Editor’s note: This op-ed is by John McClaughry, vice president of the Ethan Allen Institute (www.ethanallen.org), a free market think tank.
The most immediate challenge facing Vermont’s new Governor is the projected $112 million FY12 General Fund shortfall. Last year the legislature faced a budget gap of $154 million. Thanks to the final year of federal stimulus funding and hopeful projections for Challenge for Change savings, legislators went home believing that they had delivered a balanced budget.
If that begins to appear doubtful, the new legislature will have a chance to make mid-year corrections early in the new session. If despite those corrections the FY11 budget actually ends up well in the red, that will increase the gap not only for FY12, but also for the following three years.
In the past two years the legislature harvested the low-hanging budget fruit. Future savings will be increasingly harder to come by. The vaunted Challenge for Change process, adopted in 2010, promises to achieve $38 million in FY11 savings by improving the efficiency of government operations – without diminishing services.
The October CfC progress report illustrates how difficult this is. Each department is given a series of sweeping outcome statements, such as “produce outcomes for Vermonters that are the same as or better than outcomes delivered prior to redesign” and “increase employees’ engagement in their work.” The department must then select appropriate metrics, and show that they are moving positively. This is no easy task.
Corrections selected as a metric “the number of people returned to prison for technical violation of probation and parole, while ensuring public safety, shall decrease.” It can improve this metric simply by having its probation officers overlook violations, “while ensuring public safety”.
Another metric selected is “percent of students who report they feel that they help decide what goes on in their school.” To get the data, the students are given a questionnaire. This will produce savings?
The CfC authorizing legislation explicitly rules out practically anything that would actually produce significant savings. Programs must be maintained “without reducing government benefits, limiting benefit eligibility, or reducing personnel”. There can be no competition with the designated agency monopolies. Savings must be “reinvested” in program expansion.
Finance and Management Commissioner Jim Reardon reported that all but $3.1 million of the required savings have been “allocated”. But, he is quick to point out, “allocations” may or may not translate to dollar savings. If the CfC changes don’t turn up by next spring, the $112 million general fund deficit grows accordingly.
And that’s not all. Shumlin has promised to initiate single payer health care, universal preschools, and the extension of broadband services to every “last mile” in the state. He is eager to shut down Vermont Yankee in 2012, thus foregoing the millions of dollars in tax revenues it generates along with the state’s cheapest electricity. He has told the state employees union that there won’t be any more layoffs.
Will raising tax rates be his answer? During his recent campaign, Shumlin repeatedly boasted that he had been a key figure in three income tax rate reductions. (All three produced tax cuts for the wealthy, but that didn’t stop Shumlin from condemning his Republican opponent for favoring “tax cuts for the wealthy”.)
Ever since he was first elected to the House, Shumlin has been a determined opponent of sales tax increases. It would seem unlikely that he would succumb to the temptation to levy sales taxes on services. This is especially so because such service taxes are enormously unpopular with the service providers (accountants, lawyers, doctors, taxi drivers, barbers, beauticians, auto mechanics, plumbers, etc.). It would create a highly motivated constituency for “anybody but Shumlin” in 2012.
Shumlin also blasted his Republican opponent during the campaign for supporting a Douglas proposal that would have increased residential property tax rates (by shifting teachers retirement contributions onto the Education Fund.) Doing a 180° on this issue would also invite serious adverse political consequences.
One would think that Shumlin would thus rule out jacking income tax rates back up, or expanding the sales tax, or increasing the educational property tax burden. He is, however, justly renowned for his flexibility.
The crux of the problem is this: there is little prospect of further curbing state expenditures without making disruptive changes in services offered, client eligibility, employee compensation, provider payments, and protected monopolies. To get (narrowly) elected, the new Governor proposed sweeping new programs, and denounced every proposal for increasing taxes.
There was once a justly celebrated man who fed a multitude of thousands with a few loaves and fishes. Unfortunately Peter Shumlin is not likely to exhibit the requisite ability.
