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Continue the Carnage!
(March 2010)
By a combination of state employee layoffs, pay freezes, suspension of payments into the Education Fund, and increased taxes on estates and capital gains, this year’s (FY10) General Fund budget will be nominally balanced. But the February 24 “Vermont Revenue and Budget Picture” presentation by the Joint Fiscal Office shows a yawning gap for FY11: $154 million – followed by $254 million in FY12. Add in the projected deficits for FY13 and FY14, and the four-year deficit abyss comes to approximately $848 million.
So far the legislature’s leading nostrum for dealing with this jaw-dropping deficit has been the $38 million that they believe will be saved by unspecified efficiencies to be identified by agency heads to meet the touted “challenge for change”.
On February 11 Gov. Douglas announced another small contribution to the solution. He unveiled a list of 61 boards and commissions to be terminated or replaced. Upon inspection, 44 of the victims are already inactive. Most of the remaining 17 would see their functions transferred into the bureaucracy, or incorporated into new boards.
The most notable proposed termination is the Public Oversight Committee. This is the successor to the Health Policy Council charged in 1992 with guiding the state’s bold march into government-run health care. The POC survived the Vermont Health Care Authority when that body was ignominiously terminated in 1996. Today the POC makes recommendations on hospital budgets and Certificate Of Need applications. Whether the CON program itself has any value is a question that has yet to be asked.
What is more notable about the Governor’s list are the boards and commissions that escaped the axe. Many of these serve mainly as taxpayer-financed advocates for some political interest that almost invariably seeks more spending, regulation, and taxation.
Take the Vermont Climate Change Oversight Committee. This was what remained of the 2008 Shumlin-VPIRG omnibus bill to make Vermonters put an end to climate change, after even that year’s liberal legislature cast out the really dangerous provisions. This fig leaf richly deserves extinction.
The Smart Growth Study Commission similarly emerged from a stripped down growth management bill in 2008. It will recommend rewarding some landowners and penalizing others in the name of downtown protection and optimum land use. Abolish it.
The Vermont Milk Commission was created in 1965 and reactivated in 1991 to enforce price fixing to extract more dollars from (ultimately) consumers to support farm income. Last year it became the designated agent for imposition of the Shumlin-Starr milk tax, but its members have so far refused to do the deed. Abolish it and end the temptation
The Building Bright Futures Council was created by a Douglas executive order in 2005. Its goal is to promote a “comprehensive and unified [state-run] system for all children below the age of six years”. The Senate is about to give this Godzilla of Child Care statutory status and a broader mandate. Abolish it, and kill the legislation.
The Human Rights Commission was created in 1988 as a step toward gay rights legislation that then lacked the votes to pass. It has since used its powers to prosecute a printer who conscientiously declined to print pro-abortion tracts, and to investigate schoolyard scuffles involving a member of a minority group. Abolish it.
The Commission on Women sprang to life forty years ago to campaign for the Equal Rights Amendment. The Federal ERA failed in 1982, and Vermont voters rejected a state counterpart in 1986. The Commission soldiers on, however, thinking up more things that taxpayers and businesses could be made to do for the benefit of women. Most recently a 7-3 majority endorsed a mandate on employers to provide employees with up to 56 hours of paid (and broadly defined) “family leave” – this, when Vermont’s businesses are struggling with a recession. Abolish it.
Occasionally a board or commission does serve a useful purpose, but more often they are a persistent influence for ever bigger and more unaffordable government, rewarding special interests, and imposing yet more burdens on the taxpaying economic sector.
Vermont has already moved well beyond its legitimate core functions of government. That’s why lawmakers are staring at $848 million in General Fund deficits, plus over a billion dollars more in unfunded obligations to retirees.
Whacking 61 mostly inactive boards and commissions is worth doing, but it’s high time to get rid of lots more.
Muddling Through the Looming Deficit
(February 2010)
The struggle is well under way in Montpelier to shave the FY2011 General Fund budget down by $150 million. It is instructive to explore just how the Governor thinks this ought to be done, in a “balanced, compassionate, and sustainable” way, of course.
First, a fair-minded critique of the Governor’s proposed budget must recognize that budgeting is always a difficult business. Governor Douglas deserves credit for courageously proposing some choices that will surely be unpopular.
Having said that, let’s look at the first big item: $38 million in expected “Challenge for Change” savings. These savings will hopefully be achieved by telling certain state agencies to reduce spending or else. This is reminiscent of Gov. Dean’s deficit solution in 1993, when he decreed that every agency must lop off one percent of it spending. Problem solved!
That technique, however, forces agency heads to find savings from programs and practices that have the fewest political defenders, or will least interfere with the management of the agency. These savings are not necessarily those that a rational analysis, built upon a prioritization of state government functions, would likely yield. In short, it’s likely to be more of a fig leaf than a reform of lasting value.
Consider the welfare program. The Governor’s budget says we ought to “remove recipients from the [ReachUp] program when they chronically refuse to complete their family development plans or to meet work requirements.”
The Agency of Human Services, heavily influenced by the notion that poor people are victims, has long exhibited a reluctance to enforce serious sanctions for refusal to work. Vermont is long overdue for achieving the welfare reform successes of Wisconsin, Florida, and Wyoming, where in effect the government told applicants “No more free ride. Prepare yourself, show up at the job we found for you, work conscientiously, and start climbing the ladder toward economic security. (We’ll help you).”
With money tight, maybe AHS will now start doing this. Whether it will save much money is another question, partly because there are lots of escape hatches from actually having to work, and entry-level jobs are regrettably scarce just now. The state won’t move toward a Wisconsin model by telling AHS to reduce its budget by X%. To his credit, Gov. Dean wanted to go down this path in 1992, as did the Democratic-controlled House – but liberal Sen. Doug Racine stopped it dead in the Senate.
The Education Fund budget proposal ($1.32 billion) says “pressure needs to be exerted that not only inhibits such [education spending] increases, but actually results in staffing decreases to affordable levels.” Will the state, now in total control of public education finance, tell local school districts that the Education Fund won’t pay districts what their voters approved, until the district achieves mandated pupil-teacher ratios? Possibly, but not likely.
If the governor wants to reduce education spending, he could propose to relocate special education responsibility from school districts to the state Department of Education. Let the state give tuition vouchers to parents to be used to the child’s best advantage (the McKay Scholarship program in Florida), and defend against lawsuits demanding exorbitant expenditures.
Then give vouchers to the remaining parents to choose the public or independent educational program that they believe best suits their kids – many of which charge tuition well below that of the increasingly costly public schools.
No one in Montpelier dares to propose any meaningful parental choice out of fear of the public education lobby. Instead, the state’s “solution” is likely to be more command-and-control decrees from Montpelier to local school districts, and the creation of regional education districts. That consolidation would assuredly not save any money. It would, however, make life easier for bureaucrats and please the teachers union by extinguishing school choice for thousands of kids who now have it.
A third example: the Housing and Conservation Board, for which the Governor proposes level funding but an overall $3.9 million spending increase. The HCB runs one of the state’s five housing assistance programs, and buys up land rights in the name of conservation. The obvious reform is to consolidate the housing programs (together paying 130 employees $9 million), stop buying land rights, and terminate the HCB. That won’t happen this year.
Basic point: the legislature can shave spending here and there, raise minor taxes and fees here and there, and maybe – maybe – close this year’s huge budget deficit. That’s called muddling through.
What Vermont really needs is a bold strategy to shrink the size and cost of government to what our overcharged taxpayers can afford, and stimulate our economy to wealth producing growth. There won’t be much of that this year.
Crossing the State’s Fiscal Chasm: the PSG Report
January 2010
Last week Gov. Jim Douglas gave his final state of the state address, to a general assembly controlled by the opposite party – the party that produced the budget he vetoed last June, only to have his veto overridden and its budget imposed on him.
In his address the Governor confronted the state’s yawning fiscal chasm: a $150 million general fund shortfall in the coming fiscal year, and $350 million more in the three years to follow.
The Governor faced up to the gloomy prospects, saying “if we want to spring out of this recession we must have the heart to reform, the wisdom to act, and the courage to stand against those who will say it cannot be done.”
But his leadoff example of coming reform was claiming the $38 million that he and the legislative leadership have agreed to believe can be saved by implementing a report submitted by the Public Strategies Group. This is a Minnesota consulting organization that the legislature selected to produce ways of finding the savings and – as the Governor declared – “breaking from business-as-usual”.
Based on the PSG’s 32-page report (net of padding), explained at a January 6 news conference in the Governor’s office, one would do well to harbor considerable skepticism about the prospects of the purported savings.
The report, entitled “Challenges for Change”, is premised on the notion that, given more administrative flexibility, government departments will be able to produce their current results for their current beneficiaries with less money.
The Governor, Secretary of Administration, or an unspecified Challenge Czar would challenge all departments of state government to voluntarily enter into a “Charter Agreement”. Departments that volunteered would then devise new procedures, rules, and the like. Both the volunteers and the holdbacks would however face arbitrary percentage reductions in their budgets. As the report says, “the savings are taken” in the budget process.
There is much to be said for giving departments flexibility in finding ways to accomplish their missions. But as one reads on through the report, skepticism begins to grow.
The largest savings item in the PSG list is “purchasing [human services] results, not units of service.” Assuming the Agency of Human Services volunteers for the project, the state would “invest” a million dollars to permit AHS management and staff to undertake a number of management improvement tasks.
After a year of analyzing, designing, renegotiating, streamlining, and strategizing, the Agency would achieve savings of 5% ($18 million). Add up the savings for all of the programs included in the report, and the magic $38 million in savings appears!
How are these magic percentages arrived at? There isn’t a hint.
Which administrative and statutory burdens will be relaxed? Again, not a hint.
Can this approach be validated by experience in other states? The consultants say yes, but nowhere in the report is any example identified. One unnamed state is said to have reduced the time for air quality construction permits from 62 to 6 days using the “Kaizen continuous improvement approach,” but the report offers no explanation of whatever that is.
The report also steers clear of any proposal that would alarm various interest groups whose constituencies are dependent on state spending. The closest it dares to come to suggesting that too many people are consuming too many benefits is a guarded observation that the state might want to “reconsider its expectations about whom it can afford to serve.”
One featured idea is a “federal super-waiver” to create a giant pot of program money with minimum rules. This was the centerpiece of President Nixon’s “New Federalism” in 1969. It was tried from 1972 to 1980, and then abandoned.
Paul Cillo of the liberal Public Assets Institute, a veteran of legislative policy making, rightly noted this week that the “Challenges for Change” report serves as a useful fig leaf for all parties in the budget debate. They can all embrace the highly speculative $38 million in savings, and thus show they are moving forward toward solving a crisis. (Only $112 million to go!)
The report contains some useful – though very general - ideas for improving program efficiency, that should have been put in place years ago. But balancing the general fund budget over the coming three years will also require serious rethinking of the core functions of government, asking how those functions can most efficiently be performed, confining public subsidies to the needy poor and indigent, and recognizing the danger point at which government’s insatiable search for more tax revenues threatens to shrink the wealth producing private sector that pulls the state’s fiscal train. Some think that that point has already been passed.
Charting a Path Away from Insolvency
January 2010
Coming next week to a statehouse near you: perhaps the most critical legislative session in Vermont’s modern history.
Over the past fifty years our state government has expanded into a gigantic money-eating machine. That machine sucks in taxpayer dollars and spews out benefits – minus the usual government handling charge. This makes lots of people happy, so long as the revenues keep on rolling in.
Vermont legislatures have spent our state into the top tier of big government states – with very high per pupil public education costs, subsidized middle class health insurance coverage, generous welfare entitlements and unemployment compensation, and all sorts of human service programs.
These benefit programs reflect the values of a decent and compassionate society. No one wants to see our children, our poor, our elderly, and our unemployed abandoned to fend for themselves. But now the revenues have ceased to roll in. The state’s revenues have shrunk back to the 2004 level. We can’t pay for all these goodies any more.
This stark realization inevitably triggers a game called budget whack-a-mole. The defenders of every government spending program rally to keep their goodies coming. State government managers are directed to leave positions unfilled and eventually to lay off employees (without, of course, reducing the agency workload). The spending beneficiaries urgently propose ever-higher tax rates, ever more things to tax, and new mandates that private employers are expected to pay for.
Vermont state government has now been in that mode for nearly two years. There has been some flattening of the spending curve, but no real structural change.
In 2008 the legislature created a Joint Legislative Government Accountability Committee to make state government “more forward thinking, strategic and responsive to the long term needs of Vermonters.” The law charged the Committee with exploring prioritization, efficiency, and performance measurement.
At the Committee’s December 14 meeting it was apparent that members, from which nothing threatening was expected, had awakened to the gravity of the situation.
Sen. Diane Snelling, the incoming chair, offered this startling observation: “We need new solutions because the old ones don’t work – we may need to turn the whole thing upside down. We need to find a less bureaucratic model.”
Rep. Michael Obuchowski, a highly respected 37-year veteran and a lifelong liberal Democrat, said, “Crisis can bring opportunity. We need to change the way government does things.”
Now we’re getting somewhere.
Here are three issues that need to be on the legislative menu – now.
The first is the need for a new consensus about what government should do for the people, and what the people should be expected to take care of themselves. Democratic Gov. Gary Locke of Washington led a multiyear process to achieve a consensus on what the core functions of government ought to be. That’s a useful example.
Then comes the performance review, developed to national acclaim by another Democrat, Texas Controller John Sharp. Performance review is a careful study by knowledgeable and disinterested people of what state government has agreed to do, how it does it, and how what the people want done can be done better and more efficiently. The goal is to balance over the long term the cost of state government’s programs and the revenue from taxpayers, without raising taxes that would kill future economic growth.
Launching a performance review under the fierce and immediate pressure of huge looming deficits is admittedly challenging. But it must be done, to prevent the state government from stumbling haphazardly on through the recurring cycle of politically-driven program expansion, increased spending, revenue shortfalls, budget reductions, bottoming out, and then expanding all over again until the next recession.
A third component would be a reexamination of the structure and finances of government itself, from state government to cities and towns, school districts, villages, special districts, and the like. Democratic Sen. Jeannette White, a member of the Committee, strongly believes that this is long overdue. She will propose a bill to recreate the Advisory Committee on Intergovernmental Relations, that lapsed during the Kunin era, and direct it to consider sweeping governmental reorganization.
If the Democratic majority in Montpelier needs inspiration, it needs to look no further than President Obama. In naming his director of the Office of Management and Budget two years ago, the President-elect said: “In these challenging times, when we are facing both rising deficits and a sinking economy, budget reform is not an option. It is an imperative.”
“We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of politicians, lobbyists, or interest groups. We simply cannot afford it… This isn’t about big government or small government. It’s about building a smarter government that focuses on what works."
Vermont ought to have begun this process seven years ago. There was no consensus for it then. In 2010, we’re playing desperate catch up, and now the alternative is too grim to contemplate.
State Spending: Totally Unsustainable
December 2009
Accentuated by the recession, the state's recent economic news and fiscal projections inescapably suggest that Vermonters simply cannot sustain their present level of government spending.
The Emergency Board met November 12 and heard its economists report that it should not be necessary to downgrade the General Fund revenue projections again this quarter. That suggests the economy may have bottomed out. The governor and other members of the board seized upon this as a thin ray of hope breaking through desolate economic clouds.
But that thin ray of hope cannot be allowed to divert attention from what is rapidly becoming the most serious fiscal situation in the state's history.
Projected General Fund revenues have dropped 14% over the past two years. This year's projected revenue will be lower than the revenue that the fund took in five years ago.
The Unemployment Fund faces an ever-deepening shortfall, heading toward $400 million by 2013. Somewhere big money has to be found to fill that hole - beginning with higher taxes on employers - and then accumulate an additional $300 million in anticipation of a future recession.
Projected general fund shortfalls in fiscal years 2011-2014 total an astonishing $470 million, starting with $82 million in the fiscal year beginning next July. The federal stimulus money will have disappeared by then.
There is no agreed plan in place for coping with the Federally decertified Vermont State Hospital. The Feds are not putting any money into its operation, so Vermont taxpayers are shouldering the full burden.
David Coates, the retired partner of the Burlington accounting firm KPMG, informed legislators last spring that as of June 30, 2008 the state's unfunded pension liabilities, as computed by the state actuary, were $466 million. This is just about a three-fold increase in liabilities in just five years.
When it comes to the other post-retirement benefits (i.e. medical insurance), Coates reported, the situation is even more alarming: "The state actuary has calculated the unfunded liability for both plans [teachers and state employees] at June 30, 2008 to be $1.6 billion. This is projected to increase to over $4 billion in thirty years, if we continue to fund these plans as we have in the past."
Coates concluded: "Vermont is currently on a path that is not financially sustainable."
