Together, We Will Move
I’m offering alternatives to the general goals that everyone uses (and everyone agrees with) like “Boost the Economy” and “Create Jobs”. I’ve been running small but specific ads in the Lakes Region Free Press. They are called, “Where I Stand…” and offer voters short policy positions; more than a bullet point but less than a full report.
GET MOBILE ALERT
Text STOP to 2233 to stop receiving messages. Terms & Conditions
There is a lot of not-always-accurate information swirling around regarding savings from teacher healthcare plans. First of all, these projected savings are not dependent on the Governor’s proposal in any way.
The switch to cheaper health insurance plans for teachers is happening now and is unrelated to
the governor’s actions. The plans are cheaper because the benefits are less generous than
before. The projected savings, though the actual savings are unknown, are about $74 million.
Because the plans have higher deductibles and co-pays about $48 million is reserved to “make
whole” the teachers. The remainder is the $26 million that the fuss is all about.
The Governor’s plan to “reduce property taxes” actually uses only $8 million for that purpose
and the other $18 million gets spent on other commitments, NOT returned to the taxpayers. The
Beck amendment (the republican proposal) did not specify how the “savings” would be used
other than going into the Education Fund.
What the Beck amendment DID do was try to link the savings to changing teacher healthcare
contract negotiations from the local to the state level and claim state savings. While I am not an
expert on education finance, I do know that introducing a bill at the 11th hour that makes major
changes to decades of collective bargaining with no review at all by the appropriate committees
is a very bad idea.
The House did not pass this amendment but instead approved a democratic proposal which
makes no change in bargaining but directs 100% of the savings directly back to the local school
districts in reduced property taxes. The money would be returned only after school budgets had
been written and approved and can be applied only toward direct property tax reduction.
So we have a bizarre situation where the Governor’s proposal, which dedicates 30% of the
savings to property taxes, is seen as tax relief, and the Democratic proposal, which returns
100% to the taxpayers, is not. Very strange.
One other concern is the accuracy of the figure of $26 million. Even if the governor’s numbers
are correct the first savings would be accumulated over 6 months rather than a full year, so it
would be $13 million at the start. But the Joint Fiscal Office (the legislature’s non-partisan
financial analysis office) has not given confirmation of that number and because of the rapidly
rising costs of ALL health insurance policies that actually cover anything, I have my doubts
about the actual savings amounts.
“Savings” are achieved by teachers having higher deductibles and co-pays. After accounting for
that, further savings are found by utilizing fewer healthcare services. That is it’s own debate. But
the plan approved by the House last week returns ALL the savings, whatever they may be, to
the taxpayers. The Governor’s plan does not.
I have begun this Legislative Update several times hoping to have final news to report, but the negotiations in Montpelier are ongoing. The crux of the dispute is how to allocate $34 million in one-time money. Here is my best effort to distill it:
The amount of money needed for education funding is not determined by the legislature; rather
each school district passes their own budgets which are then added together; that number
equals Education Funding. Simple math. The legislature sets the property tax rates needed to
raise that money, supplemented by other dedicated sources. So any “funding gap” is not due to
Montpelier overspending but rather under-collecting revenues.
Besides property taxes there are a number of revenue streams for education, including
(traditionally) a large transfer from the General Fund to the Education Fund. This year the
legislature passed a bill to simplify that complex process, which instead dedicated 100% of
sales tax revenue and 25% of Rooms and Meals taxes to the Education Fund. It also created a
small income tax surcharge on higher incomes, and reduced property taxes across the board.
The Governor vetoed that as a “new tax” even though the amount of money raised remained the
same, just from different sources.
The legislature passed a very good budget package this year which restored some of the
governor’s proposed cuts to services for the most vulnerable Vermonters, provides state college
tuition to national guard members, boosts addiction outreach and treatment, eliminates most
taxes on social security benefits, and increases school security. The budget passed in both
chambers with a combined vote of 146-14. The governor vetoed the $5.8 billion budget and has
warned of a government shutdown unless we reallocate the aforementioned $34 million.
