Why is 3 percent not enough?
Vermonters are best advised to prepare for the headache, as the party at the Statehouse is going strong.
Under the Golden Dome, a spending spree that Vermonters can’t afford is under way even before the costs of health care reform are on the table. Fiscal constraint, a way of life for most Vermont businesses and households, has few friends at the Statehouse.
Consider this Vermont context that is readily known to Statehouse leaders. Vermont’s annual population growth of three-tenths of 1 percent is anemic. The state economists’ inflation estimate for 2014 is 2.2 percent. The average number of employed Vermonters over the past 12 months is 2,800 below that of the same period in 2008-2009.
The level of wage growth for workers covered by unemployment grew at the low rate of 2.4 percent over the past three years. The current year increase in Vermont’s gross state product is 2.2 percent. Vermont today has fewer working people between ages 25 and 64 than in 2008.
Now compare the above economic/demographic indicators to what’s happening at the Statehouse.
The fiscal 2013 budget passed by the Legislature increased spending by 6.4 percent, from $4.716 billion to $5.019 billion. A portion of this increase was federal funds, but state taxes, fees and other state revenues increased by 4.8 percent or $97.7 million. Also, net education spending increased by $36.8 million, causing property taxes to rise. Further, tens of millions of state-mandated expenses were “cost shifted” onto our hospitals and electric rates.
The fiscal 2014 budget currently in play at the Statehouse is more of the same. The recently passed House budget is up another 4.6 percent, requiring increases in state revenues of 4.7 percent or $94.8 million. Additionally, net education fund spending is up a whopping $63.7 million, or 5.7 percent, forcing property taxes much higher even though the number of school children continues to decline.
Unfortunately, underlying economic growth is not enough to feed this Statehouse spending appetite. The House fills this gap by raising the income tax, the sales tax, the meals and vending tax, the cigarette tax, for a total of $27 million, in addition to their gas tax and property tax increases.
In striking comparison, if the House increased the budget by just 3 percent, a rate more compatible with the underlying economy, and enacted minor education funding reforms, no tax increases would be required at all.
Current legislative leaders, including Speaker Smith, House Ways and Means Chairwoman Ancel, and House Appropriations Chairwoman Heath took the wrong fork in the road in 2011. With their override of the governor’s veto of the 2010 budget and a new governor in 2011, the Legislature abandoned efforts for productivity reforms across state government in favor of higher taxes. Since then, they’ve raised the income tax in 2010 and 2011 and a tax on health insurance claims in 2012 along with steep property tax increases. And now, in 2013 they are raising taxes even more.
What they abandoned in 2011 was their own program of Challenges for Change as well as the administration’s Tiger Team proposals. These efforts, like the proverbial kitchen table sessions in Vermont’s households during tough economic times, were designed to meet the pressures of the “great recession” by finding ways to do more with less.
The Legislature’s Challenges for Change effort was making progress in finding between $54.7 million and $71.8 million in savings for fiscal 2011 and up to $161 million in savings for 2012. Tiger Team proposals had identified over $40 million in savings opportunities.
But, with the change in administration in January 2011, the demands of Hurricane Irene that fall, the pleas of advocates and lobbyists glued to the status quo and opposed to Challenges for Change and Tiger Teams, and the seduction of one-time federal stimulus funds, legislative leaders abandoned efforts toward cost-saving reforms in favor of higher spending and taxes.
Today, Vermonters can see we are still on that path. Our Statehouse leaders find it easier to raise taxes on their constituents, even in a weak economy, than resist the lobbying of the Statehouse crowd for whom a 3 percent increase is not enough.
Tom Pelham was finance commissioner for Gov. Howard Dean, tax commissioner for Gov. James Douglas and a member of the Vermont House. He is a co-founder of Campaign for Vermont.
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