Then there's the Education Fund. In the years 2004-2009 the boom in real estate assessments brought in tons of money for the educrats to spend - and even allowed the legislature to lower the two state property tax rates by a penny each in 2009. The year over year percentage increase in the education grand lists was 11.1% in 2004, 13.5% in 2005, 12.4% in 2006, 9.7% in 2008, and 2.6% in 2009.
But with the national housing market crash the state's education grand lists are now trending negative: -0.9% this year, -3.0% in 2011, and -0.5% in 2012. That means the current tax rates will raise fewer education dollars. Tax commissioner Rich Westman ruefully admits that he will be the first occupant of that office ever to recommend that the legislature increase the education property tax rates, after four reductions.
The Vermont Economy Newsletter observes that the Education Fund is likely to show a $70 million hole this year. One final dose of federal stimulus money will cover $40 million of that. There is not enough in the education reserve fund to cover the $30 million remainder.
Writes VEN, "The legislature will either have to send more money to the Education Fund to keep property taxes down and raise income taxes to do so, or transfer less money to the Education Fund to avoid an income tax increase, but see school property taxes soar. Either way, get your checkbook out."
The Transportation Fund, despite the federal stimulus injection, suddenly faces an enormous expenditure in replacing the condemned Champlain Bridge in West Addison.
What's the way out - if declaring bankruptcy is not an option? That's hard to say, but any realistic analysis must begin with the stark realization that forty years of Vermont's liberal politics has created a government spending machine that is now far outstripping the capacity of already overburdened Vermont taxpayers to keep it running.
Improving - and Bypassing - the Court System
October 2009
When state revenues tank, the Governor and legislature begin by carving out fat. They leave vacancies unfilled, freeze new hires, curtail travel, and cancel publications. Then they stretch out programs, freeze salaries, push expenditures over into the next fiscal year, give employees unpaid furloughs, shortchange pension fund contributions, and – occasionally – make entitlements less generous.
Then comes the day when all the politically acceptable spending savings have been implemented. Revenues are still far behind earlier budget projections. Huge deficits loom. Something Radical Has To Be Done.
At this point well-managed state governments turn to recommendations from a Performance Review. It’s a process that asks of every state function: Privatize, Eliminate, Retain, or Modify?
The Democratic Party’s 2004 platform called for just such a process. In 2005 Gov. Douglas made what proved to be a feeble run at the same goal. Since then, the concept has lain fallow. Now is the time that the state very badly needs to act upon PERM recommendations – that of course it doesn’t have.
But there’s one bright spot here. The Judiciary Branch has set out on the performance review path. Pursuant to a 2008 statute, Chief Justice Paul Reiber created a Commission on Judicial Operation to examine the efficient and effective delivery of judicial services and the allocation of judicial branch resources.
Last June, in the special session, the legislature protected the judiciary from any new budget rescissions until the Commission’s final report in 2010 – but announced that the Commission would be expected to identify $1 million in savings in the FY2011 budget.
The Constitution, as amended in 1974, requires the state to have a “unified judicial system”. Following ratification of that amendment, the Supreme Court created an Advisory Committee on Court Unification. The Committee found that the “system” was far from unified. It featured fragmented court jurisdiction, inflexibility in using courthouses, untrained personnel, variation of practices in different areas, excessive traveling, poorly controlled calendars, and much more.
A bill based on the Committee’s report passed the house in 1975, but stalled in the Senate. Since then elected assistant judges and their county clerks have blocked any thoroughgoing reform.
Today we have what the Commission on Judicial Operation describes as a “balkanized” “non-unified system” that not only defeats flexibility and efficiency, but also spends too much for what it does. There is a constitutionally defined Supreme Court, constitutionally-mandated Superior Courts and Probate Courts, and legislatively-created district, family and environmental courts. There is no unified budget, and the Supreme Court has little control over the county courthouses and county clerks.
The current prospect of huge general fund shortfalls has spurred renewed interest in making our judicial non-system more flexible and efficient, with uniform rules governing procedure and case management in all courtrooms. In particular, modern technology can simplify court procedures, but there has to be a single standard under the control of one administrator.
It seems likely that the Committee will recommend constitutional change, to bring the Superior and Probate Courts into the unified system and break the 18th century linkage with counties that have never been functional.
Notably omitted in the legislative charge to the Committee is an important part of the PERM process: keeping as many disputes as possible out of the formal – and expensive - judicial system.
Judges and lawyers can certainly find ways to make the judicial system more unified, efficient and flexible. But when it comes to expanding the use of dispute resolution methods that operate less formally and largely without lawyers, they are not likely to exhibit a lot of enthusiasm. No one is eager to promote proposals that might shrink their own importance and financial rewards.
Alternative dispute resolution (ADR) is a rapidly growing field. It includes conciliation, mediation, arbitration and even private courts. None of the first three processes requires lawyers. They do require training, which is offered by Woodbury College and Vermont Law School.
Vermont courts are increasingly turning to ADR to avoid costly and time-consuming jury trials. ADR can be used to settle family squabbles and juvenile, workers comp, personal injury, environmental, zoning, landlord-tenant, civil rights, work rules, truancy, small claims, business contract, product liability, medical malpractice, and vehicle warranty disputes.
Leading such programs requires wisdom, experience, knowledge of the community, and public respect more than formal legal expertise. With training, Vermont’s elected assistant judges could play an important role in managing ADR programs.
Making the court system unified, efficient, and flexible is long overdue. But the more cases that never turn up in the court system, the better off we’ll all be.
Imagining Vermont
September 2009
In May the Council on the Future of Vermont released its report, Imagining Vermont: Values and Vision for the Future. The report culminated an 18-month, $400,000 process, during which some four thousand Vermonters attended over 100 meetings. Ably written and attractively produced, the report collected and transmitted the ideas and dreams of its participants of the possible Vermont of the future.
It's not easy to fairly summarize the findings, but here's an attempt. The Council members heard Vermonters say that, by and large, they wanted a future Vermont with a working landscape, vigorous small industry, renewable energy, public transportation, creative arts, human scale, shared cultural values, affordable housing, excellent education and health care, more secure jobs and higher incomes, a renewed sense of community and, of course, intensified government planning to bring about the desired results.
Whenever a panel of citizens goes forth to hear the voice of the people, they are naturally more likely to hear voices that express their own vision and values. Thus it's worth looking at the composition of the council, selected by the Vermont Council for Rural Development.
It was chaired by an upscale gentleman cattle breeder. Its 17 members included eight from government and nonprofit organization, three from education, two from the news media, two retired bankers, one public utility official, and one entrepreneurial businessman (the founder of the Vermont Culinary Institute).
The striking thing about this group is the near-absence of anyone making a living in the competitive enterprise sector. Its composition and set of values are reflected in the Council's conclusions.
The watchwords seem to be collective action, unity with diversity, civility, affordability, sustainability, creativity and the public goo. Nowhere is there any inclination to laud the bold, visionary, risk-taking entrepreneur - a James Hartness, Horace and Erastus Fairbanks, T.N. Vail, or (more recently), Rich Tarrant. Such people produce disruption, not harmony - but in doing so they create wealth, spur human progress and, in Vermont, pay the lion's share of taxes.
The report recognizes that Vermont has high taxes and "what many have called an impossible business development environment". It acknowledges that Vermonters want to see improvement in the state's overgrown regulatory regimes. But having done so, the report sails off into the need for more (government) education, better health services, more participation, more diversity, and more socially progressive policies, such as "making the state a national model in order to slow or reverse climate change".
The Council shows no evidence of recognizing the fundamental importance of secure, predictable private property rights to economic growth and development, and that the more intense planning it proposes cannot but further undermine that right.
The report celebrates Vermont "firsts" (no slavery, universal suffrage, the billboard law, civil unions), but it does not notice that Vermont's was the first constitution anywhere to declare that "whenever any person's property is taken for the use of the public, the owner ought to receive an equivalent in money" (Ch. I Art 2).
But perhaps the crowning omission in this report is the bald fact that state government, the great hoped-for wonder worker, is careering toward insolvency. At this rate, by 2030 essentially all of the projected revenue of all governments in Vermont (state, school districts, municipalities) will be required to pay only for public education and human services - and that assumes that Vermonters will agree to pay 18 percent of their adjusted gross incomes in taxes, an all time high.
State government is now a year into a serious budget crisis. Its revenues, especially the income tax, have tanked. In January legislators will face General Fund deficits totaling $439 million for the four fiscal years 2010-2013. This is after Federal stimulus receipts.
The state's two retirement funds are $466 million out of actuarial soundness. The unfunded post-employment benefits (health insurance) promised to retired state employees and schoolteachers are an astonishing $1.6 billion out of soundness.
How will taxpayers ever pay this off? The state can't raise tax rates. Vermont already has one of the five highest tax burdens in the nation. Raising tax rates would guarantee a serious crippling of Vermont's productive economy.
The solution to this problem isn't at all obvious, at least if dishonorable bankruptcy is ruled out. But Imagining Vermont should at the least have put these sobering facts on the table, and engaged its 4000 participants in that discussion.
The Anti-Business Scorecard
June 2009
Suppose you – or your brother, or your neighbor – owns or works for a small business - plumber, convenience store, homebuilder, auto repair shop, restaurant. How did the owners and employees of those independent businesses fare at the hands of the 2009 legislature?
The cost of motor fuel will increase for everybody – gasoline by 2 percent, diesel at 3 cents per gallon. Since the motor fuel tax rates haven’t been raised since 1997, while the backlog and costs of highway and bridge maintenance have steadily increased, most business owners probably grudgingly agree with the increase – although a much better solution would have been to restore the third of the 6% vehicle purchase and use tax rate to the Transportation Fund from which it was diverted in 2003.
The Unemployment Insurance fund, drained by the recession, will be short $160 million by the end of this year. Business is resigned to paying a higher assessment to maintain the fund’s solvency. But in return, business asked that the very generous UI benefit structure be reduced. If benefits in Vermont were proportional to the average of the other 49 states, in relation to our wage levels, our maximum would be $355/month. Vermont’s is at $425 and was scheduled to rise to $438.
Business asked that the benefit level be dropped back to the July 2008 level ($409). The legislature refused. The most it would do was freeze the scheduled benefit increase for a year. It also jacked up penalties for “misclassification” of employees as independent contractors, intimidating business from contracting with other small businesses.
One new hidden tax became law when Gov. Douglas chose not to risk a veto override. That was the renewable energy corporate welfare bill demanded by enviro lobbies. The bill requires utilities to pay up to six times the nuclear power rate for electricity generated by wind, solar, and landfill methane projects. The utilities will necessarily pass the higher cost on to all ratepayers, increasing everyone’s electric bills by as much as 3%.
Initially the legislative leadership agreed to lower the top marginal income tax rate from 9.5% of taxable income – one of the highest in the nation – to 8.95%, and the lower bracket rates accordingly.
But in a last minute effort to persuade wavering House members to override the Douglas budget veto, the legislative leadership added two largely meaningless sales tax holidays and reinstated the research and development credit (that affects very few businesses). To pay for these plums, they had to jack up the income tax rates for all but the lowest bracket.
In another last minute adjustment, special transitional capital gain benefits were provided for farms, timber sales, and over-70 seniors until 2011.Then the present 40% capital gains exemption from the Vermont income tax will be repealed, except for the first $5000.
The state expects to pocket $3 million a year from reducing the estate tax exemption from $3.5 million to $2 million. This will have a major negative impact on small businesses whose owners die, leaving the business to heirs.
New taxes were levied on music, videos, books, and cell phone ring tones downloaded over the internet. Hard liquor and wines will pay a 6% retail sales tax, and tobacco product taxes will go up across the board (to $2.24 per pack of cigarettes).
One non-tax bill that will have significant impact on landowners and businesses making use of land is the wetlands expansion act. It mandates stringent Class I wetland protection upon any real or imaginary wetland that the state envirocrats believe is “exceptional or irreplaceable in its contributions to Vermont’s natural heritage and therefore merits the highest level of protection.”
As the Vermont Chamber of Commerce noted in its legislative wrapup, “[This FY 2010 budget] sets the state up for a $67 million shortfall for next year’s budget and a further $141 million in 2012. The budget does appropriate enough money to run the state for the year to come, but it does so only by raising more than $26 million in new taxes.” And, it might have added, the temporary infusion of federal stimulus funds that are not likely to keep coming.
The legislative leaders can point to some tax rate decreases (income tax and business property tax) beneficial to business. But its liberal urge to constantly pile on taxes, mandates, regulations, and labor benefits while leaving a gaping hole in the state’s fiscal future, will only further inflate Vermont’s unhappy reputation as a notably poor place to try to make a decent business profit – unless the business is deemed sufficiently green to be eligible for subsidies, preferences, exemptions, cheap loans and tax credits.
Tax Raising Mania Seizes the Legislature
April 2009
The legislature is heading at flank speed for an epic showdown with Gov. Jim Douglas. The issue is raising our taxes.
Our overspending state government has had quite a few lucky years. With a rising economy, its legislatures could keep on adding to government benefits, and gaining the political benefits. And they did, until the economy started to sink.
The new Federal “stimulus” law seemed to promise salvation from a projected FY2010 General Fund deficit of more than $200 million. “Stimulus” is where Congress borrows hundreds of billions more dollars from (mainly) the Chinese, allocates $234 million of it to Vermont to keep our overextended state government from crashing, sends the bill to everyone’s grandchildren, and then quits after two years, leaving state government back where it started, and probably worse off.
When even “stimulus” transfusions prove insufficient, the liberals in the legislature, faced with the choice of cutting back state spending and employment or raising taxes, invariably raise income tax rates.
There are several arguments offered in defense of the House’s recent passage of income tax rate increases expected to yield $65 million in new revenues over three years. Then the “surcharge” is supposed to sunset, as it did on a similar income tax increase 15 years ago.
Let’s start with “There’s no spending left to cut.” Put another way, “we can’t agree to anything that results in fewer state employee jobs, because the state employees labor union worked hard to put us in power and we don’t dare honk them off.” That latter formulation is at least candid.
A more imaginative argument is this one, offered by Peter Sterling, executive director of the Vermont Campaign for Health Security. Says he, cutting back on state spending programs “is the same as raising a tax on the people who would have received the spending. That’s a tax on people making less than $38,000 a year.” Sterling did not explain how he happened to arrive at that earnings figure.
Then there’s this one, from the Public Assets Institute. It notes that Congress has passed legislation that provides tax credits for 250,000 Vermont taxpayers. A single worker earning up to $75,000 will get a $400 tax credit.
Since Vermont workers now have all this new money from Federal tax cuts, PAI argues that “Vermont [now has] an opportunity to avoid devastating budget reductions and layoffs of state workers” by increasing Vermont income tax rates to produce $60 million over the next three years.
PAI also observes that the Federal “tax cuts are intended to put money into the hands of people who are likely to spend rather than save it.” How can these workers spend their tax cut, when the State of Vermont rushes in and snatches it away from them to cover its deficit?
Ah, now we are at the eureka point of tax analysis.
The taxpayers who get the Obama tax credits to “make work pay” (as if work didn’t pay previously) are those with incomes below $75,000 ($150,000 for couples). Almost all of the new tax dollars that the Vermont legislature expects to collect from its tax rate increases will come from taxpayers with incomes above $75,000.
The Obama beneficiaries are not the same taxpayers as the Vermont victims. The former will get to spend their tax cut, while the Vermont legislature raises the tax take from taxpayers who aren’t eligible for the Obama tax cut.
This is called wealth redistribution through progressive taxation. It’s almost an obsession with modern liberalism, here and in Washington. The top ten percent of Vermont households (earning above $105,000) are now paying 62% of all income tax collections, an all time high. The bottom 50% of all tax filers contribute less than 2% of income tax collections.
When a liberal majority is seized with the wealth redistribution mania, it will jack up the tax rates on fewer and fewer taxpayers at the top of the heap, and use the revenues to pay for more and more benefits from people who are paying little or no income taxes.
Where does this end? The leaders of such a majority ought to recall that Gov. Howard Dean, later to become the darling of the “Democratic (left) wing of the Democratic Party”, never failed to recognize the crippling economic effects of runaway wealth redistribution through progressive taxation. In 1994 and for eight more years in office, he stood as firmly against it as Gov. Jim Douglas is thankfully doing today.
Outside the Center Ring
April 2009
The legislative circus is now in its month-long countdown to adjournment, and the gay marriage issue has dominated the center ring. But there are also side rings, and what happens there can profoundly affect the future of Vermont.
Last week the House passed the FY2010 appropriations bill (H.441). With revenues shrinking, the budgeteers have an exceptionally challenging task. It is all the more challenging because, despite occasional recognition of the need, neither the Governor nor the Democratic legislature have made any effort to undertake a performance review.
The performance review was first conceived a decade ago by Texas Controller John Sharp, a Democrat. It requires time and money, but it produces rational plans for restructuring state programs to maximize efficiency in getting measurable results from taxpayer dollars.
