only by doing so can we rebuild our economy, create good paying jobs and protect the most vulnerable during these difficult times.

As Vermonters, our cause for optimism remains great - it is rooted in our shared history, our commitment to one another, and the promise of a better tomorrow.

It is found in an old farmer and a young family; in our lessons passed down from parent to child; in the hunters, anglers and trappers who give new life to old traditions; and in entrepreneurs creating new opportunities for our people. It is manifest in the pride we share for those who protect our communities - our police, firefighters and EMTs - and in the brave men and women of our armed forces who risk their lives far from the Green Mountains to preserve our most cherished values. I want to take a moment to recognize representatives of our National Guard who join us in the balcony today.

Our work in recent years has prepared us to meet today's challenges. During our nation's last recession in 2003, we passed the largest jobs package in state history. As we emerged from that downturn we streamlined government, and expanded access to health care. We strengthened our commitment to the next generation, increased bonding capacity and made new investments in our roads, bridges and culverts, and provided incentives for green businesses to succeed - while balancing the budget each year.

To keep Vermont competitive in a rapidly changing world economy we worked together to create the Vermont Telecommunications Authority - setting a course to achieve our goal of becoming the first true "e-state," where everyone has access to the tools of the 21st century.

Last year we took immediate steps to spur economic activity and temper the effects of the looming downturn. The Economic Growth Initiative - which included a successful sales tax holiday to help working families and boost Vermont retailers - was a needed bridge in a time of turmoil. And the Fuel and Food Partnership is coordinating services among the state, private agencies and local communities to ensure that vulnerable Vermonters have the resources they need during this already harsh winter.

But to preserve these valuable gains, the time has come for our state to embrace this new framework - where the real needs of people intersect with the true capacity of government to serve.