Commentary: Spending and Taxes Roll On (April, 2016)

by John McClaughryJohn McClaughry

The House of Representatives has completed its work on the FY2017 General Fund appropriations bill, plus the annual tax increases.  All in all, it’s not pretty.

First, the (limited) good news. The House bill keeps three ironclad commitments: interest on state debt, the Act 60 annual transfer to the Education Fund, and required contributions to the two state-managed retirement funds. Those two funds, however, are $3.8 billion out of actuarial balance.

A year ago, in the spending bill, the legislators announced a “multiyear process to align State spending and bring revenues and spending into long-term balance.” This year they stayed on that course. The budget is balanced.  But that “balance” was achieved by jacking up revenues – taxes and fees – to fill the hole caused by the legislature’s inability to cut spending.

The FY2016 act also promised to “reduce the reliance on one-time funding for base budget needs.” The budgeteers claim that that rule was observed. The rule about basing the budget on less than 100 percent of forecasted revenue was, however, ignored.  In fact, the new budget requires $37.4 million of the $38.7 million in new General Fund revenues just to balance at 100 percent.

The House-approved budget came in at $1.541 billion. This is 4.8% increase over the FY 2016 budget. It’s also $11 million higher than the budget that Gov. Shumlin proposed last January.

Anne Galloway of Vermont Digger, which has admirably reported these developments, pointed out that “the growth curve of the General Fund has been more than five percent while state tax receipts have grown about three percent year over year.”

Tom Pelham,  finance commissioner  under Gov. Dean and tax commissioner under Gov. Douglas, makes the point that “inclusive of the 2017 budget the legislature is about to approve, over the last 6 years the spending of state dollars has grown by $779 million. If the annual growth rate were a still generous 3 percent, the 2017 spending of state dollars would be $206 million less. And at an annual growth rate of 2.5%, spending would be $308 million lower.”

To be sure, the Appropriations Committee shaved some items in the budget. The Low Income Home Energy Assistance Program (LIHEAP) was reduced by $3.4 million, because heating oil prices this winter have been far below prior years  (thank you, global warming!). The State Police will have to use their present cruisers for another year.

On the other hand, the Democratic majority approved  $140,000 for yet another health care study, this one on how to add 120,000 people aged 19-26 to a Medicaid program which is currently paying doctors, dentists and hospitals around half of the cost of their services. (The “Dr. Dynasaur 2.0” advocates had asked for $400,000).

The companion tax and fee bill increases penalty taxes on employers that provide health insurance for full time workers, but not  for employees employed in other states, employees covered by their spouse’s insurance, and employees who only work part time.

The biggest tax increase is on securities firms that market mutual funds, followed by another increase in the gross receipts tax on fuel oil. Why? Because the state is desperate for money, and thinks it can get away with it. The Governor couldn’t, however, sell his 2.35% tax on independent doctors and dentists.

Happily the legislature has – so far – turned its eyes away from the Big Enchilada of new revenue. That would be the carbon tax on gasoline, diesel, natural gas, heating oil and propane. House Natural Resources and Energy chair Rep. Tony Klein held hearings on that revenue-rich but consumer-crushing and economy-wrecking proposal last week.

This measure is promoted by VPIRG and other enviro groups ostensibly to defeat “climate change”, but they have made it clear (to legislators, but not to the public) that the revenues – rising to $500 million in the tenth year – “could of course be used for other purposes.”

Tom Pelham is quite right: “Our legislators can’t seem to embrace cost saving reforms over serving the special interests that roam the state house halls.”

It will take a strong new governor to devise and force debate on “cost saving reforms”, hopefully before any more productive businesses and people head for the exits.

– John McClaughry is the founder and vice president of the Ethan Allen Institute 


{ 1 comment… read it below or add one }

Thomas McLinden April 12, 2016 at 3:38 pm

I had the opportunity to meet Republican Gubernatorial candidate Bruce Lisman this past Sunday (4-10-16). He is the real deal: a smart businessman who would bring fiscal discipline and real world management practices to Montpelier to replace the woefully inept management of the Shumlin Administration. He spent over two hours talking, and listening, to our small gathering. His ideas for making Vermont government more responsive and accountable to the needs of average Vermonters are remarkable, and his enthusiasm is contagious. To learn more check out his website.


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