Without a review, legislators and the governor are left whacking away here and there to try to make the budget come out even.
The budget the House passed failed that test. When the budgeteers couldn’t agree on reducing spending to the level of expected revenue, they simply declared that they would increase income taxes by $24 million and – somehow - reduce the state payroll by another $14 million.
The state budget is far from the only strange piece of work wending its way toward the governor’s desk.
The Senate has just passed a bill (S.89) directing the unelected and unwilling Milk Commission to impose a milk tax on handlers, which grocers will of course pass straight through to consumers. The proceeds so extracted will be handed out to subsidize all of the dairy farmers who produced the milk.
And in an interesting twist, the Senators who opposed a referendum on gay marriage insisted on a referendum approval of the “premium”- not by the consumers who will get hit with the tax, but by the farmers who will pocket the proceeds. The result is likely to resemble the result of Saddam Hussein’s last election victory.
Another Senate-passed bill (S.54) will make Vermont the first state in the country to initiate a PURPA program for new renewable energy generation in the state. PURPA, passed by Congress in 1978, required utilities to buy power from small hydro dams at prices well above market. Thus Green Mountain Power was forced to buy power produced from the Winooski One hydro plant at around three times the market price.
This of course socked ratepayers, but it was so lucrative for the plant’s owners that one of them became a major contributor to VPIRG, which has been lobbying aggressively for more renewable energy subsidies ever since.
The House has already passed the Vermont Yankee decommissioning bill (H.436). It requires the nuclear plant’s owners to put up $460 million in cash or credit to make sure the producer of the state’s lowest cost base load electricity dismantles the plant immediately upon license termination.
The real purpose of this bill, vetoed last year by Gov. Douglas, is to drive Vermont Yankee out of business in three years. Its 350 Mw of dependable electricity can then – supposedly - be replaced with more expensive and completely unreliable power from (subsidized) wind turbines, solar panels, and landfill gas.
The House has passed a transportation bill (H.438) that includes a nickel a gallon increase in motor fuel taxes. But the Democratic majority couldn’t stop with that defensible step. A truly scandalous provision in the bill puts motor fuel tax increases on autopilot starting in 2012. That way legislators will never have to vote on motor fuel tax increases again.
The House is also moving a bill (H.382) to mandate that Vermont businesses provide seven days of annual paid leave for employees to cope with physical or mental health problems. Disputes about legitimacy of requested leave will of course entangle the employers in more workers compensation-type enforcement actions. A normal person might conclude that right now is not a good time to lay yet another costly mandate on small businesses.
This year’s House bill (H.140) to expand Catamount Health, the faltering program for giving subsidized health care to the uninsured, would eliminate exclusion of preexisting conditions. This will assure that people can wait until they get sick or injured, and then sign up for taxpayer-subsidized insurance coverage.
Bear in mind, these proposals, and many others, are not off the wall ideas of their respective sponsors. These are very much in the mainstream of this very left wing legislature, backed by aggressive left wing lobby groups, and most will be sent to the governor’s desk.
So stop and think: how will Vermont struggle out of the recession if all this stuff becomes law?
The Murder of Federalism
March 2009
The Congress was determined to shower Federal money upon the states. Only one man stood in its way. He was the President of the United States. His name was Andrew Jackson, and he was a Democrat
In Jackson’s day a major source of Federal revenue came from the sale of public lands, ceded to the federal government by the original states at the time the Constitution took effect. The Western states in which those public lands lay wanted to receive and sell those lands to finance their state governments. The Eastern states that had no Federal lands wanted the Federal government to sell the lands and distribute the proceeds to all the states.
A prominent argument for this latter policy, known as Distribution, was that allowing money from land sales to accumulate in the Federal Treasury was dangerous, for it would tempt Congress to spend it for extra-constitutional projects. Better the money should be distributed among the states, to let their governments fund highways and schools, or to reduce tax burdens on their own taxpayers.
The champion of Distribution, Whig Senator Henry Clay, pushed a bill through both houses of Congress. In December 1833 President Jackson returned it with a withering veto message.
Of Clay’s scheme, Jackson wrote, “it appears to me that a more direct road to consolidation cannot be devised. Money is power, and in that government which pays the public officers of the states will all political power be substantially concentrated. The state governments, if governments they might be called, would lose all their independence and dignity. The economy which now distinguishes them would be converted into a profusion, limited only by the extent of its supply.”
“Being the dependents of the general government, and looking to its treasury as the source of all their emoluments, the state officers would, in effect, be the mere stipendiaries and instruments of the central power.”
Now, 176 years later, another Democratic President, urged on by an enthusiastic Democratic Congress, has revived Distribution in the guise of Stimulus. A major difference is that in Jackson’s day the national debt was reduced to zero, and the question was what to do with surplus revenues. Today the national debt is astronomical, and the question is how fast the government can borrow – or print - money to increase it by yet more trillions.
One modern descendant of Andrew Jackson is South Carolina Gov. Mark Sanford. (Sanford is a Republican; the Democrats have long since repudiated the limited government, hard money principles of their party’s founder.)
Faced with the Stimulus bill, Gov. Sanford wrote to President Obama, asking for a waiver to use $700 million of $2.8 billion assigned to South Carolina to reduce the state’s bonded debt.
Gov. Sanford explained to the President that spending all of the Stimulus funds would in two years create a $1.2 billion hole in the state’s budget, when the Stimulus provisions terminate. “Unless your intention is to borrow more money that we don’t have to send to states like ours in 24 months, I don’t know how we would dig out of this hole without substantially raising taxes and in turn making our economy less competitive in producing jobs.”
Even before the Obama White House rejected Gov. Sanford’s request, on the grounds that the bill does not give the President waiver authority, the Democratic National Committee launched anti-Sanford media attack ads in South Carolina.
The Stimulus bill, its effects sharply illustrated by Gov. Sanford’s letter, opens possibly the final chapter in the long-running demise of federalism.
Forty years ago, the federal government offered states money to do what the Federal government wanted done; states could decline, and thus got no money.
Then, with the 55-mph speed limit and increased drinking age laws, Congress informed the states that unless they did Congress’s bidding, not only would they not get the money, but they would lose other money already granted (“crossover sanctions”).
Now Congress is telling the states that they must take the money, and they must use it as Congress directs, regardless of effects on state budgeting, taxation and responsibilities. For instance, the Stimulus bill reverses the landmark welfare reform legislation of 1996 by rewarding states for adding people to the welfare rolls, instead of helping them find gainful employment.
To the extent that Stimulus funds pay for infrastructure improvements, broadband deployment, debt reduction and other one-time projects, the states can benefit (at the expense of future generations). But to the extent the act changes entitlements and creates expectations of subsidies that are not likely to continue beyond 2011, the venerable American principle of federalism will enter its terminal decline.
That this was done by a wholly irresponsible Congress, voting through a 1,434 page bill almost overnight, makes the murder of federalism even more deplorable.
A Worthwhile Legislative Agenda for 2009
January 2009
For legislators - especially freshmen - the first January trip to Montpelier is usually a hopeful occasion. This year it will surely be different. The state's growing fiscal crisis promises only day after day of grim tidings and voting on highly unpopular spending cuts for programs once thought to be eternal and bullet proof.
In the old days - the 1950s - a majority of the legislators (old male Republicans) were largely content to do the state's necessary business, and especially to avoid doing anything expensive or stupid. In recent decades, a liberal majority always comes back to the Capitol eagerly hoping to Do Something Big and Historic.
The 2005 legislature came to town eager to install $2 billion worth of universal taxpayer financed health care. After a stern Douglas veto, it was forced to settle for creating Catamount Health for the uninsured, which is now of course running out of money.
The 2007 legislature, goaded by Senate president pro tem Peter Shumlin, the Senator from VPIRG, sought to have Vermont lead the planet in defeating the Menace of Global Warming. Over the ensuing two years his proposed program of taxes, regulations, mandates and supergovernment shriveled into practical insignificance.
Now comes the 2009 legislature, and in the face of a deepening fiscal crisis the prospect of its doing Something Big and Historic probably comes down to only two issues: authorizing gay marriage and voting Vermont Yankee off the island. Neither one, significantly, will have any impact on the state budget, at least for the next three years.
So, leaving aside these two hot button issues, what could legislators usefully do while the money committees sweat over the FY2009 and 2010 budgets? Here are some suggestions that would make the Vermont of the future more economically attractive and productive.
- Put a stop to taxation by unaccountable strangers, notably the Public Service Board and the Vermont Milk Commission. Affirm that if the state government is going to relieve its citizens of their wealth and incomes, it can do so only by a recorded vote of elected legislators.
- Put a stop to unaccountable bureaucrats adopting sweeping and costly regulations. A regulatory accountability act would allow one fifth of the membership of the House or Senate to bring proposed regulations up for an approval vote.
- Give local citizens the opportunity to reshape their educational systems by passing an Educational Freedom District bill.
- Rescue the state's deteriorating bridges by raising the motor fuel taxes by a nickel a gallon. That would largely solve a growing problem, and still leave gasoline under $2 a gallon. Unlike other taxes, the motor fuel taxes are levied on gallons used, independent of prices. They must be periodically raised to stay current with the ever-rising costs of highway and bridge rehab and maintenance. It's been twelve years since these user fees were raised, and waiting for a bailout from Congress is not a responsible option.
- Repeal Act 168 of 2006, the sleeper bill that commits the state to reducing its carbon dioxide emissions to 75% of the 1990 level by 2012, and down to 25% thereafter. Unsuspected by legislators who viewed this as a feel-good greenie bill, regulators can seize upon Act 168 to defeat economic growth. California Attorney General Jerry Brown has pioneered this tactic, using a law almost identical to Act 168. Vermont AG Bill Sorrell refuses to disavow the use of this powerful regulatory tactic, so the legislature should do it for him.
- Rationalize the Act 250 permit criteria, especially wetlands, esthetics, historic preservation, agricultural soils, and conformance with town plans instead of zoning bylaws. (This is not an exhaustive list).
- Make Vermont's proportion of renewable-source electricity the nation's highest. This requires only deleting the artificial "less than 200 megawatts" definition of "renewable", thus making HydroQuebec hydropower what it is everywhere but in Vermont, a renewable resource. That would ease the pressure to unwisely subsidize uneconomic renewable energy producers.
- Pass a regulatory takings bill, by which a landowner could invoke inverse condemnation whenever harsh regulation destroys more than half the value of his or her property.
- Create a long overdue performance review process to weed out outdated or useless state programs and make the remainder more efficient. The modest funds needed could be found by abolishing several state commissions that serve no useful purpose.
None of these would be, arguably, Something Big and Historic. But while the money committees are wrestling with the looming deficits, the rest of the members could well vote these through and go home with a sense of having done something useful toward making Vermont more economically competitive in the years ahead.
Vermont Democrats Should Embrace Obama’s Slogan
December 2008
In July of 1995 William Sorrell, Administration Secretary for Gov. Howard Dean, released a list of 59 “cost-shrinking ideas” for state government, to meet that year’s fiscal crunch. The great majority of them proved to be pious hopes unsupported by analysis, schemes for reshuffling bureaucracies, and earnest entreaties to “promote efficiencies”. Few if any were ever implemented, but somehow Vermont made it through 1996.
Now, fourteen years later, the Governor and legislators are facing a total of $66 million in General Fund reductions to meet expected revenue shortfalls in Fiscal Year 2009, with upwards of $176 million more necessary for FY 2010.
On December 17 the Joint Fiscal Office released a “master list of reduction ideas”, culled from proposals emanating from both the legislature and the administration.
Most of the 140 proposals are predictable: Freeze spending on vehicles and space leases. Impose Reductions in Force (layoffs). Leave vacant positions unfilled. Deplete special funds with unused balances. Reorganize bureaus. Scrap non-productive boards and commissions.. Increase fees, premiums and co-payments. Reduce or eliminate tax exemptions. Plead for more Federal assistance.
Suppose a politically painful but ultimately agreed-to collection of such proposals is adopted by the new legislature. Suppose further that the state can emerge from the hard times, say in 2011, and ride the wave of the Obama economic boom. Then what? Then as new revenues become available, almost all of next spring’s hard-nosed decisions will one by one be reversed. And as soon as the next downturn materializes, governor and legislators will start the same revenue raising and spending reduction exercise that they went through in 1996 and 2009.
There is a way to get off this roller coaster: change the way state government operates. To do that requires investment in a performance review. Performance review is a careful and deliberate study by knowledgeable and disinterested people of what state government has agreed to do, how it does it, and how what the people want done can be done better and more efficiently. The goal is to balance over the long term the cost of state government’s programs and the revenue from taxpayers, without raising taxes that would kill future economic growth.
Performance review has strong bipartisan roots. In Texas Controllers John Sharp (D) and Carole Keeton (R) fed hundreds of cost-saving recommendations to Governors Ann Richards (D) and George W. Bush (R), saving Texas taxpayers billions. Michigan Gov. John Engler (R) was soundly reelected in 1996 due to the success of his review called PERM, for Privatize, Eliminate, Retain or Modify.
In fact, the Vermont Democratic platform of 2004 pledged that party to conduct a “top-to-bottom ‘performance review’ of the functions of state government… to find creative, smart new ways to make government run more efficiently on the resources we have.” Unfortunately the Democratic legislature elected that year seems to have forgotten this sound proposal, but it’s not too late for them to catch up.
It won’t be easy to conduct such a review under the fierce and immediate pressure of huge looming deficits. But it must be done, to prevent the state government from stumbling haphazardly on through the recurring cycle of politically-driven program expansion, increased spending, revenue shortfalls, budget reductions, bottoming out, and then expanding all over again until the next recession.
If the Democratic majority in Montpelier needs leadership guidance, they need look no further than their supreme leader, Barack Obama. In naming his director of the Office of Management and Budget on November 25, the President-elect said:
“In these challenging times, when we are facing both rising deficits and a sinking economy, budget reform is not an option. It is an imperative. We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of politicians, lobbyists, or interest groups. We simply cannot afford it."
“This isn’t about big government or small government. It’s about building a smarter government that focuses on what works. That is why I will ask my new team to think anew and act anew to meet our new challenges.... We will "
What more incentive do Vermont’s Democratic legislators need to set in motion a similar review in our state? Perhaps they should make their first act upon returning to the statehouse this week a reaffirmation of their earlier commitment, by wearing buttons reading “Yes We Can!”
Recession As Motivator for Shaping Up Government
November 2008
In nine weeks the Governor of Vermont will stand before the new General Assembly and deliver some grim news – but it might have a silver lining.
Back in July the administration announced a $32 million revenue shortfall for the fiscal year 2009, ending next June 30. That figure will be recalculated on November 18. The steps that have been taken to cope with the $32 million shortfall will not be sufficient to cope with a new, higher number.
At the end of September the state was running $6 million ahead in expected revenues. That apparent good news will almost certainly evaporate by the end of the year. That’s because individual and corporate income tax payers make withholding payments based on 90% of their last year’s tax liability. As the end of the tax year approaches, they are likely to realize that their income losses from the market meltdown and recession will reduce their tax liability, and so they’ll reduce their income tax withholding accordingly.
The monster in General Fund spending is Medicaid. A small General Fund surplus from FY2008 allowed a slight increase in the state’s embarrassingly low provider reimbursement rates. Barring dramatic program changes, there will be a Medicaid deficit in FY2009.
This will force the Administration and legislature to make politically difficult Medicaid choices: reduce services, reduce eligibility, reduce provider reimbursement rates, or cut back the important chronic care initiative before it has really gotten off the ground.
The Transportation Fund is increasingly starved for revenues, thanks to higher fuel prices causing less driving and more efficient vehicles using less fuel per mile traveled. That means stopping new construction, limiting maintenance to the worst problem areas, and cutting back state highway payments to local governments. The latter “solution” reduces local road maintenance or forces higher municipal property taxes, both highly unpopular.
One stopgap solution would be to restore the $20+ million in vehicle purchase and use tax from the Education Fund back to the Transportation Fund. That would of course cause a $20+ million hole in the Education Fund.
It is almost a certainty that the Governor will have to recommend an increase in gasoline and diesel taxes by something like 5 cents a gallon. Those tax rates have not been increased since 1997. With gasoline prices down a dollar a gallon from six months ago, this is the best time to ask motorists to accept a slightly higher rate.
The Education Fund, fed by a formula-driven General Fund transfer and two state property taxes, will certainly not keep up with the growth of public school spending voted by the towns. That’s because the huge boom in assessed values is now over, and many valuations are likely to start going down instead of up. It’s also because the 2007 legislature foolishly authorized school districts to send the bills for universal preschools to the Ed Fund.
Thanks to the rising assessments, the legislature has four times reduced the residential property tax rate, from $1.10 in 1997 to the present $0.87. Next year the legislature will almost certainly have to increase that rate, and also the nonresidential rate, to enable the Ed Fund to pay the bills that local voters are sending to Montpelier for payment.