The legislature allocated those dollars toward the teacher’s pension fund (chronically
underfunded) which would save over $100 million in additional interest by 2038. This is
responsible financial planning. The governor wants to prevent a property tax increase,
essentially borrowing that one-time money to bridge the funding gap. This is to keep a popular
To avoid the possibility of a government shutdown and prevent disruption of services, ongoing
road projects, and our credit rating, the House has approved a new budget with that $34 million
taken out and placed into a separate fund. We can then fight about that small amount without
risking a shutdown. The governor has indicated that he will veto this budget as well, because
removing that money also removes his negotiating leverage, according to his spokesperson.
The essential problem with ongoing negotiations is that the governor can’t compromise because
he has locked himself into an “all or nothing” position. So all movement toward resolution has
been on the part of the legislature. Part of the reason we have this gap is that last year, after the
budget veto, the gap was filled with one-time money (an action I opposed). To insist on fixing the
problem with the same wrong solution doesn’t make sense.
The governor has proposed various education reforms which could save money in the future,
but it would be irresponsible to spend speculative money now.
This view is reinforced in this commentary from John McClaughry of the Ethan Allen Institute:
What are your thoughts? Contact me.Read More
This is a fairly lengthy post to offer insight into the budget battle that was waged in Montpelier for the last month and more. On Monday afternoon the House approved a budget for the third time and the Senate approved it right after; the Governor declared his intention to allow it take effect without his signature.
With that, a government shutdown was averted, significant compromises were made on all
sides, and no one is very happy. According to some, that is the proper function of government,
though I expect better. So what were those two budget vetoes, and the fighting, all about?
It is overly simplistic to say that the legislature wanted to raise taxes and the governor wanted to
hold them steady. Taxes are simply a tool to raise money to pay for services. So tax debates are
really debates about what services to provide and how to pay for them, not about whether taxes
are good or bad.
In the case of the education budget, neither the legislature nor the governor determine how
much to spend. That is determined in the decentralized process of voters confirming local
school budgets. But then the legislature needs to figure out how to raise that money.
There are several sources: sales tax revenues, 25% of the rooms and meals tax, and lottery
profits; the main source is the complicated formula of property taxes. So the legislature sets tax
rates to provide for that approved level of spending. 2018 school boards held their budget
increases to about 1.5%, well below the governor’s suggested target of 2.5%.
The structural problem underlying this is that 2017’s grand budget bargain, after 2017’s veto,
used some “one-time” money, revenue that we cannot count on getting again to hold tax rates
steady. So we started negotiations already in the hole, needing to raise rates to make up for the
use of one-time money last year.
That put the governor in a very awkward situation; he ran on a “no new taxes” pledge, but he
also knows that using one-time money to pay for ongoing expenses is very bad fiscal policy. In
fact, he opposed that too. The legislature chose responsible fiscal policy, the governor chose his
campaign tax promise.
So the fight began over $35 million from a tobacco lawsuit settlement, with the governor
insisting it be used to buy down taxes (which partially created this problem last year) and the
legislature marking it to pay off long-term debt (and save $100 million in long-term interest). One
is popular politics and one is good planning.
As the impasse continued, more “one-time” money was received and with it, more and more
suggestions on how best to spend it. The Legislature and the Administration are both looking at
long term approaches to restrain education spending: monitoring how Act 46 plays out, revising
special education spending, school consolidation, staffing ratios, and employee health care. But
in the meantime we need to fund our schools at the level those communities’ voters approved.
In the end, after much bluster and two vetoes, both sides compromised. Some of the money will
be used to buy down tax rates. Residential property tax rates will be the same as this year while
non-residential rates will rise less than they would have otherwise (“non-residential” confusingly
include rentals and 2nd homes as well as commercial property). And the cost is that we will start
next year with another revenue gap. Some of the one-time money will be used to pay off long
term debt, a responsible but decidedly un-sexy policy.
As campaigns gear up for for the November election, expect lots of jockeying for advantage
over who “won” or “lost”, but I say that we all won. Other than the disputed $35 million dollars,
the final budget is essentially the same as the first one, approved by Democrats, Republicans,
Progressives, and Independents by a vote of 146-14 (House and Senate combined).
Please contact me with questions or comments.