Tuesday January 8, 2013

John McClaughry

Gov. Peter Shumlin has a sweeping program of action for Vermont's new General Assembly, and it's a safe bet that he'll get ninety percent of what he wants. Here's a quick snapshot of the leading issues: The FY14 General Fund deficit is currently estimated at $50-70 million. The governor has told agencies to level fund and absorb pay increases. The highly touted "Challenge for Change" process (2009-2011) apparently didn't enable the state to live within its revenues, even allowing for the unexpected Tropical Storm Irene costs.

Further, Congress's resolution of the "fiscal cliff" may result in both higher taxes and large reductions in Federal spending, for instance, on Medicaid, 30 percent of Vermont's General Fund budget.

Act 48 of 2011 requires the Administration to explain by January 15 how it plans to raise as much as $3 billion a year to fund Green Mountain Care in 2017. Already the Administration is hinting that maybe everybody should just wait another year to find out, during which time the machinery of single payer will rumble forward.

Gov. Shumlin will push hard for more mandates and subsidies to force Vermont toward his arbitrary goal of 90 percent renewable energy by 2050 and greenhouse gas emissions reduced to 50 percent of 1990 levels by the same year. He has never wavered in his peculiar belief that Vermont must show the world how to defeat the "unspeakably horrid" Menace of Global Warming, and "claim our energy independence" -- no matter what the cost.

Since driving up the cost of electricity, motor fuel and heating fuel -- essential if low cost energy is to be replaced with high cost renewable energy -- socks the poor and middle class much more than the rich, look for new energy taxes to include a new subsidy scheme for the middle class, to compensate them for being made to pay the higher energy costs required of them to save the planet from Al Gore's Heat Death.

With the state and federal governments pressing hard for more electric vehicles, motor fuel revenues will increasingly take a hit. Will someone propose a new tax on electric vehicles to compensate the Transportation Fund for maintaining the roads, thereby cancelling out the subsidies that caused the people to buy overpriced electric vehicles in the first place? The party now in power was put there in large measure by labor unions, and for them it's payback time. Shumlin will push through unionization of day care workers, raising the costs of day care, and unionization of home care workers, raising the costs of Medicaid. The unions will pocket all those union dues and use them to underwrite the next big unionization push.

The grand $100 million Vermont State Hospital proposed in 2007 has faded away, but Shumlin is determined to build a new 25-bed psychiatric care facility in Berlin, whether FEMA will help pay for it or not. Meanwhile he is lauding the distribution of the seriously mentally ill back into "communities". Exactly what this means is not clear, but it directly relates to the homeless population on the streets. State bureaucrats are historically allergic to (lower cost) extramural arrangements that reduce patients' dependence on permanent control by unionized state employees. At the same time, legislatures are allergic to major new spending for mental health patient support.

Shumlin has repeatedly declared his support for public school choice, but his 2011-2012 legislature failed to act on it. (The bill then under consideration comically allowed a student to switch public schools, but allowed the sending school to keep all the money.) There's not much likelihood that school choice will move forward in 2013, especially if Shumlin appoints anti-choice, pro-consolidation Education Commissioner Armando Vilaseca to be the first Secretary of Education.

The basic household education property tax rate will almost certainly increase again, from 89 cents to 94 cents of grand list value (increased in each district by a spending multiplier). This is partly because local voters, undeterred by penalties, keep voting higher budgets; partly because grand lists are shrinking; and partly because in 2011 Shumlin snatched $27. 5 million out of the transfer to the Education Fund to fund his other General Fund priorities.

Lurking in the background is the ever growing problem of woefully underfunded obligations to retired state employees and teachers. The two funds have a $60 million annual contribution shortfall just for retiree health care expenses; the teachers' annual expenses are simply siphoned out of their (underfunded) retirement fund. Overall, the two funds are actuarially $3 billion in the red. Just who is going to make good on these unfunded promises?

Other issues -- like marijuana and assisted suicide -- will get lots of media coverage this year, but how the legislature grapples with the foregoing big ticket issues will strongly influence Vermont's near-term -- and perhaps long-term -- future.

John McClaughry is vice president of the Ethan Allen Institute .