On October 27 Gov. Douglas, as vice chair of the National Governors Association, joined chairman Gov. Ed Rendell of Pennsylvania in a letter urging Congress not to stimulate consumer spending by another cash giveaway. Instead, they pleaded for a higher Federal matching percentage for Medicaid (now 59.35%), plus increased federal grants to states for transportation, water and sewer, and telecommunications investments.
Those are better ideas than another taxpayer handout, but Congress doesn’t have more money to spend. It just authorized $750 billion (out of what?) to bail out ailing (and irresponsible) financial institutions.
Raising Vermont’s income tax rates would be devastatingly counterproductive. Raising the sales tax to 7% would be possible, but the revenues would be swallowed up in a year or two without solving any problem. Extending the sales tax to services (architects, lawyers, auto mechanics, barbers, hairdressers, taxi drivers etc.) is a political third rail.
There’s still the option of maintaining spending by dipping into the three “rainy day” reserve funds. But other than threatening the state’s bond rating, that, like a sales tax increase, would provide only a brief respite.
This recession will drive home to Vermonters that for years their politicians have written checks that our economy now can’t cover. Now it’s time for taxpayers to force the politicians to get serious about cutting back, shaping up, and encouraging wealth-producing enterprise.
Candidates: Fish or Cut Bait
October 2008
Almost every candidate running for the legislature is urgently promising to work – or better yet, fight – for or against a list of causes framed to win the support of the maximum number of voters. Thus we have candidates from every point on the spectrum vowing to fight for more jobs, more affordable housing, better roads, and lower tax rates (for you), or the Sanderista favorite, higher tax rates on “the wealthy”. How they expect to achieve these wonders is rarely discussed.
So let’s force the candidates to fish or cut bait. Here are ten pointed questions that will put candidates on the spot.
1. With the national economy reeling, the next state budget year is likely to be a rough one. If next April there is a shortfall between the state’s projected expenditures and its projected revenues, will you vote to reduce expenditures, raise tax rates, or borrow money to pay the bills? Or some of each?
2. The Vermont income tax now has a top bracket of 9.5%, applied on taxable incomes in excess of $336,550. To what level would you consider increasing that rate to raise more revenues from the wealthy?
3. Starting next year taxpayers in above-average education spending districts will be asked to vote twice on school spending, once on a budget no greater than the Maximum Inflation Amount (previous year’s budget increased by the rate of inflation plus one percent), and once more on any excess over that amount. Do you favor letting this law work? Expanding it to cover all districts? Or repealing it, as recommended by the Vermont-NEA teachers union?
4. The 2009 legislature will vote on whether to permit the Vermont Yankee nuclear power plant to continue to operate after 2012. Assuming the federal Nuclear Regulatory Commission approves a license extension beyond 2012, and the Public Service Board certifies that the plant’s continued operation serves the public good, will you vote to allow Vermont Yankee to continue generating electricity? Or will you vote to close it, regardless of the cost and sources of the power needed to replace it?
5. Will you vote for or against a proposal to create a 50-foot “riparian buffer zone” along waterways flowing through private property?
6. Will you vote for or against a “card check” law, allowing labor unions to gain certification by collecting employee cards signed in public, instead of by employee secret ballot as now required?
7. For years some legislators have proposed that the government institute a single payer universal access health care system, where private health insurance and premiums are abolished, all Vermonters are entitled to the benefits of a government-designed taxpayer-financed health insurance plan, and the state compensates all health care providers out of such tax dollars as may be available for that purpose. Would such a system have your support? If so, which tax or taxes would you vote to raise to finance it?
8. To combat the menace of global warming, the 2006 legislature committed to requiring Vermonters to reduce their emissions of carbon dioxide to 50% below the level prevailing in 1990, by the year 2028. Will you vote to authorize the regulations and taxes necessary to achieve this very large reduction?
9. The legislature has given the Public Service Board the unlimited power to levy “efficiency assessments” on your electric bill. It has given the Milk Commission unlimited power to levy “assessments” on fluid milk sold in Vermont stores. Will you vote to require that only the legislature, accountable to the people, can raise taxes on the people?
10. Would you vote to return the $28 million in motor vehicle purchase and use tax revenues from the Education Fund to the Transportation Fund for highway and bridge maintenance? If not, would you vote to increase the present 20 cents per gallon gasoline tax to 25 cents for that purpose?
Clear answers to questions such as these will give informed voters a far better idea of what to expect from legislators than the self-serving and evasive promises that too many of them emit during campaign season.
A Badly Needed Unpopular Idea
August 2008
The state is now facing a revenue shortfall of $32 million for the fiscal year that ends June 30, 2009. Gov. Douglas and the legislators on the Joint Fiscal Committee are negotiating over what to do about it.
They are now on the down side of the tax and spend game regularly played in Montpelier. When the state is flush with revenues, the legislature appropriates for the support of state government. Then it adds in a list of ranked spending projects to consume any leftover funds. This is called the “waterfall”.
When revenues shrink, the governor and legislators resort to the “haircut”. This is typically a percentage cut across the board, with certain categories (interest on state debt, public safety, etc.) exempted.
What is missing here is the will, especially in the legislature, to reduce the size of the base to which the percentage cuts apply.
Gov. Douglas attempted to reduce the base earlier this year with his announcement that four hundred state jobs would be left unfilled.
Some of those positions probably produce little or nothing and thus their occupants won’t be missed. But many positions are associated with programs mandated by the legislature. When there are fewer employees to carry out the same or increased duties – think plow truck drivers and environmental inspectors – service slows down.
The state’s overall goal should be to reduce the spending base by unloading activities that don’t produce much of value, cutting back on entitlements, and improving efficiencies so fewer workers can get the same or better results. This is not a politically popular prescription.
However the Governor and the Joint Fiscal Committee decide to reduce spending by $32 million in the remaining ten months of FY2009, the problem will come back stronger in January.
The Medicaid Global Commitment ends in 2010. The point of the Commitment was to allow the state to achieve cost savings through the waiver of certain federal requirements. If it worked, the state could keep the unspent federal money. If it doesn’t, the state’s taxpayers would be on the hook to make up the shortfall. In FY2010 that shortfall is expected to be $38 million.
Spending from the Education Fund is determined by budgets passed by voters in school districts around the state. With the rising assessments of recent years, the Ed Fund overflowed with revenues. Four times in the past decade the legislature has reduced the base state education property tax rates. The Education Fund reserve is almost full.
But next year those base rates will have to be raised. Real estate assessments are dropping from their peaks. PreK-12 spending will outstrip state property tax revenues. The one potential spending restraint – the “two vote” ballot requirement in high spending towns – will be under desperate attack by the Vermont-NEA from the day the 2009 legislature convenes.
The Transportation Fund faces even more serious deficiencies. Last January the Joint Fiscal Office projected an annual shortfall of $203 million, just to maintain roads and bridges is serviceable condition.
The Transportation Fund is already suffering from the diversion of around $25 million a year in purchase and use tax revenues to the General Fund. Reduction in motor fuel usage – due to more efficient vehicles, more carpooling, more telecommuting, and less vacation travel – means that that revenue source will likely decline. Legislators aren’t willing to increase the present 20 cents a gallon gasoline tax when their voters are howling about four dollar a gallon gas.
There are passionate voices resisting any reductions in state spending. The state employees’ union, the teachers’ union, and low-income advocates lead the way. The Public Assets Institute urges depleting the state’s “rainy day” reserve funds rather than curbing spending.
The environmental groups like VPIRG are urging costly and far ranging new state regulatory programs to fight the supposed menace of carbon dioxide emissions. A well-funded activist network is trying to build support for a taxpayer-funded state takeover of the entire health care system.
Add the fact that Vermont already has the highest tax burden in relation to personal income of any state in the union, and one arrives at the conclusion that Vermont’s fiscal future looks like a slow motion train wreck.
The state badly needs a long-range strategic plan to shrink state government, make it more efficient, and improve the economic climate to generate more revenues. That is not a popular idea in Montpelier, and it will not be on the table during the current budget negotiations.
Fighting Fiscal Obesity in Montpelier
January 2008
On January 16, five days after the Governor's state of the state message, the Emergency Board got a rude shock. The consensus projection of state economist Jeff Carr and legislative economist Tom Kavet contained the bad news. Although Vermont ought to weather Fiscal Year 2008 (ending in June), FY09 is likely to see a $25 million reduction in expected revenues.
At the same time, there is a 52% probability of a recession, inflation will continue its upward march, and legislators and agencies are clamoring as always for more spending on their favorite programs and interests.
After six high-pressure days of reworking of the FY09 state budget, Governor Douglas delivered a somber budget message. In view of the economic uncertainty, he said, the next budget year will be the tightest of his tenure, with "little margin for error."
The most watched General Fund number is probably the Medicaid budget. During the Dean years Medicaid coverage expanded dramatically. It has become the Monster that Ate Montpelier, chronically plunging into the red, always more expensive than the cost predictions made at every expansion.
Next year the Governor wants to put another $27 million into Medicaid, increase patient premiums and copays, and add $7.5 million to keep higher income Catamount Health enrollees on the rolls. This runs directly counter to the legislative leadership's desire. That is to eliminate copays, eliminate premiums, eliminate private health insurance, put the government in charge of everyone's health care, and send the $2 billion bill to the taxpayers.
The Douglas proposal that has attracted the most lightning is his proposal to lease the state lottery to a private company. That deal would drop $50 million on the treasury up front, to be used for school construction and a (desperate) one-year slowdown of rising education property taxes. The private operator would of course hype lottery marketing to earn back enough to pay off the state and please its investors. The era of "please play responsibly" would come to a sudden end.
Beyond those leading items, the Governor makes the point that in straitened times the state needs to "evaluate every program, every service and every investment to ensure maximum effectiveness and efficiency." This is a worthy objective, but rarely if ever achieved in Vermont.
Can anyone remember a state spending program, launched with great fanfare, then found to be inefficient, worthless or counterproductive, and scrapped? Probably not.
Take low income heating assistance. For twenty years or more the state has financed the weatherization of low-income homes. For as many years the real incomes plus benefits of the lowest quintile of Vermonters has been rising. Vermont has happily experienced twenty years of warmer winters, thanks to the global warming that the Democrats in Montpelier are determined to reverse.
But despite high heating oil prices (that the Democrats want to increase to pay for their program to advise people to stop burning so much fuel), one would think that by now the state ought to at least be leveling off in heating fuel assistance. But our "most generous in the nation" heating benefit program keeps on going up, and the Governor wants $8 million for new weatherization grants.
The Governor himself notes that "the money saved in the first few years [from weatherization and energy audits] would easily repay the loans, and all the savings after that is money back in the pocket of the home or small business owner." How about asking the home and small business owner to use the savings that are "back in their pocket" to pay back the taxpayers from whom the government took the money to make those savings possible?
The Governor wants $4.6 million more to subsidize more college scholarships. The students who use those scholarships will over their lifetimes (probably lived elsewhere) earn hundreds of thousands of dollars more than those who didn't go through college. Why couldn't those fortunate students pay back their college costs out of their much higher lifetime earnings?
There are many other examples of Vermont's chronic penchant for showering taxpayer-financed benefits on non-poor people, while asking little or nothing in return.
A new spending feature in this year's budget is an appropriation for twelve new obesity counselors to be deployed around the state, consuming perhaps half a million dollars in compensation. A useful addition would be an Obesity Czar in Montpelier, who would put state government on a serious diet.
A Legislative Year Best Forgotten
May 2007
On May 12 the exhausted 2007 legislature wrapped up its work and went home. Rarely has a legislature so eager to make fundamental change failed so utterly in that task.
The legislative centerpiece of the session, at least in the eyes of Senate President Peter Shumlin, was the need to mobilize Vermonters in the great battle against Anthropogenic Global Warming, that is, against the menace of carbon dioxide.
The technique of choice was the creation of a new taxpayer-funded monopoly called the “thermal efficiency utility”, to explain to supposedly dim-witted Vermonters that using less heating oil, natural gas, and propane would save them money. Finding the needed 25 million new dollars every year became the obsession of the session.
Shumlin’s first idea was to levy a tax on heating oil, natural gas, and propane. That sank like a stone. Then he went after Entergy’s Vermont Yankee nuclear power plant.
His first attempt was to be a tax the plant for storing used fuel rods on the plant’s own property at its own expense. That idea violated a 2005 agreement by which Yankee agreed to pay some $28 million for that “privilege”. Even some conscientious liberals balked at that breach of faith.
Shumlin then proposed a tax on “excess revenues” that Yankee might earn by selling 20% of its power into a rising electricity market. (The other 80% is sold at bargain rates to Vermont utilities.) That would have set such a horrendous taxing precedent that the business world, led by IBM and GE, raised a vocal opposition.
The Senate passed the measure 15-14, but it was replaced in conference committee with yet another Shumlin scheme. As finally passed, the bill tripled the electrical generation tax on Vermont Yankee to raise the “thermal efficiency utility” money.
Also included in the bill was another handout to VPIRG’s favorite corporate welfare recipient, the commercial wind energy industry. The bill gave wind towers a large education property tax discount to go along with its Federal production tax credit, accelerated depreciation, and sale of so-called green energy credits.
The legislature nervously passed the energy bill and sent it to Gov. Douglas, who announced Friday that he would veto it. Shumlin and Speaker Symington will be very hard pressed to find the votes to overturn a veto.
Meanwhile the legislature made a run at doing something about an issue that people really care about: restraining soaring education costs. The result was a feeble bill with all sorts of studies, but little relief. It did cut by two cents the education tax rates on both residential and non-residential property. The most notable provision tells high spending school districts that (starting in 2009) they must present two ballot questions to the voters.
One will ask approval of a budget that does not exceed the state’s overspending threshold. If they approve that question, the voters will then vote to decide if they want to spend additional dollars that will trigger the state’s penalty for overspending.
This provision caught the educational establishment by surprise and put it into full panic mode. The teachers’ union and its allies understand that fed-up taxpayers are very likely to vote down the excess part of the budget.
The legislature also bought into taxpayer-funded “preschool for everybody”. This has been a high priority of the education spenders, even though there is no evidence that providing “education” to 3- and 4-year olds will yield any identifiable educational results three years later.
The legislature rejected limiting preschool spending to at-risk children who might actually benefit. Instead the bill purports to place some limits on the growth of universal preschooling, and directs school districts to make use of “qualified” private day care providers. Parental choice and faith-based schools were conspicuously omitted. Welcome to the 15-grade public school system.
The legislature did pass a bill creating a $40 million revenue-bond financed Vermont Telecommunications Authority, to build and lease towers and cables to private companies that will provide broadband coverage to the backwoods. The key part of the bill, a relaxed regulatory regime for tower siting, survived a threat from Senate enviros. The new Authority will hopefully earn back its investments.
About the only other worthwhile bill sent to the governor was a Catamount Health amendment to not tax employers on their part-time and seasonal employees who have health insurance through another job or a spouse.
Verdict: a very liberal legislature balanced the budget, offered a desperate and embarrassing tax grabbing spectacle to combat the alleged menace of global warming, did little to stem the rise in education costs, and failed to do anything to improve the economic prospects of Vermonters.
Is Vermont Heading Off the Rails?
December 2006
What happens to a state when it becomes the second oldest state in the nation, its working age population steadily shrinks, and there’s no longer enough to tax to pay for its very generous K-12 education and human services programs?
In short, that state is heading “Off the Rails”. And that’s the title of a new Ethan Allen Institute report, based on research by Prof. Art Woolf of UVM and Northern Economic Consulting.
For a year now, in op ed pieces and other forums, former state economist Woolf has been making the case that Vermont’s combination of changing demographics and increasing obligations for state spending programs will lead to serious problems – not immediately, but by 2030. The new report is a concise version of his thesis, produced with contributions from a 23-person advisory group.
The report explains clearly that Vermont is now the nation's second oldest state. More of its young people are seeking opportunity elsewhere. The proportion of active wealth producers is declining. The proportion of dependents – increasingly retired seniors instead of children– is growing.
But as Vermont’s taxpayers are well aware, Vermont’s high level of public service spending – especially on public education and human services – is requiring ever-greater tax revenues. There is little reason to believe that over the next 25 years those taxpayers will be willing to pay enough in taxes to support the state’s spending habits.
In the 1996 school year – just before Act 60 – state and local governments spent $940 million (in 2005 dollars) to educate 105,600 K-12 pupils. Ten years later the school population had declined by 7,200, the schools had added 1,179 more teachers, the pupil-teacher ratio had declined to 11.3 (lowest in the nation), and K-12 spending had increased to $1.2 billion, a 27% increase in constant dollars.
By 2030, even if Vermonters are willing to devote an all time high of 18% of their adjusted gross incomes to state and local taxes, more than two thirds of all tax dollars collected will be needed just to pay for public K-12 education. In fact, by this projection the cost per pupil in 2030 will be an astonishing $33,400 – and that’s in 2005 dollars, not inflated dollars.
