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Choosing sides: Taxing & spending

By John McClaughry

Posted February 9, 2007

Can Vermonters afford the expensive state government their politicians have given them from years of enthusiastic program creation and generous entitlement expansion? That was the implied question lurking beneath the surface of Gov. Jim Douglas’ Jan. 23 budget message.

The governor didn’t explicitly answer that question, but it was pretty clear that he sees where things are heading — and doesn’t want to go there.

At this moment, Vermont is in fairly good shape. At the end of this fiscal year on June 30, the general fund will likely have a full reserve with $12 million left over. Take $7 million of that to reimburse the education fund for the Legislature’s failure to comply with the fund transfer law, and the year will still end in the black.

Douglas and Treasurer Jeb Spaulding seem determined to make the actuarially required payments into the teachers’ retirement fund. This fund has often been shortchanged to produce a budget agreement at the end of a legislative session. Thanks largely to Spaulding’s leadership, the state is on a track to reduce the current $259 million underfunding.

The transportation fund is likely to meet its budget target, with a full rainy day reserve. However, there are about $150 million in unbudgeted deferred maintenance expenses that will have to be dealt with.

The education fund is flush with property tax cash. This is a result of increased assessments on existing properties, combined with the Legislature’s unwillingness to lower the tax rates accordingly. Since Act 60 was passed in 1997, K-12 education spending has risen 35 percent in inflation-adjusted dollars, while the pupil count has dropped by 9 percent. Raising property taxes to pay for 63 percent of education costs has become a political issue even hotter than “global warming.”

So Douglas made a proposal for reining in these problems. He proposed that the Legislature enact a statutory cap on the growth rate of general fund spending, equal to the sum of inflation and population growth. “This is a practical and prudent step,” he said, “that will enforce the same discipline on the budget process that taxpayers must use with their own family finances.”

The Legislature’s liberal leadership wasn’t buying that for one minute. Senate Pres. Pro Tem Peter Shumlin, D-Windham, is so terrified by the supposed threat of human-made global warming that he has made the Legislature spend two weeks seeking a way for Vermont to avert it. He was not similarly terrified by a high-tax state government living beyond its means. Shumlin’s actual words were “very skeptical,” but it was clear that he meant by that, “over my dead body.”

House Speaker Gaye Symington, D-Jericho, was similarly dismissive, complaining that she “didn’t hear a strategy for dealing with the real challenges this state faces.” She identified the Medicaid deficit, roads and bridges, a new state hospital, and teachers’ retirement as needing attention, and by implication new tax revenues. Douglas had addressed all of these issues in his budget message, while the speaker’s thoughts were apparently elsewhere.

Only a week after the budget message, the Democrats unveiled their first initiative of the session, other than saving the planet from carbon dioxide poisoning. It was a property transfer tax increase on commercial properties. The proceeds of this allegedly “temporary” tax increase would be used to compensate dairy farmers for unsatisfactory milk prices and a wet spring.

So it appears that the party lines are rapidly being drawn. Douglas wants a statute limiting general fund spending growth to the combined rate of population growth and inflation.

The liberals running the Legislature find this scandalous. They have already set off to expand government by raising a tax to pay for new subsidies to one powerful special interest. They will almost certainly pass a costly bill to make the education fund pay for universal pre-kindergarten.

A significant faction of the majority party — so far not including its two leaders — still wants to raise $2 billion in new taxes to pay for Canadian-style “universal coverage” health care. And important members of the liberal coalition are promoting the idea that the notion that Vermonters are overtaxed is some sort of myth, and that “the rich” still have the capacity to pay higher taxes for the greater good.

The interesting question is how many Democrats will side with Douglas to limit the growth of government and taxes, and how many Republicans will cave in and join the majority of the Democrats eager to increase taxes to fund ever bigger government.

John McClaughry is president of the Ethan Allen Institute, a public policy think tank based in Kirby. You can find more information online at www.ethanallen.org.