By David Flemming
Vermont’s special session has the potential to steer our state in the right fiscal direction for years to come, or it could leave us with a disastrous government shutdown.
Gov. Scott’s “no new taxes” pledge is on a collision course with the legislative leadership’s desire to pay down Vermont’s underfunded pension accounts. But this doesn’t have to be an either/or scenario. In fact, it should be “both.”
First, the governor’s “no new taxes” pledge. A governor that vocally opposes higher property and income taxes is better than having a governor who is ambivalent about the subject. We can be thankful for that. However, leadership has a point about the use of one-time funds to prevent property taxes from increasing not being ideal. Vermont can’t count on receiving a $35 million settlement from the tobacco industry and $44 million from unexpected tax revenue every year.
Vermont is not an island. If the second longest U.S. economic expansion on record suddenly turns into a recession, spending will have to decrease or else taxes will increase. The more sound approach would be to figure out a way to structurally lower education spending overall.
Scott’s does do this over the long term, presenting a plan to restructure Vermont’s education system, with potential net savings of around $300 million over five years. The proposal has its detractors, but if his $60 million annual reduction in education spending is a good estimate, that is a starting place.
Acknowledging Scott’s leadership does not have to detract from our legislative leaders’ proposal to pay down the pension fund. House and Senate leadership have advocated using $34 million of the revenue windfall to pay down our unfunded employee and teacher pension liabilities. That proposal is a good conversation starter with taxpayers as to how we might pay our retiring teachers and other employees. According to Vermont’s Joint Fiscal Office (JFO), Vermont has not planned on how to pay for the nearly $4 billion in pensions and retirement benefits, as of June 2016. This number is larger now, and will only continue to grow so long as Vermont fails to cut government spending and keeps taxes where they are.
If Vermont’s pensions and benefits increase to the point that creditors doubt Vermont taxpayers will ever be able to foot the bill, interest rates on our bonds will skyrocket and Vermont would be forced out of necessity to increase taxes and dramatically cut public services, something that neither Republicans or Democrats would enjoy. We need only to look at the situation in Illinois. After the state’s powerful unions prevented Illinois from decreasing its pensions and benefits, the state’s bonds have become next to worthless.
And for the progressives who say “we can just raise taxes” if this worst-case scenario for pensions comes to pass, our “service level solvency” ranks 48 out of 50 states. This means that, in the event of a drop in revenue from a recession, Vermont’s economy would be hard pressed to remain afloat after tax increases, leading to more incomes leaving Vermont, with even higher taxes for those who remain.
If we were to assume the best of Gov. Scott and legislative leadership, both sides would use this special session to work together to pay down Vermont’s pension accounts, lowering property taxes permanently, and finding ways to cut out non-essential government programs, thus avoiding a government shutdown.
While neither side likes the shutdown scenario, the hard lines put forward by both sides leave this open as a distinct possibility. If Scott and the legislature fail to reach a compromise by June, no emergency funds can be taken from the state treasury without legislation, as stipulated by the Vermont Constitution. This being the case, we could see a shutdown sometime in July. While some fiscal libertarians might rejoice, even the most basic of government services could be affected, such as law enforcement and nursing, leaving thousands without the care they need.
Worse still, a shutdown could exacerbate the pension crisis. Interest rates on state bonds would rise, making it more difficult for Vermont to borrow money for our unfunded pension, thus raising the specter of higher taxes and reduced government services in the years to come.
Vermont is in a precarious position. For years, Vermont’s government leaders have chosen to look the other way in regards to our uncompetitive tax rates are and unfunded pensions. Voters haven’t held them accountable because the the long term consequences of these policies haven’t been felt in the context of a strong national economy.
If we do nothing, our high tax rates and underfunded liabilities will slowly siphon enough capital away from Vermont that we will begin to look upon the past couple of decades as the glory years. Not a pretty thought if you look at the lack of development in the more rural parts of our state.
So, here’s hoping that in this special session two rights don’t make a wrong, and that both sides get what they want.