Almost all of the remaining tax dollars will be required to fund human service programs. And that assumes there will be no new spending programs, like universal preschools or universal taxpayer-financed health care.
The problem is not beyond our control, but we can’t wait until 2029 to start taking remedial action. There are several possible approaches.
Legislators can slow the growth of spending for both public K-12 education and human services. They can also create a much more favorable climate for investment, entrepreneurial opportunity, and economic growth. That will increase incomes, enlarge the revenue base, and reduce the rising tax burden.
Increasing tax rates in an attempt to increase government revenues is not a viable option. That would propel Vermont from fifth to first place in state and local tax burden. Such a heavy tax burden would doom the state’s efforts to stimulate wealth producing economic growth. The report notes that if Vermont had the national average tax burden, Vermont taxpayers would this year have enjoyed $227 million more in disposable income.
Keeping Vermont on the rails will require transforming Vermont into a state more attractive for productive young Vermonters to stay and work in, and for productive workers from outside the state to migrate into.
This will require changing the state’s tax and regulatory policies. It will require improving its educational and work force quality, strengthening its institutions of post-secondary education, and expanding its telecommunications system. It will also require maintaining the high quality of the state’s health care system and protecting its environmental amenities. Those steps would make Vermont more attractive to existing businesses and to new firms that base their enterprise on highly educated, skilled, high-salaried workers.
The report concludes by saying that “A conscious decision to implement such policies will take vision and political courage.”
“It will mean creating a much more favorable climate for investment, entrepreneurial opportunity, and economic growth, and resisting the political temptation to pick and subsidize favored enterprises.”
“It will mean putting limits on the state government’s role as the provider of tax-funded benefits to an increasing proportion of the state’s population.”
“But if Vermont’s government and economy are to stay on the rails for our children’s generation, there seems to be no other viable choice. We do not have decades to get this right.”
Voluntary Action for Stronger Local Economies
June 2006
Last week Burlington played host to a national conference of an organization called BALLE, the Business Alliance for Living Local Economies. It’s a vigorous and growing alliance of 29 U.S. and Canadian networks of locally owned businesses, with over five thousand members.
BALLE members contrast their community, environmental and “social justice” orientation with the soulless franchises and big box chain stores, whose primary goal is maximizing profits and boosting their publicly traded stock prices. Needless to say, Ben Cohen, formerly the Ben of Ben & Jerry’s, is a big Vermont supporter. Unilever, the Anglo-Dutch consortium that Cohen sold Ben & Jerry’s to, was not represented.
On the day preceding the BALLE conference, the E.F. Schumacher Society, keepers of the “small is beautiful” slogan, presented a fascinating program centering on the use of non-governmental local currencies to stimulate local economies, encourage voluntary exchange of services, and – possibly – take the place of Federal Reserve Notes when the Big Crash comes.
A leading example is Fureau Kippu, a Japanese social service network of 372 community systems that issue smart cards to each member. The name of these cards translates as “caring relationship tickets”. As the members perform voluntary services to others in need – such as home care, shopping assistance, home repairs, and rides to clinics – they accumulate credits on their cards. The credits can then be used to “buy” similar services when they are in need.
An American-born version is called Time Dollars (www.timebanks.org). The program operates on the premise that everyone is in some way an asset to society and deserving of respect for his or her contribution, however modest. Enabling people to make and receive contributions of their time and abilities dramatically increases the social capital of a community. As in the Japanese program, members accumulate Time Dollars by voluntary service, and draw on their store when they need help themselves.
Groups in dozens of communities, including Burlington, have launched actual local currencies. Unlike Time Dollars, which focus on expanding caring humans services for the needy, most of the local currency programs aim to use scrip money as a way of facilitating barter transactions for goods and services, and “buy local” shopping.
Calgary Dollars, from Alberta, can be used for the exchange of all sorts of goods and services, listed in their catalog. The Schumacher Society’s program, soon to emerge in western Massachusetts, will have a lending component. The Society has persuaded four of the area’s banks to handle Berkshare accounts. Their scrip design features celebrated former residents of the Berkshires. Here in Vermont, Burlington Bread hopes to persuade the city to accept their scrip in partial payment of city taxes.
The Swiss WIR, in German an acronym for “business circle”, has served thousands of small businesses for over seventy years and is credited with exerting a stabilizing effect on the Swiss franc.
In Philadelphia, Recycle Bank gives credits to families for each pound of recyclable material put into curbside pick up bins. Homeowners can use the credits to shop at participating local businesses. The city gains by reduced landfill costs and the proceeds of recycling.
Most of the attendees at both conferences were clearly liberal in their political orientation. There was lots of talk about the benefits of sustainability, diversity, environment, and “social justice”, and denunciation of the evils of big banks and corporations.
But unlike liberals and socialists who favor a government program to address every perceived problem, these liberals are wary of taxpayer-financed bureaucratic programs. In some cases, they were as downright hostile to them as the most outspoken libertarian.
Their common interest is not clamoring for bigger government, but working together to stimulate dynamic economic activity by free citizens, building stronger local economies and communities through mutual aid, free exchange, and voluntary action.
Perhaps they have absorbed the prescient observation of Alexis de Tocqueville, after his visit to America in the 1830s. What will threaten democratic societies, Tocqueville wrote, is a benign but paternalistic government that “extends its embrace to cover the whole of society… It seldom enjoins, but often inhibits, action; it does not destroy anything, but prevents much being born; it is not at all tyrannical, but it hinders, restrains, enervates, stifles and stultifies so much that in the end each nation is no more than a flock of timid and hardworking animals with the government as its shepherd.”
The vitality of the BALLE and Schumacher Society conferences is welcome evidence that too much government has not yet crushed the spirit of citizen action to work together to solve common problems and build stronger communities. Just the same, Americans need to recognize that every proposal to tax earnings away from citizens to expand government carries that threat.
An Agenda for Affordability
January 2006
Last Thursday Governor Jim Douglas delivered his state of the state message. As is customary in such messages, the Governor included tributes to deserving citizens and a recitation of things Vermonters can be thankful for. But the core of the governor's message was his focus on a "crisis of affordability". By that phrase he refers to the regrettable fact that our state is becoming less and less affordable for everyone but those of high incomes and ample wealth.
The governor listed some of the victims. Young newlyweds living with their inlaws because they can't earn enough to afford a home. Retired grandparents moving out of state to a place they can afford on their fixed incomes. Young and middle-aged adults leaving their native state to seek decent paying jobs elsewhere.
The governor noted that along with the sixth highest cost of living in the country, Vermont has the third highest tax burden. It takes only a little analysis to identify the leading "cost culprit": too much government, too high taxes, and not enough freedom.
Much of the reason for high housing costs is the high cost of land due to zoning and environmental restrictions and permitting costs.
Much of the reason for the dearth of high paying jobs is the lethal combination of high taxes, high workers compensation costs,unreasonable environmental restrictions, and the ever-looming presence of a legislature eager to load taxes and costs onto businesses to advance its left wing dreams.
Much of the reason for high energy costs is enviro opposition to siting new power plants and pipe lines, and the legislature's determination to make ratepayers subsidize the leading liberal corporate welfare recipient, the "renewable energy" industry.
Much of the reason for the high cost of health insurance is a twenty-year string of misguided legislative actions, driving up premium costs to three times the level of many other states, taxing our health care providers to pay for their own services, and destroying a competitive health insurance market.
Much of the reason for high property taxes is the never-satiated appetite of the public education empire, largely driven by a power-hungry teachers union determined to stamp out any parental choice and educational innovation outside the union-dominated public school system.
Much of the reason for the high tax rates on incomes, sales, meals, and rooms is the constant demand of the Vermont welfare state, built on the Sanderista proposition that social justice can be achieved only through high government spending financed by taxes on the "rich and the big corporations".
Governor Douglas deserves credit for his firmly stated opposition to increasing the income tax rate, his call to reconsider the 2005 legislative decision to add two more preschool grades to the public schools, his proposal to limit the growth of public education spending to the rate of inflation, and his modest plan for covering Vermont's uninsured without raising taxes. These are all positive steps that deserve legislative and public support.
But having said all that, the governor did not explain how Vermont will cope with the fiscal storm clouds already visible on the horizon. Notwithstanding the vaunted Medicaid "Global Commitment" deal with Washington, that program will face a $280 million deficit in five years.
VTrans estimates current unmet transportation needs at $464 million, and there is not enough Transportation Fund revenue to take full advantage of the most recent federal transportation bill. The teachers retirement fund is $59 million short this year, and is not likely to get more than $25 million. Its overall actuarial deficit is $315 million.
And, as the Governor observed, the Vermont population is graying and overtaxed, there are few signs of vigorous high-wage economic growth, and for decades our bright and energetic youth have been departing for greener pastures - to the point that the governor even proposed paying Vermont college graduates to stay here.
The hard truth is that we Vermonters have developed an unaffordable addiction to big government. It's good to hold the line, and Vermonters can be thankful that they have a governor who will try to do that. But unless we roll back government spending, taxation, and regulation and make Vermont truly a land of freedom and opportunity, we will slide into eventual stagnation and penury.
Governor Douglas approvingly quoted native son Calvin Coolidge: "I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. That is the chief meaning of freedom."
The question today is not whether Vermonters can afford such freedom. It is whether Vermonters can prosper without it.
Whatever Happened to the Performance Review?
October 2005
In his 2003 budget message, delivered just three weeks after he took office, Gov. Jim Douglas announced that he would “bring together some of the best minds from outside of government to initiate a review of how government can function better, utilize technological advances and improve our systems and services.” Last month the result of what came to be called the “high performance government” project was made public. The episode tells a lot about the difficulty of achieving even modest reforms of the way in which our $3.6 billion state government works.
Shortly after delivering his 2003 budget message, the Governor created a planning group to flesh out his proposal. The group of eight met five times. Not surprisingly, its four private sector members were far more aggressive than the four administration members. The private people saw great opportunity for streamlining and reforming the activities of state government; the administration people saw lots and lots of problems, both managerial and political.
In May 2003 the Governor reviewed the planning group’s recommendations and, not looking to pick any unnecessary fights, scaled them back - way back. The result, embodied in a 2003 executive order, was far from a thoroughgoing review of the policies and workings of state government.
Instead, the Governor caused to be created a private nonprofit Vermont Institute on Government Effectiveness. The Institute was directed by loyal Douglas backers, but it was separated as far as possible from the governor’s office. That made the administration immune to political attack if the Institute’s eventual recommendations strayed into controversial territory. In addition, the focus of the Institute’s examination constantly narrowed.
What emerged in the final report is what would be called a management review of one function of state government: information technology. The report found that each unit of state government has cobbled together its own computer and internet system. State government has 330 employees primarily working with IT, and spends at least $50 million a year on equipment, software and maintenance. Yet there is little coordinated planning and expert supervision.
The Institute’s key recommendation is a familiar one in the private sector: reconstitute information technology on an “enterprise management “model, an organized and integrated system instead of a bunch of homemade mini-systems. This, the report says, would produce substantial savings plus far better service to the general public.
Let’s give the VIGE team a gold star for a conscientious if not an audacious effort. But the real story behind this issue is that the Institute labored under constant political pressure from the Vermont State Employees’ Union to absolutely, positively never consider the possibility of privatizing or contracting out any functions of state government. That is probably the single most promising way for a government to get a task done effectively at lowest cost to the taxpayers, but the VIGE report bent over backwards to assure the VSEA that privatization would not even be hinted at.
Other Governors have taken the lead in seeking ways to make their state governments cost-effective. Gov. John Engler (R-Michigan) was a pioneer in the early 1990s. His model was called PERM, for Privatize, Eliminate, Retain or Modify, and he took personal responsibility for the project. (Despite predictable opposition from the state government work force and their union allies, Gov. Engler was handily reelected.)
In Texas, Controllers John Sharp (D) and Carole Keeton (R) fed hundreds of sweeping recommendations to Governors Ann Richards (D) and George W. Bush (R). More recently, Governors Gary Locke (R-WA), Mark Warner (D-VA), and Arnold Schwarzenegger (R-CA) have launched partial or full Texas-style performance reviews. These reviews question every activity the state government does, and asks how and by whom it could be done better and cheaper – or whether it ought to be done at all.
Vermont is sorely overdue for a true performance review. In fact, although Governors Davis and Snelling did take some steps to modernize an old-fashioned state government, Vermont has never really had the real Texas-style deal.
But perhaps there is hope. The 2004 Vermont Democratic platform called for a “top-to-bottom ‘performance review’ of the functions of state government to find creative, smart new ways to make government run more efficiently on the resources we have.” An excellent idea, that Republicans from Gov. Douglas on down ought to applaud and support!
Unfortunately that Democratic plank does not seem to be a very high priority for a party now obsessed with expanding government to take total control over our health care system.
Get Rid of the Government Hammer
February 2003
There is an old saying that “if the only solution you have is a hammer, every problem looks like a nail.” That aptly describes the current legislative push for a “jobs bill”.
The much-heralded bill “to stimulate job creation” (S. 88) contains many elements of Gov. Douglas’s campaign “Vision for Vermont”. All eleven Senate Republicans, plus ten Democrats, are cosponsors. Here are the bill’s key provisions:
The Vermont Economic Development Authority (VEDA) is authorized to invest an additional million dollars in small business lending entities.
VEDA is told to create a new investment partnership and put up to $2 million in its kitty.
The Vermont Jobs Fund (VJF) is authorized to advance $15 million for expanded agriculture loans, and $3 million more in loans to the VEDA-funded small business development corporation.
The existing Vermont Economic Progress Council (VEPC) would be given more flexibility in distributing tax credits to worthy enterprises.
It would be authorized to hand out a new “venture capital angel income tax credit”, on top of the five it already hands out. A successful applicant could get up to $80,000 in tax credits for making a $200,000 equity investment in a Vermont-based small business. Over the next five years the Council could distribute up to $1.6 million under this program.
Now step back and look at all this stuff. It’s all just More Government.
The only solution conceivable to the backers of this sort of bill is yet more government programs, where government functionaries distribute taxpayer-financed benefits to worthy applicants who do all the right things. That’s the hammer. Hammer away!
But any reasonably successful business person will ruefully tell you that the problem in Vermont is not too few government loan and selective tax credit programs. The problem is that Vermont’s economic development climate is weak because of too much government, not too little.
Compare Vermont’s model with New Hampshire’s. Vermont has high tax rates, a mind- boggling permit process, a host of mandates on business, and a legislature where both Republicans and Democrats view the present “jobs bill” as the solution to “not enough jobs”.
New Hampshire has no personal income tax, no sales tax, a comparatively benign permit process, few business mandates, and a legislature that believes that with Big Government off their backs, entrepreneurial men and women will go forth, invest, hire, produce, market, and flourish, making New Hampshire more prosperous.
If you had a choice of where to launch your business venture, which state would you choose? If your skill was manipulating government benefits out of politicians and bureaucrats, you would probably choose Vermont. If your skill was making a product or offering a service that people want to pay for in the market, and you hoped to earn an honest profit and be allowed to keep most of what you earned, you’d go to New Hampshire.
Vermont’s problem for years has been high public spending, high tax rates, and a suffocating economic paternalism. Its political leaders of both parties look with horror at New Hampshire’s economic freedom. What if somebody started a business that wasn’t located where it should be, or didn’t pay enough to the right people, or didn’t offer a full array of benefits, or didn’t check for arrowheads, or just acted without getting anybody’s approval? Horrors!
No, we must maintain our costly barriers to economic progress, mandate numerous nice things that all businesses must do, expand government programs like VEPC and VEDA and VJF to shower other people’s tax dollars on the favored few, require elaborate reporting to make sure all promises are kept, and above all Maintain Control to make sure all economic activity conforms to our approved image of the Perfect Little State.
The “jobs” bill is not a solution to the shortage of good jobs. It is an assurance of bureaucrat-heavy big government stagnation.
Start tax rates trending downward. Unsnarl the permit tangle. Stop laying mandates on business. Expand opportunity. Give freedom a chance. Then enterprising Vermonters can give New Hampshire a real run for the money.
Why Generating Economic Growth is So Difficult
September 2002
Is Vermont's business climate hospitable to economic enterprise, large and small? Among the best people to ask are those on the front lines -- the economic development professionals working in their regions to attract new businesses and help businesses grow.
The Ethan Allen Institute recently surveyed 17 such professionals. More than half (10) responded to the questionnaire, invariably adding a number of thoughtful comments. Their responses varied considerably depending on the region of the state and the type of businesses involved. But two concerns stood out.
The first was the problem of land use regulation, state and local. Most respondents agreed that Vermont ought to maintain high standards for environmental quality. Not only is it important to the general quality of life, but it's also a big plus factor in attracting businesses. But - and this is a big but - the land use permit process (notably Act 250) has become maddeningly complex, costly, protracted, and often fatally uncertain.
