Steve Klein, Chief Fiscal Officer for the legislature’s Joint Fiscal Office, recently made a presentation to the Pension Reform Task Force. The Task Force is charged with coming up with a plan to fix the state’s public pension crisis, the result of decades of underfunding and financial mismanagement that has led to a $6 billion and rapidly growing unfunded liability. Currently, just keeping the state pension system afloat consumes over 12% of all General Fund state spending and fixing the system will take even more money. So, the Task Force asked Klein where such a pot of cash might be found. The resulting slide show was not encouraging.
Vermont is already one of the highest taxed states in the nation, with very high property taxes and marginal income tax rates. Over the past two years, the overall growth in state spending from FY19 to FY22 climbed from just under $6 billion annually ($5,958.0) to $7.36 billion in 2021 with a slight decline to $7.175 billion in FY22. That’s a whopping increase of 24 percent. This is largely due to federal infusions of cash for Corona virus relief, but, as Klein warned, as this flood of outside money subsides there will be pressure to replace it with local revenue sources – higher taxes. It’s politically easier to start housing the homeless in hotels, for example, than it is to kick them out.
The stark reality is that our politicians in Vermont are already spending money well beyond our tax capacity. But the really scary thing is, they’re not done. Not by a long shot. Klein finished his presentation with two solid pages of text outlining demands for funding major new or vastly expanded existing programs, including in no particular order (but not limited to!):
· $100-200 million for Global Warming Solutions Act projects (which I personally think is a significant underestimate of what the Climate Council will call for if they are serious about meeting the greenhouse gas reduction goals in the law).
· $12.5 to $15 million annual increases in funding for state colleges.
· $10 million (minimum) required for state building costs for the Courts.
· $140 million for a new correctional facility.
· $300 to $600 million for school construction/maintenance.
· $56 million for state IT upgrades (which Klein feels is a significant underestimate of the real need).
· an unspecified amount for broadband expansion beyond what’s being provided by the federal government.
· $2 billion over ten years for clean water obligations.
· $350 million for brownfield clean up.
· $15 million for maintenance of the Waterbury Dam.
· an unspecified amount for costs associated with a potential new per-pupil “weighting” proposal currently under debate.
· an unspecified amount for a proposed “Universal Meals” program for public school students.
This is all, of course, in addition to the Pension funding crisis, and Klein left off his list one of the biggest looming price tags Vermont taxpayers are facing, the bill passed this session embarking on an expansion of Pre-K for birth to 5-year-olds that will ultimately cost hundreds of millions of dollars annually. So, the not-so-subtle message to the Task Force’s question of where do we find the funds to fix our problem was, “Good luck with that, and get in line!”
“Good luck with that,” should also be expressed to the beleaguered Vermont taxpayer. It is us, after all, who will ultimately be forced to foot the bill for all of this. How? Calls to “tax the rich” are popular, but, as mentioned above, Vermont already has one of the highest marginal income tax rates in the nation, and the Biden Administration is poised to raise taxes on higher income earners at the federal level. How about higher property taxes to pay for pre-k expansion, teacher pensions, free meals and school construction? Just look at the sticker shock in Burlington today without those added costs. Higher gas taxes with fuel prices already up over 40% since January? Expand the sales tax to include essential goods and services? That was a recommendation by the Vermont Tax Commission, but how popular will it be to start taxing things like food, clothing, and childcare?
Ronald Reagan observed, “Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other.” Here in Vermont, the diaper is about to explode.
- Rob Roper is president of the Ethan Allen Institute.