David Flemming: Government shutdown could prove costly

The Legislature's Joint Fiscal Office estimates that keeping legislators for the special session costs Vermont taxpayers $50,000 to $60,000 per day. But this is pennies next to the effect of a government shutdown, increased taxes and the coming pension crisis. As much as legislative leadership and the governor's office like to blame each other, we have a right to demand better communication from both.

At minimum, our leaders should have been working on the property tax and education system question long before they considered other issues. Instead, the speaker of the House was happy to bring bills to vote banning inexpensive appliances that used "too much" energy, while the Senate president was content to take up bills confiscating "adulterated raw agricultural commodities or animal feed." Even if you like these bills, would anyone seriously argue that these measures are more important than preventing property taxes from rising? Is legislative leadership that out of touch?

While we don't have as clear a record of what Gov. Phil Scott has worked on, many legislators complained about his lack of communication when I was at the Statehouse.

And then there is Vermont's looming "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.

House and Senate leadership have a point about Scott's 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.

Scott presents a plan to restructure Vermont's education system, with potential net savings of around $300 million over five years. Due to a lack of communication between governor and legislative leadership, it looks like there won't be enough time to thoroughly evaluate his proposal ahead of a shutdown.

Scott needs to understand that while the pension question is not akin to higher taxes at the moment, it could soon be. According to Vermont's Joint Fiscal Office, 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.

In the event of a shutdown, interest rates on our bonds will skyrocket and Vermont will be forced out of necessity to increase taxes and/or dramatically cut public services, something that neither Republicans or Democrats would enjoy. If Scott and future governors ignore the pension issue, inaction would inevitably mean extraordinarily higher taxes, or a bare-bones government. We need only to look at the situation in Illinois to see an example. After the state's powerful unions prevented Illinois from decreasing its bloated pensions, the state's bonds have become next to worthless.

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 the end of 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.

Worse still, a shutdown could worsen 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 and unfunded pensions. We the voters haven't held them accountable, because 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 unfunded liabilities will siphon enough capital away from Vermont that the past decade will look like Vermont's glory years. Not a pretty thought if you look at rural Vermont's stagnant economy.

Both sides have a demonstrated a concerning lack of communication by taking up issues that should not have been postponed. At least until they had reached a compromise for dealing with the property tax and pension fund issue. If a government shutdown is to be averted, rebuilding the lines of communication is the first step toward making Vermont fiscally responsible.

David Flemming, of Burlington, is a policy analyst at the Ethan Allen Institute.


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