Moreover, several identified hostile regulators as a key problem. "Fire one or two district environmental coordinators or other regulatory personnel who are rude and unhelpful to permit applicants," one responded. Another pointed out that regulators were cooperative when the applicant did exactly as they demanded, but less so when business requirements, geography, or varying preferences caused the applicant to seek some variation in the gospel.
This reference to dogmatic, uncooperative, regulatory personnel promoting their private agendas, playing games with helpless applicants, and showing little or no concern about costs and timelines has reoccurred for years. Why is it that this problem never seems to get fixed?
The hard fact is that regulators take a risk by saying yes, have a lot of excuses for saying no, and aren't responsible for the consequences. It's no skin off a regulator's back if a new business never happens. He still keeps his job and gets his paycheck.
It's awfully hard to can a state employee who hasn't broken any laws or rules, even if he is jerking around everybody who comes his way and thwarting a governor's policy for expanding responsible business development. There are ways to deal with this problem, but it takes real determination by a cabinet officer or governor, and the payoff usually appears to be worth much less than the time, stress, litigation, and grief involved.
The economic development promoters also lamented the widespread perception that regardless of ritual pronouncements about "jobs", Vermont's policy is at best not much interested in expanding its economic base, and at worst views an entrepreneur as a menace to stability, order, environment, competitors, and society in general.
This perception flows from Vermont's ranking in the top tier of high-tax states, its legendary regulatory morass, and its expensive workers' compensation and health insurance. It is bolstered by Vermont's well-earned reputation as a stronghold of leftist political influence - as evidenced by the aggressive movements for soak-the-rich tax rates, "livable wages", no-work welfare checks, employer-paid parental leave, state subsidies to politically correct firms, mandated electric cars, compulsory utility purchase of high-cost "renewable" electricity, and a socialist single payer health care system.
All this has caused a significant fraction of business people to perceive the state's political culture as being somewhere to the left of Sweden's. Why would they try to expand a business in a state were a large and clamorous fraction of the population apparently views even the most responsible and environmentally concerned capitalism as a barely tolerable evil, rather than as the source of wealth creation that benefits a whole society? And so business people quickly start looking for another more congenial place to take the risks involved in starting or expanding a business. New Hampshire comes to mind.
All this makes life very difficult for dedicated economic development professionals trying to sell businesspeople on coming to or expanding in Vermont. It's about time that somebody made their job a lot easier.
Five Proposals for Legislative Reform
June 2002
The 2002 Vermont legislature has finally gone home. Its June 13 adjournment date ties the record for lengthiest session in modern (post-1965) history.
This year marks the third time in eight years that the legislature has dragged on into June. Public grumbling about this spectacle may have the useful result of generating interest in some thoroughgoing legislative reforms. Here are some items for the reform agenda.
1. Session Limits. Many state constitutions limit the number of days in each year's session (Texas meets for a mere 40 days.) A bipartisan Senate proposal in 1991 would have required adjournment of the Vermont legislature by April 30. It was, alas, never seriously considered.
2. Fixed Salaries. Every time a session "runs over" the budgeted adjournment day there is real pressure to continue legislative pay and expenses indefinitely, often from legislators who frankly have little else to do and need the income. The answer is obvious: pay legislators, say, $10,000 a year regardless of how long they are in session - but with a twist. The twist is, they get the first $5000 on Day 1, and the second $5000 on the day of adjournment.
By around town meeting day the first $5000 will be gone. Bills will start piling up. Legislators will start lusting after the second $5000. But to get it they have to wrap it up and go home. Day by day the pressure will build for adjournment. The likely result will be a legislature that once again adjourns in April, even without a session limit.
3. Single Member Districts. For friends of political accountability, this is the one most vital reform. The single member district puts an end to all sorts of political games, forces incumbents to defend their records, and gives the voters the clear choice of A, B, or C as their legislator. Using the present numbers, there would be 150 single member House districts, and 30 Senate districts each made up of five contiguous House districts. Unfortunately legislators prefer multimember districts that becloud any accountability.
4. Citizen Initiative. Vermont's constitution (wisely) doesn't allow enactment of laws by initiative and referendum. It does allow an indirect, advisory citizen initiative. Such a provision would give the people the power to at least force their legislators to put to a vote various controversial issues, including legislative reforms that aren't popular with legislators. This has been championed most recently by Rep. Kurt Wright (R-Burlington) and former Rep. Terry Bouricius (P-Burlington), but has made little headway.
5. Reconsider the unicameral legislature. Vermont was the last state to have had one until the people of Nebraska adopted a single chamber in 1934. Ironically, Vermonters repealed their Unicam in 1836 partly because, in the view of the Council of Censors that proposed the change, having two chambers would eliminate "the baneful effects of heat and party spirit."
Under Vermont's present bicameral system, disagreements between House and Senate require a conference committee, three from each chamber. In recent years conference committee members have taken to cutting deals (and spending money) that neither House nor Senate ever voted for, and then offering their handiwork on a take it or leave it basis in the last days of the session. A Unicam puts an end to this practice, and to protracted showdowns between two chambers generally.
The Unicam's procedure is structured to allow adequate time for consideration of issues. Every bill must have a public hearing. Every bill comes to the floor with a published committee report describing what the bill does, what amendments were approved by the committee, what it will cost, and who voted for what. Every bill must win a majority on three votes over (typically) a couple of weeks to be sent to the governor.
Nebraska has another unique feature: nonpartisan elections. That means there are no organized majorities and minorities and no party discipline. Shifting coalitions form around various issues. This admittedly makes the process somewhat harder to manage. One Speaker likened the Unicam to the Mexican Army - "all generals". Nonetheless, Nebraskans have given strong support to their Unicam.
In Nebraska, it took 21 years of trying to create the Unicam over legislative resistance. The initiative and referendum process to create it was spearheaded by U.S. Senator George Norris, the state's most popular political leader. Vermont still has no citizen initiative, and it is highly unlikely that its legislature will vote itself into a Unicam absent strong citizen pressure that will take a long time to build up.
A fanciful agenda? Probably. But consider how much better things would be if it were enacted.
How Colorado Put the Brakes on High Taxes
March 2002
Vermonters are increasingly complaining about their burden of taxation, and well they should. Here is state's track record since the tax rate hikes of 1991:
In 1994 the state income tax rate dropped from as much as 34% of the federal tax back to the 25% promised in 1991. In 1999 the rate was reduced by one additional percentage point. That's the good news.
The sales tax rate, scheduled to sunset back to 4% in 1993, did so for two months. Then Gov. Dean, urged on by the Republicans, called a special session to continue the 5% rate.
The meals and rooms tax, scheduled to drop from 8% to 6% in 1994, was continued at 7%. In 1997 the rate was increased to 9% to help fund Act 60. An agreement to use some of the excess revenue for tourism marketing was at least partially kept until this year, and then abandoned.
The state adopted two statewide property taxes as part of Act 60 in 1997. The direct tax is a state levy of $1.10 on equalized property values. The indirect tax is levied through the "sharing pool", which now includes almost all of Vermont's towns. The escalating cost of Act 60 is now the major source of taxpayer discontent.
And still the state is "out of money" (if one ignores the $77 million tucked away in several "rainy day funds" during the surplus years). The legislature is thus busy trying to reverse the Vermont effects of the Federal tax reduction act of 2001.
On Town Meeting Day 2002 it sounded like more and more Vermonters were one way or another venting hostility at being overtaxed. Voters in 23 towns took it out by rejecting local school budgets.
What can people do when they increasingly see themselves as overtaxed? For starters, they could take a look at Colorado.
The Rocky Mountain state is not famous as a "conservative" state. It is very competitive politically, electing liberals like Gov. Roy Roemer, Sen. Gary Hart, and Sen. Tim Wirth, and conservatives like Gov. Bill Owens, Sen. Bill Armstrong, and Sen. Hank Brown. Though rather closely balanced politically, Colorado voters have acted to put the brakes on government taxing and spending.
Colorado has a citizen initiative law. Four times citizens used the law to promote a tax and expenditure limitation. The first three efforts lost at the polls by narrow margins. On the fourth try, in 1992, the voters approved a constitutional amendment known as the Taxpayer Bill of Rights (TABOR).
TABOR basically says that state spending in inflation-adjusted dollars cannot increase faster than the rate of population growth. Any revenue collected over that limit must be returned to taxpayers. All tax rate increases have to be approved by the voters in a general election referendum. No state funds can be used to support or oppose any ballot question.
Colorado liberals fought TABOR bitterly. Gov. Roemer even said that defeating the 1992 measure was "the moral equivalent of fighting the Nazis". It passed with 53% of the vote. Since then, measures to create loopholes have been voted on four times, and three of them were defeated. The voters in 2000 did approve the use of some of the TABOR surplus for education aid instead of taxpayer refunds.
At a recent conference Gov. Owens cited the results of Colorado's voter-enforced tax and expenditure limits. According to the nonpartisan Tax Foundation, Colorado collects the fourth lowest taxes per capita in the nation. In the 1990s it was first in per capita income growth, third in population growth, and fifth lowest in poverty rate. It now has the highest ratio of college degrees and the highest percentage of technological workers in the country.
The Corporation for Enterprise Development is a liberal-leaning group that uses numerous social and environmental statistics in its rating scheme, as well as economic numbers. It rates Colorado as having the best business climate in the country. Both the Progressive Policy Institute and the Milken Institute rate the state as the third most ready to prosper from the new high tech economy.
Says Gov. Owens, a rising star in national politics, "All of this is made possible because we have had the common sense in Colorado to limit the growth of government. That has allowed the nongovernmental sector to grow and prosper. We have been able to cut taxes by a billion dollars in the three years that I have been Governor, out of a $6 billion general fund budget. We have cut the income tax twice. We have cut the sales tax once. And we were the pioneer in passing the flat tax - Colorado's income tax can be filled out on essentially a postcard-sized piece of paper."
What would it take to replicate Colorado's successes in Vermont? For one thing, Vermont needs some form of citizen initiative to allow taxpayers to put the heat on their legislators. But most of all, Vermont needs political leaders like Gov. Owens, with the courage to stand up and say, "We need smart government, not more government; limited government, not accelerating government; lower taxes, not higher taxes; more economic opportunity, not more government control." Let us hope that in this election year, some will step forward who are not content merely to get themselves into office, but are determined to use that office to expand freedom and prosperity for Vermonters.
Vermont Should Focus on the Concept of Liberty
March 2001
In its March 4 edition the Free Press published the views of seven prominent Vermonters on the topic "What Should Vermont be thinking about next?"
Preservationist Paul Bruhn focused on landscape, scale, and independent retailing. Education commissioner David Wolk emphasized educational technology, individualized learning, non-traditional school schedules, and parental choice (but, of course, only among government-operated schools.) Roberta MacDonald of Cabot Creamery pleaded for more government support for her coop's farmer members, above and beyond the dairy industry's present government-sanctioned price-fixing cartel.
Frank McDougall of Dartmouth Hitchcock Medical Center asked that government provide fair reimbursement for the health care it offers under Medicaid. Mark Sinclair of the Conservation Law Foundation called for shifting the tax burden toward fossil fuel burning and pesticide use, and bestowing competitive advantages upon companies which meet advanced standards of sustainability. Bill Schubart of the Vermont Business Roundtable pleaded for a regulatory regime that fairly balances the costs and benefits of economic development. Bill Gilbert expressed an ambivalent concern about "the tension between freedom and responsibility", and decried "the fog of ideology".
What was striking to me was that none of the seven chose to address a topic that seemed to me to be paramount: What is the future of Vermont's historic tradition of liberty and self-government?
The incandescent idea of Liberty has been a paramount part of the Vermont tradition since the 18th century. It appears in the opening sentence of Ethan Allen's Narrative, in Middlebury College President John Martin Thomas's famous eulogy to "The Vermonter" as "liberty loving in the extreme", and in Gov. George Aiken's tribute to his mountain neighbors' devotion to "freedom of thought and action".
That ideal of Liberty had limits, to be sure. "The restraint of traditional institutions", as Gilbert put it, the pressure of social convention, a due regard for the rights of one's neighbor, and a religion-based sense of right and wrong set boundaries to an individual's liberty. But the premise remained: progress in society comes from individuals free to follow their dreams, to make choices about their own lives, and to invest their time, money, talents, and reputations in enterprises that lead to new wealth and social progress.
What becomes of that Liberty, the essential mainspring of human progress, when the increasingly powerful state, with its regulation, taxes, mandates, price-fixing, subsidies, and collectivization, controls more and more of the choices and opportunities of individual Vermonters?
Self-government, that other glory of the Vermont tradition, is also in jeopardy. Town meeting self government increasingly operates in a smaller and smaller sphere, as rules imposed from above limit a community's freedom of action. More and more decisions about more and more questions are made in Montpelier. The elected legislature and governor make many of those decisions. In recent years, however, unelected bureaucrats have governed by administrative rule not only when the legislature neglected to act, but even when it refused to act. Above all, decisions of great importance to Vermonters are increasingly being made by a thoroughly politicized Supreme Court, intent on advancing its own ideas of social progress with little or no foundation in the plain language and long-accepted meaning of our constitution.
What should Vermonters be thinking about next? About how to recapture their disappearing liberty and democratic self-government, before what is best about the Vermont tradition passes into history - or, as most schools call it today, "social studies."
Policing the Regulators
December 2000
Ever so often the legislature passes a bill stating some general principle, like "Vermonters deserve clean air", but leaves the sticky details to the agency rule making process. A state agency then issues administrative rules. These rules can go well beyond what the legislators had in mind. Not infrequently Vermonters end up being forced to comply with unpopular and/or costly rules that their elected officials never voted for, and in some cases specifically refused to vote for.
For example: in 1990 the Water Resources Board adopted far-reaching rules for regulating the use of private land containing "significant" wetlands. The rules contained expansive definitions of wetlands that even the Vermont legislature would probably not have embraced, such as " possesses unique aesthetic qualities" and "is likely to support populations of the stinkpot turtle".
Another example: in 1996 the Agency of Natural Resources decreed through rule-making that gas stations had to install Stage II vapor recovery equipment. The ANR bureaucracy, under pressure from EPA in Washington, imposed this costly tank replacement requirement even though the legislature had rejected the proposal on at least three occasions.
The rule making process requires an agency to submit a proposed rule to an interagency review committee. If there is no objection, the agency then publishes it, notifies the public, and holds a public hearing on it. Then the agency presents the proposed rule to the Legislative Committee on Administrative Rules (LCAR). This is a committee of four Senators and four Representatives chosen by the leadership of each House, created in 1976.
LCAR asks whether the proposed rule is within the scope of a statute, conforms to "legislative intent", and is not arbitrary. If a majority of LCAR members think the rule is out of bounds, the rule is not approved. Then the agency has 14 days to come back with changes that will win over enough objecting LCAR members to reverse the vote and win approval.
If LCAR still opposes the rule, it cannot veto it. Under Federal constitutional doctrine, accepted in Vermont, such a "committee veto" constitutes unlawful delegation of the legislative power. All LCAR can do is "certify" its objection by filing a statement with the Secretary of State. This statement may then by used by a party filing litigation against enforcement of the rule. On 16 occasions over its 24 years LCAR has certified objections, only to see the rule-making agency go on to enforce the rule whether legislators liked it or not.
For years some more effective procedure has been needed that will actually prevent an agency from imposing rules that a majority of legislators would not have voted to approve. The most obvious frontal assault on unpopular rules is to simply override them through legislation. This is unusual and difficult to accomplish.
A far more effective procedure would allow concerned legislators to force a vote on the offending rules. Bills have been introduced in past years to allow this. They required that once one fifth of the members of the House or Senate file a petition, the House or Senate must promptly vote up or down on the rules. If the rules are voted down, the measure goes to the other body and thence to the Governor, like any bill.
Unfortunately such a "regulatory accountability act" has never received serious consideration. The rule making agencies naturally oppose it. They do not want to have to defend a threatened rule before hostile legislators in full public view. More importantly, most legislators do not want to have to cast a potentially controversial record vote on complicated agency rules which they may not understand, and which may have fervent partisans on both sides. It is politically safer to report to disgruntled opponents of a rule that "I never voted for that thing. The agency is running wild, but only the Governor can bring it to heel."
Given the complexity of regulating human activities, there will always have to be administrative rule making. What is needed is a better way for the elected legislature to ride herd on unelected regulators. The most effective way of achieving that goal would be to adopt a regulatory accountability act allowing watchdog legislators to force votes to approve or disapprove agency rules.
