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.