David Flemming is a policy analyst for the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.
9 thoughts on “Flemming: The governor and leadership are both right”
No New Taxes, states the Governor. We have heard his pledges before and seen him
buckle in a heartbeat, so Let’s see if he’s worth his weight and my vote.
So Vermont and it’s Spending & Tax debacle, as stated for years our elected officials have
had their heads in the sand or are just inept on running our government. It looks like they
sure know how to Spend your tax Dollars !!
What Montpelier doesn’t see is that their golden egg ( Property Tax ) is fading, as people
are leaving the state for a better tax friendly atmosphere These flatlanders we have in the
State House and their foolish programs Spend, Spend, Spend instead of Fix, Fix, Fix !!
So let’s see No New Taxes, restructure Vermont’s education system, with potential net savings
of around $300 million over five years ( Wow ) The Liberals ( flatlanders ) we have in the state
house will never let this happen, wake up VT.
As far as unfunded pensions time to take a look at these programs. The goose that laid the
golden egg, well it’s dying ……………
So you say…. “Voters haven’t held them accountable because the the long term consequences of these policies haven’t been felt in the context of a strong national economy.” I say its a major cultural issue, akin to an incestual relationship, wherein the majority of voters are so wedded to their representatives’ “collective” ideology, first espoused via our education system, that they have become incapable of developing the “independent thinking” that’s required to sift through the fog of progressive ideology, see the failures inherent in collectivist government and vote in a totally new life experience reminiscent of the days when VT was self sustaining. Poor? Always has been, but proud!
“the governor’s “no new taxes” pledge”
If it’s anything like his rock solid pledge of No Gun Control,the state is on quick sand.
There is nothing the man says that can be believed,nor depended on as he has proven himself at best weak willed at worst a liar.
Good – shut the VT government down, and shut down all the 42 various programs that give away our tax dollars while you’re at it. Then publish the names and addresses of all the socialists working in Montpelier who can’t seem to stop the spending.
Totally Agree!! I want to see the all the names of all the socialists receiving free stuff!
I also want to see the names of all the socialists, progressives, and democrats who cannot stop spending and where they are from!
Here is a website to check out Patricia it has the complete break down of what you demand above & a little more, ( http://ethanallen.org/vt-legislator-roll-call-profiles-by-county/ ) also there is this from the Census Bureau which shows in less than a year about 2000 people have moved out of Un-Affordable Vermont ( https://www.census.gov/quickfacts/fact/dashboard/VT/PST045217 )!! As a Combat Veteran from OEF/OIF it is disgusting the amount of people who want, like, and agree with Socialism, Communism, as well as the lip service paid to Voters in Vermont by so called Progressives, Liberals, Democrats, Socialists, or Communists, who go on to carry out their agendas once in office.. That makes them all liars. . Despite their well planned rhetoric they are some of the most closed minded noninclusive ideological based demagogues interested in tax spend tax spend expand Govt and pass only feel good legislation or outright strip rights enshrined in the Constitution then invent new rights not in the Constitution which a majority of people believe are disgusting… How about legislators lower taxes, no deficits, make teachers teach actual material as in Facts not to recite beliefs or opinions or Liberal Indoctrinating propaganda like they do to kids in China, North Korea, Venezuela?? How about the ability to get rid of Govt Employees accused of wrongdoing, who are heavily protected by the VSEA?? How about they stop saying they love us Veterans & want to take care of then behind closed doors they are still trying to see how they can get rid of the VT Vets Home & waste that money on another mob demanded virtue signaling project?? One last thing, which honestly makes me laugh is all the comments “we want more young people in Govt “, & those same voices are running again this year not stepping down, retiring, or resigning to give us young people like me who want to serve and actually stop this expansionist based invasive Govt Liberals are creating here which is bankrupting & dividing Vermont well into the foreseeable future. “The problem with socialism is that you eventually run out of other peoples’ money.” – Margaret Thatcher
Thanks for the links and spot on commentary.
Shut It Down,Shut It Down Forever.
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