The Rise of the Hidden Tax
April 2000
What is a tax? Any tax economist will explain that a tax has four characteristics: 1) it is imposed by a government 2) it is paid by individuals and businesses to some government entity 3) compliance is mandatory 4) it is not paid in direct exchange for a service. A tax levied on income received or retail purchases or property value or rooms and meals is what most people think of as a tax. A car registration, hunting license, bridge toll , and lottery ticket are not taxes, because you don't have to pay them if you don't own a car, hunt, use the bridge, or play the numbers.
In recent years legislators, mindful of political resistance to increasing tax rates, have concocted a number of alternatives. One is a shift to user fees. This is justifiable, because it shifts the burden of costs borne by the public to those who benefit directly. The Vermont Fish and Wildlife Fund, for instance, has long been almost entirely financed by federal taxes on hunting and fishing equipment, hunting and fishing license proceeds, and a share of gasoline and rooms and meals taxes paid by wildlife users. There is no good reason why non-sportsmen should be made to finance the benefits enjoyed by sportsmen.
The more devious alternative to traditional taxation is the practice of levying hidden taxes. These are mandatory charges typically smuggled into utility bills to pay for some scheme the legislators don't dare raise general fund taxes to pay for. The champion example of such hidden taxes is the so-called "Gore tax".
The Gore tax, so named because Vice President Gore is its most enthusiastic proponent, was levied not by Congress but by the Federal Communications Commission. Congress had passed a law in 1996 requiring telecommunications carriers to give discounts for internet connections to schools and libraries.
The FCC had a grander idea. Without any statutory authority whatsoever, it created a new public corporation and hired a pal of the Vice President's to run it at $250,000 a year. To pay for its politically ambitious grant-making program it then levied a consumer tax of around five percent (depending on the carrier), which is bringing in $2.4 billion a year. When AT&T thought it would be a good idea to itemize this illegal tax on its customer bills, the FCC whipped out a rule to make sure customers couldn't find out how they were being taxed.
Here in Vermont, this kind of hidden taxation to fund programs deemed worthwhile by legislators has become very popular. In 1990 the legislature enacted a one-half percent tax on heating oil sales to produce funds for the home weatherization activities of the community action agencies, a program then often regarded as an employment program for out of work members of the counterculture. This tax has been renewed every two years since. The Tax Department has sternly refused to allow fuel dealers to inform their customers how much they are paying for this with every fuel delivery.
In 1997 the legislature, to finance Act 60, created a 4.36% sales tax on everybody's phone bill. This is known in some quarters as the "Ide Tax" because it was invented to avoid removing a sales tax exemption essential to the survival of Act 60 supporter Sen. Robert Ide's (R- Caledonia) feed and seed business. At least this new sales tax is itemized on your telephone bill.
The 1999 legislature invented a new electricity tax for the purpose of funding the Public Service Board's energy efficiency program. This was not a wholly new tax, because it replaced mandated energy efficiency expenditures made by the various utilities which were previously included in electric bills. The $17 million a year the new tax produces is earmarked for the PSB, which recently issued a $28 million three year contract for energy efficiency promotion. This tax is also itemized on your electric bill.
The 2000 Senate has come up with yet another non-tax tax (S. 230). This one, proposed by Sen. Jeb Spaulding (D-Washington), is imaginatively called a "volumetric charge", and will add another tenth of a percent to your electric bill. The Public Service Board will spend the money to promote renewable and sustainable energy systems and technologies. In other words, certain government-favored purveyors of "renewable and sustainable" energy systems will be handed another million dollars a year, extracted from electric ratepayers, as a subsidy for their enterprises.
At a time when Vermont has the highest electric rates in the continental United States, one would think that legislators would be looking for ways to lower the cost of electricity. Julius Canns (R-Caledonia) fought the good fight against this latest scheme, but lost 15-11. The bill is now in House.
In more responsible days, legislators voted openly to levy taxes, which were called "taxes". The broad-based taxes went into one General Fund; the motor vehicle and fuel taxes went into the user-funded Transportation Fund. A wide range of state programs sought funding. The appropriations process parcelled out the funds openly among the many claimants.
Now the model of choice in Montpelier is to levy invisible new taxes, label them as "volumetric charges", earmark them for pet spending programs, and shield those programs from the visible competition of the appropriations process. The old way was better.
Tocqueville's Warning
February 2000
Returning from his tour of the Americas in the 1830s, the perceptive French journalist Alexis deTocqueville crystallized in his famous book Democracy in America (1835) what he called "The Spirit of the New England Townships". "The New Englander, " he wrote, "is attached to his township because it is strong and independent; he has an interest in it because he shares in its management; ...in the restricted sphere within its scope, he learns to rule society; he gets to know those formalities without which freedom can advance only through revolutions, and becoming imbued with their spirit, develops a taste for order, understands the harmony of powers, and in the end accumulates clear, practical ideas about the nature of his duties and the extent of his rights."
What an inspiring account of democratic life! Today, at the dawn of a new century, Vermonters can only look back sadly at how that strong local democracy has crumbled under the hammer blows of ambitious centralism over the past third of a century.
In 1966 Vermont's first truly liberal Governor, Phil Hoff, pushed through the centralization of welfare. Now, townspeople have little to do with assisting their unfortunate neighbors to get back on their feet, or providing a dignified subsistence for those who can no longer be productive. The distribution of social welfare is conducted by a huge state bureaucracy, whose local agents are responsible to policies and directives issued from Waterbury.
In 1970 came Act 250. It was largely the product of two Yale-educated country gentlemen who came to Vermont from New York City in their middle life, one an investment banker, the other a large-firm lawyer. Act 250 originally envisioned statewide zoning controlled by an Environmental Board chaired (at the time the plan was voted down) by the former head of the New Jersey urban renewal program. Minus the statewide plan, Act 250 became a regional environmental government minutely controlling an ever-expanding range of projects affecting the use of land.. Unlike the officers of other Vermont governments, the Act 250 commissioners are not accountable either to the voters or to town governments, or even to the Governor.
In 1992 came Gov. Dean's push toward a comprehensive state-controlled health care system. The central policy feature of Act 160 was the collectivization of health care - lumping people together to receive care from some government controlled dispensing entity. Now, after seven years, individual insurance options have virtually vanished in the state. Vermont's nine community-based free clinics, supported by volunteers, charities, and town governments, are a welcome contrast with this trend, but they are fated to be swallowed up in the Dean health care mega-program if and when it comes to completion.
Vermonters who are steadily losing their individual, family and community initiative and powers to the state at least retain some choice of who will represent them on the state's "board of directors" (the general assembly). With the emergence in this decade of a Supreme Court eager to instruct the legislature to give Court-approved effect to Court-invented constitutional rights, the centralist trend has gone one step further. Now even the representatives of the people have little room to depart from the Court's mandates on such important issues as education finance and same-sex unions. The legislature has stripped the people and their town governments of the powers of self-government, and the Court in turn has stripped the legislature.
"If you take power and independence from a municipality, " Tocqueville observed, "you may have docile subjects, but you will not have citizens." It's about time for a great majority of Vermonters to recognize this fact, revitalize their citizenship, make their public servants accountable to the people, and bring civic power and responsibility back home.
The Price Fixing “Solution”
January 2000
There was a time when modern liberalism stood four square against price fixing. There was a time when Congress, taking note of private conspiracies to fix prices and restrain trade, passed a now-famous act to stop them. This was the Sherman Antitrust Act of 1890, and its principal author was Vermont Sen. George F. Edmunds.
Americans of that day abhorred price fixing. They did so because it was a means for business interests to extract illicit profits from their customers, who paid more for the goods than they would have in a free market.
Today, private conspiracies to fix prices remain illegal, but it has now become popular for special interests to demand that governments do the price fixing. Their purpose, as in price fixing by private parties, is to transfer wealth from victims to the politically powerful, or drive low-cost competitors out of the market.
Exhibit A: the minimum wage. It was first enacted to protect white labor against blacks who, because a racist society denied them education and opportunity to compete, had little choice but to work for less. By requiring employers to pay workers more than the market wage, the minimum wage assured that higher wage white workers would be hired first, and some lower skill workers not at all. Problem solved!
Exhibit B: milk pricing. The government first established a floor price for dairy products to protect all dairy farmers at the expense of consumers. Then it added a differential to protect regional dairy farmers against more efficient dairy farmers in other regions. When the federal support price plus this regional differential failed to assure desired dairy profits, New England dairy farmers pushed through the Dairy Compact. The Compact Commission has the power to fix the price that handlers must pay to dairy farms throughout the region at a level well above the federal support price. The result: milk drinkers, primarily young families with children, are taxed to increase the incomes of dairy farmers. Problem solved!
The idea of price fixing once appalled political leaders. Now some of them find it so attractive that they are eager to have the government try it in new areas.
Vermont's electric costs are close to being the highest in the nation. Consumers want lower power prices, so the price fixers have proposed a wonderful way to do that. Lt. Gov. Racine and Speaker Obuchowski have demanded that the utilities be made to reduce their prices by 10%. Problem solved!
There is a vocal seniors lobby demanding cheaper prescription drugs. Once again, the price fixers have a wonderful solution: pass a law requiring the pharmaceutical companies to sell their drugs at lower prices. Problem solved! When special interests use government to fix prices to raise the incomes of politically powerful groups, unorganized and relatively powerless groups (typically consumers) bear the costs. When politicians get the government to order some sellers to sell at below-market prices to benefit voters who want cheaper goods, the competitive free market is destroyed. The affected companies must either exit the market or put money into political action to protect their interests.
Governments should stay out of the price fixing business. Government price fixing today is different from the corporate price fixing made illegal 110 years ago, but just as destructive of a free society. Indeed, more so, for there is no Sherman Act to restrain the government.
Lessons from the Kirby Bridge Saga
October 1999
For over a hundred years the small bridge on Town Highway 19 in Kirby (pop. 450) has carried the traffic to what are now nine houses and one dairy farm on a dead end road. Built over a tiny seasonal brook, Bridge BR23 had a span of about six feet and a width of 14 feet. It is typical of thousands of very small town highway bridges throughout the state. The time came for replacement of this old bridge. Left to their own devices, as they were for most of the preceding century, the selectmen and road commissioner would have hired a contractor to remove the existing span, put in new footings, install a preformed concrete block wall on each side, lay prestressed concrete arches over the top, and backfill to grade with crushed rock. Similar bridges have been built in recent years in Waterford and Ryegate. One contractor estimated that such a job could be done for around $60,000, and would take no more than three days. But, alas, this is modern Vermont. By the time every affected state agency had its shot at this project, this simple bridge replacement had been transformed into something completely different. Its cost had tripled to $217,830.
The Agency of Transportation has many programs for financing bridges. One, for rebuilding and repairing small bridges under the direction of the district highway engineer, produces relatively quick and inexpensive results. But it has a $75,000 project limit, and a few high end projects will eat up the funds for a dozen small but needed repairs. Thus Kirby's bridge replacement was funded through the AoT bridge program, which instantly draws the attention of other state agencies and the Corps of Engineers.
The Agency of Natural Resources takes the position that any streambed alteration requires an ANR permit. The law appears to require only AoT "consultation" with ANR on highway projects, rather than ANR veto authority. But the legislature made a technical mistake when rewriting the transportation title in 1986, leaving lawyers for the two agencies arguing about what the law means. Meanwhile, ANR is refusing to permit bridge projects not designed to satisfy its concerns. ANR's concerns are that the bridge openings be large enough to accommodate major floods, however unlikely. This frequently rules out inexpensive culverts, because a culvert large enough to accommodate the extraordinarily high water may raise the roadbed level and thus require expensive earthwork and retaining walls. ANR also worries about anything that can be called a "wetland", however insignificant. Because of this concern, the Kirby selectmen could not straighten out the road through the bridge, to make it easier for the milk tanker to get through.. ANR is also intensely protective of fish breeding, even though there may have been no fish in a stream in living memory.
Then there are the state historic preservation people, by far the most unreasonable of the lot. These people appear to be terrified at the thought that an earthmover might disturb an aboriginal campsite. When one such functionary was told that his preservationist demands were running up the cost of the project, he is reported by the Kirby selectmen to have said "Why do you people care? It's not your money."
The problem here is not evil persons in positions of power, but an overgrown, centralized bureaucratic system and a welter of sometimes unclear laws and regulations The Kirby bridge problem is not an anomaly. Many other selectboards have their own horror stories. What this state needs, among other things, are some simple new rules governing bridges over town roads beneath some specified size. Here are some useful ones:
- The selectboard and road commissioner, in consultation with the district engineer, will decide what kind of bridge will meet the town's needs, secure approval from town voters, and contract to have it built. The state, as now, will pay its 90% share.
- If the bridge turns out to be unsafe or erosion prone, the town government will be responsible for repairing or replacing it out of town funds.
- Any disturbance of less than an acre of adjacent wetlands will be disregarded.
- If the flow through the bridge creates a gravel bar, the town can remove it and use it on the roads.
- If the bridge results in a demonstrable reduction of the fish population, the town will be required to pay Fish & Wildlife the wholesale fish market value of the missing fish, which will be an allowable project cost.
- Historic Preservation will be invited to examine the site for a week before construction, and unless they find remains of a lost civilization or Rogers' Rangers missing treasure, they are forever banned from the site.
Under such rules some towns will make mistakes. Somewhere a hundred brook trout will not be hatched. Somewhere a hundred cattails will not grow to glorious maturity. Somewhere a wing wall will scour out. Somewhere a very fine arrowhead will be forever buried under a concrete footing. Too bad. But there are benefits. One will be sharply reduced project costs, which will allow a given amount of highway funds to rebuild two or three times as many bridges. But perhaps more important, such ground rules would restore real decision making power to town governments and local voters and taxpayers. At least with respect to small town bridges, town governments would no longer be in the grip of agencies more concerned about their rules and preferences than with economical, common sense solutions to real local problems. That would be an incalculable benefit.
The Rise of the Nanny State
February 1999
The Rise of the Nanny State: Gov. Dean's recent announcement that he will ask the legislature to require a mandatory seat belt law is one more step toward the creation of what the British call "The Nanny State".
The Governor's proposal would give law enforcement officers the right to stop any car they chose and, if the occupants were not wearing seat belts, issue a citation. Under current law, seat belt citations can be issued only if the officer stops the car for some other legitimate reason, and obtains a conviction.
The current law was the result of a standoff between House and Senate back in 1992. The House had passed a primary mandatory seat belt bill of the kind the Governor now wants. The Senate passed an interesting bill which would have added an additional $10 penalty if a driver were convicted of some other offense, and was not wearing a seat belt when arrested. By the same token, if the driver was wearing a seat belt, he or she would get a $10 discount off the fine for the other offense.
House and Senate could not agree, and the bill died. In the following year the present "secondary offense" law was adopted, without the incentive discount.
It was only a matter of time before Vermont's Great Nanny came back for a primary offense seatbelt law. Such a law is required by the philosophy of government that holds that people are ninnies who need nannies, and that the State is the most all-knowing and dependable Nanny. "We're talking about saving lives here", intoned the Governor, justifying this latest rush to make everything mandatory that is not forbidden.
Examples of Nannyism in once-free Vermont are numerous and, alas, growing.
Back in 1991 both Houses of the legislature passed a bill legalizing Fourth of July sparklers. Gov. Dean vetoed it. What if a child should get hurt?
In 1992 the friends of the Nanny State actually passed a bill, signed by the Great Nanny, that made it a $50 fine for every day that a Vermonter used a fluorescent bulb that the Nanny State had not certified as suitably energy efficient. Only with difficulty was a companion measure, also championed by Sen. Elizabeth Ready (D-Addison), defeated. Based on the same theory, it would have put the Great Nanny in charge of your shower head.
Two years later came Justice John Dooley's historic dictum in the motorcycle helmet case. He upheld the mandatory helmet law because bikers who don't wear helmets might incur injuries: "We see no constitutional barrier to legislation that requires preventive measures to minimize health care costs that are inevitably imposed on society ". There you have it: your life belongs to the Nanny State.
Look at Vermont's Nanny State welfare reform program. If a welfare recipient runs out the time period (up to 30 months) without getting a job, that person is given the pink slip in every state but Vermont. Here the Great Nanny takes the drastic step of paying the non-cooperating person's fuel, light, and other bills directly. The ever-compassionate Great Nanny cannot let go.
Take health care. The Great Nanny is determined that every Vermonter be herded into some kind of government-controlled managed care or government-run single payer health plan, so the amount of care can be rationed by care-rationers controlled by the Great Nanny. Why not let people own their own health insurance, shop around for a healthy lifestyle discount (illegal in Vermont), and make their own decisions? The Great Nanny believes that the ninnies won't know what to do. What if somebody got sick?
Or education. Why not let parents choose the school that is the best for their kids, instead of having to send them to the school the Great Nanny thinks is best for them? Absolutely not (unless they are willing to pay tuition out of their own pockets). What if the parents should make a mistake and ruin their child? The Great Nanny is especially negative on parental choice because it would allow an escape from government-monopoly, union-controlled public schools thought by parents to be unresponsive to their child's needs.
"People are chumps", declare the friends of the Nanny State. "We are smart! We care deeply! We'll tell them what to do! And if they don't agree, we will give them a ticket, and they must pay for their insolence! The Nanny State is oh, so compassionate, but it does NOT like to be crossed."
If the people of Vermont stand for the Nanny State's continuing invasions of their liberty, well, maybe the Nanny State is right: maybe they are chumps.
Restoring Vermont's Civic Culture
December 1997
Vermont leads the nation in a strong "civic culture", according to a study released this fall by Prof. Tom Rice of Iowa State University and Alexander F. Sumberg of UVM.. No doubt that is a conclusion that delights most Vermonters, who cherish a long tradition of self-government, tolerance, and mutual aid. But a skeptical social scientist would probably inquire, "how do they know?"
First Rice and Sumberg had to define what they mean by "civic culture", an elusive concept at least as challenging as "quality of life". They singled out four essential characteristics. "Civic engagement" means participation by citizens to promote "the public good". ":Political equality" means a widespread view among the citizens that all are equal in rights and obligations. "Solidarity, Trust and Tolerance" means that citizens are willing to trust and help others, and tolerate a wide range of ideas and lifestyles. "Social Structures of Cooperation" means that there are many clubs, lodges, and associations in which citizens can get involved.
So far so good - most Vermonters would probably accept this list of ingredients. The difficult part is to find hard data that corresponds to these concepts. Here are the measures used by Rice and Sumberg to back up their rankings:
- Newspaper circulation, public library books , and community improvement groups per capita
- Percent of public school teachers who are men and legislators who are women
- Prevalence of nonprofit organizations, and number of "civil rights groups" per capita among the nonwhite population
- Relative equality of incomes
- Crime rate
- Number of lawyers per capita
- Default rate on college loans
As the authors admit, these measures are "less than ideal". Just so. While some measures like the crime rate certainly tell something about the civic culture (i.e., that there is a civic ethic in support of responsible behavior), it's hard to see how most of the rest have more than tenuous relevance at best, other than to define the authors' view of a desirable society.
Take "relative equality of incomes". The authors argue that "citizens in a society dedicated to equal rights would endeavor to reduce disparities in personal incomes." How would they do that? Rice and Sumberg are not obliged to say, but one may be forgiven for suspecting that the "solution" would be confiscatory taxation of the rich and generous subsidies to the poor. History suggests that the result of such forced leveling policies is not a strong civic culture, but poverty for everybody except those in the government who enforce the redistribution. No Politburo member ever died hungry. Suddenly, in some cases, but not hungry.
A central test of strong civic culture, it seems to me, would be to measure the capacity and practice of people governing themselves, through widespread democratic participation. Since even in a small state like Vermont most citizens can not easily participate in addressing statewide problems, the forum for civic participation must necessarily be the local community. Most Vermonters instinctively believe this. That is why the centralizers have always been obliged to wrap their centralizing plans in the flag of "strengthening local control" . School district consolidation, Act 200, and Act 60 come to mind.
And to have strong citizen participation in local decision making, the decisions resulting from that process have to count for something. Communities subject to instructions from some distant central power can be expected to have poor civic cultures. Indeed, that is the central lesson of Robert Putnam's path-breaking 1993 study of Italy, Making Democracy Work, a work rightly praised in the Rice-Sumberg study.
On such a scale, how does Vermont fare? It would take a lot of difficult work to produce appropriate indices for all the states. But it shouldn't be hard to judge the trend of civic culture in Vermont by looking at our state in 1960 and 2000, following forty years of increasing state power over towns and citizens .
In the year 2000 will our towns and their citizens have more power over the public decisions that affect their lives, more capacity to effect changes they find desirable without approval from the central governments, more opportunity to try new ideas deemed by them to be in the public good? If the people of Vermont ponder that question and answer it in the negative, maybe they should start thinking about some inspired citizen participation to reverse that regrettable conclusion.
Beyond “Restructuring” State Government
August 1995
Whenever state government is afflicted with large budget deficits, political leaders do several things. The first thing is to fix the blame on something or somebody else: the “outs” blame the “ins”, and the “ins” blame mysterious external forces which somehow interrupted the revenue flow: “revenues are weak”.
After all the blame-fixing, the next step of those in power is to “get tough on spending”. This usually involves applying small percentage cuts to selected programs, or across the board. This is a favored though highly simplistic technique of Gov. Kunin and Gov. Dean: the budget is $650 million. and we are $13 million short? “No problem. Cut everything by two percent”. It is left to department heads to figure out how to tighten up to achieve the savings.
Then there is the “hiring freeze”. Vacancies can’t be filled, and agencies are required to keep on doing what they were supposed to be doing, with two percent less money and vacancies in the managerial structure. While an occasional two percent belt tightening gets rid of accumulated fat in an overgrown bureaucracy, repeated percentage cuts with no change in mission mean that the bureaucracy can’t do that job any more. Employees are given larger work loads, which at some point become impossible to handle well. Managers are designated “acting” this or that, and have a very hard time doing two or three jobs well. Inevitably, employee morale plummets, and with it efficiency.
Eventually those in charge realize that these steps not only don’t work, but may even he counterproductive. Then they discover “restructuring”.
A typical “restructuring” consists of combining administrative structures. Vermont’s most massive restructuring took place in 1972, when Gov. Deane Davis persuaded the legislature to establish the five agencies out of dozens of previously independent departments reporting directly to the Governor. (This was done, incidentally, at a time when the budget was in balance.) Gov. Dean’s proposal to combine the department of employment and training and the (independent) department of education is a current example.
But while this kind of organization-chart reshuffling is occasionally necessary to meet new conditions and create new lines of authority, it is not the final step. That. step is “reinventing government”, to use a term popularized by David Osborne and Ted Gaebier in their 1992 book of that name.
Reinventing government means to reconsider just what government’s role really should be. Is the program one that is necessarily governmental, like the Supreme Court and state police? Or can it be done better by a lower level of government, like zoning and dog licenses? Or by private contractors, like highway construction? How can governmental programs become more mission-driven, outcome-oriented, customer-driven, market-oriented, an-d entrepreneurial, where those administering them respond to incentives, including cash rewards, that motivate ·the private sector?
How can government learn to do more steering and less rowing, creating conditions where people behave in ways which achieve public objectives without being public employees?
The Michigan Public-Private Partnership, created by Gov. John Engler, addressed many of these questions in devising its PERM process: Privatize, Eliminate, Retain or Modify. It looked carefully at the process of privatizing state functions, including especially how to specify performance and payment for results. The Reason Foundation Privatization Center has developed a nine-step process for restructuring and privatizing government service functions, based en experience in many states and cities.
There is no shortage of experience and practical wisdom about reinventing government. But the key thing lacking in Vermont is a commitment from the top -- from the Governor and the legislature -- not merely to find some quick savings to avert a near-annual budget crisis, hut to thoroughly reconsider the relationship of state government to local government, the private sector, community organizations, and individual families and citizens.
Despite an occasional minor restructuring, very little has been done in Vermont to catch up with the vigorous trend toward reinventing government that is sweeping other states. Even a cautious three-year pilot project authorized by the legislature in 1994, involving management improvement in the departments of corrections, travel and tourism, and labor and industry, is languishing.
Those with power and influence in state government need to wake up. The task is not just to scrounge up $110 million from somewhere to keep the state’s budget in balance in FY 96, and defend our precarious bond rating. The real task is to think through what our overgrown and unaffordable state government has become. Then they must create a process for reinventing it as a government that one way or another produces the results a majority of Vermonters expect from government, at a cost that their tax revenues can cover, without at the same time demoralizing state employees, throwing costly burdens off on property-tax funded local governments, and dragging down the productive private sector with flight-inducing taxes, costs, and mandates.
A growing fund of experience elsewhere shows that this can be done, and done well. But little can be done until the governor and legislative leaders get the message about what has always been possible, and has now become imperative.
Governing Smarter and Cheaper
July 1995
In July Governor Howard Dean made his annual announcement that state government is once again spending well beyond what its taxpayers are paying in, and that the state faces a large deficit unless bold action is taken at once. This year's shock number is $39 million, which is the amount the General Fund will come up short by next June.
There are a host of explanations for this almost annual event. "Revenues are weak" is a common offering. Another is "the expected recovery of the national and regional economy did not materialize as expected." "Sluggish consumer demand" is a regular favorite. The problem is defined in terms of derelict taxpayers, antisocial consumers, the Federal government, always some outside force. This is the equivalent of "the dog ate our revenues."
The missing explanation is this one: For years the people in charge of Vermont, of whatever political party, have agreed to maintain and expand one of the nation's most advanced liberal welfare states, and the remaining taxpayers can't produce enough revenue to support it.
More and more desperate steps have been taken to shore up this unsustainable regime of advanced income redistribution, hyper-regulation of productive activity, costly state mandates on producers, high tax rates, unimaginative bureaucratic programs, etc. Despite increasing the three main state tax rates to their highest levels in history, Gov. Dean had to filch $21 million from the Transportation Fund to pay off Gov. Kunin's accumulated $65 million state debt of 1990. On the same day as this robbery the state pushed the last employee payday of FY 1994 ($5.7 million) into FY 95 to make it look like the deficit was retired.
Governor Dean now plans to grab $4 million from the special fund created by the 1995 legislature (by doubling the cigarette tax, taxing hospitals again, and taxing nursing home sales) to pay for the coming "demonstration" of how to put thousands more Vermonters into the state-run health care system (Medicaid).
He also proposes to divert another $7 million from the much-shortchanged teachers and state employees retirement funds to pay for things like Medicaid and special education, which programs are already being shored up by money from the Transportation Fund that was raised to resurface highways and replace crumbling bridges.
Since 1991 the Housing and Conservation Trust, originally fed by $20 million from the "Reagan surplus" of 1988, has been fed through increased bonded debt, the payments on which inflate general fund spending for years into the future. Two of the scheduled tax rate sunsets promised by Gov. Snelling and the legislature in 1991 (to 4% for the sales tax and 6% for rooms and meals tax) were quite predictably abandoned, once the state successfully marketed the election year bond issue of 1992 whose prospectus contained Gov. Dean's empty commitment to honor them.
To his credit, Gov. Dean stuck with the crucial income tax rate sunset, to a flat 25% of the federal rate. He has also recognized , to the vocal dismay of many of his own party, that Vermont's problem is too much spending, not too few taxes. What neither he nor his political opponents have figured out is how to design a governmental system that does what a majority of Vermonters want done at a price they can afford without driving sales, incomes, jobs, and tourists off to more congenial places.
Instead, the Dean Administration has repeatedly forced the agencies to make small-percentage across the board spending cuts, frozen hiring, and abolished unfilled positions, all the while demanding the agencies to keep on producing more of the same product. This creates a management disaster and a morale crisis for state employees. This is not a solution. A solution requires some creative thinking.
The task is not just to scrounge up $39 million from somewhere to keep the state's budget in balance in FY 96, and defend our precarious bond rating. The real task is to think through what our overgrown and unaffordable state government has become. Then they must create a process for reinventing it as a government that one way or another produces the results a majority of Vermonters expect from government, at a cost that their tax revenues can cover, without at the same time demoralizing state employees, throwing costly burdens off on property-tax funded local governments, and dragging down the productive private sector with flight-inducing taxes, costs, and mandates.
In July Administration Secretary William Sorrell unveiled 59 cost-shrinking ideas produced by various contributors. A few of them have some promise, but the great majority of them are pious hopes unsupported by analysis, a reshuffling of bureaucratic functions, and earnest entreaties to "promote efficiencies." Here are some big-dollar government-cutting ideas we should be thinking creatively about:
- review all state functions to identify those that could be better put out to competitive bidding by private (taxpaying) contractors, and let state employee groups join the bidding.
- convert government monopoly schools to competing charter or independent schools, distribute education spending directly to parents to choose what's best for their children, and get rid of most of the educational superstructure.
- stop state education aid property tax relief for rich people and out-of-staters in so-called "poor" towns (towns with high ratio of property values to school children).
- let taxpayers vote to approve teachers union contracts
- convert costly state employee health care plans, and those of AFDC families and teachers, to low-cost, high-deductible Medisave plans, and let the insured families carry over what they don't spend to lower costs further in the next year.
- cut back on bureaucrat- and expert-intensive service programs managed by nonprofit organizations which live on government money, and get rid of some unnecessary state programs altogether.
- put in place a balanced budget and tax limitation constitutional amendment, plus a statutory rescission power for the Governor.
- completely restructure governance in Vermont by devolving much of state government's current activities to some 40 democratically-based autonomous shires, accompanied by a state revenue sharing system that assures an equal per capita tax base in each shire. Until we have functional wall-to-wall general local governments (NOT technocratic special purpose districts), we can never really bring government back to the people.
To improve the revenue side, reduce regulations, mandates, and tax rates for Vermont's wealth-producers and job creators, so that more producers make more profits, more workers make bigger paychecks, and more revenues flow in to the state.
The day of the high-tax, government-managed, non-competitive, over-regulated anti-choice liberal welfare state is over. We can't pay for it, and a lot of us don't much like what it does for us and to us. Other states and even whole countries are moving on to a new paradigm. If there is anything good about Vermont's annual fiscal crisis, it may be that it will finally force Vermonters to give up what no longer works, and start governing smarter - and cheaper.
Consumers, Bureaucracies, And Reform
May 1995
Consider the similarities among four important areas of our public life: the legal system, health care, education, and welfare.
First note that all of these services are paid for by taxpayers, but are effectively controlled by either a special government bureaucracy (public schools, welfare department, courts) or by nonprofit, nongovernmental entities which are obliged to take most of their instructions from the government (hospitals). We should not be surprised that the, people who are paying for these systems (taxpayers and insured patients) do not have much to say about their operation, or that those who make their living from these systems have a large vested interest in deciding how the systems work.
Most of the people inside these secular priesthoods regard themselves as a specially qualified elite doing something for society which ordinary people can't really understand or appreciate. They do not like their customers asking a lot of nosy questions about how they do their business.
Most of the people in these systems spend most of their work time talking with other people within the system. They make use of technical words which the rest of us might call jargon. They belong to professional associations (teachers union, state employees union, bar association, medical society) which keep a close eye on just who gets in, and which have ways of getting rid of heretics. Since they are, like the rest of us, human beings, their major goals in life are career advancement, status, job satisfaction, and of course higher pay.
These systems are, like an army, controlled through a chain of command, where the elite and highly paid people on top issue orders which filter down to the grunts at the bottom (teacher aides, case workers, legal secretaries, and nurses.) The further one can climb up the chain, the greater the rewards. Unlike in the private business sector, you ordinarily do not climb up the chain by attracting and satisfying customers. You have to satisfy the people upstairs, who manage the promotions.
Invariably, the delivery of services and benefits in such systems are organized to best serve the interests of the people in the system, not the outsiders who need those services (students, welfare recipients, clients, and patients.) After all, consumers come and go, and some may feel ill served, but to the priests the main goal is not customer satisfaction, but provider satisfaction, measured in terms of power, status, control, security, and money.
When consumers express dissatisfaction, the insiders almost always advise the legislature which votes the money their predictable solution: more of everything - more employees, more facilities, more money. If the court system is heavily backlogged and cases drag on until doomsday, the remedy is more judges and more clerks. If people do not have access to needed health care, the remedy is government rationing and mandatory managed care. If parents don't think their kids are learning what they need to know, the remedy is more teachers, smaller classes, higher pay, and a longer school year. If welfare families are disorganized and dependent, the remedy is more case workers and higher benefits.
It is extraordinary for an insider to look at the problems and say "can this be done for less taxpayers' money?" or "is this what the consumers really want?" or "is there some completely different way to solve this problem?"
You can, happily, get around these public bureaucracies, but usually only by spending more of your own money, in addition to the taxes paying for them. You can homeschool or pay tuition at an alternative private school. You can hire an arbitrator or mediator to settle your civil dispute. You can seek assistance in getting back on your feet from church groups, private associations, charities, and extended families. You can still choose your own health care provider, although it may not be covered by your tax-free employer-paid health insurance, and you may not be able to take the medicines and dietary supplements you want because the government won't let you do it. What the priests who run these systems want is stability, predictability, career opportunities, status, and more money. What they do not want is radical change, where legislators, responding to unhappy taxpayers and consumers, start thinking about completely new rules for the game. In particular, those in the system do not want competition and choice, because they are very nervous that their "customers" might well choose to patronize a competitor, or force the providers to change the rules.
Reform is not paying more for more of the same stuff. Reform is changing systems so that they become user-friendly, distribute useful information, promote individual responsibility, maximize consumer choice, circumvent and shrink unresponsive bureaucracies, conserve the taxpayer's dollar, and put the people the systems are supposed to be serving in the driver's seat instead of the back seat, or even the trunk.
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