money money

[Carolyn Branagan]

State finances are on my mind. 

There is a total $66 million gap in revenues needed to meet the current year’s shortfall.  Of that total, $37 million is due to revenues not meeting expectations. Keep in mind the budget has already experienced significant downgrades due to reduced revenue and millions have already been cut. An additional $29 million is due to unanticipated increases in budget demands, and would typically be dealt with at budget adjustment time in late January. It is unlikely there will be extra money at that time, so the legislature needs to be prepared to reduce expenditures by $29 million in addition to the $37mil.  Of the $37 million, the Joint Fiscal Committee is reluctant to cut the entire amount because in doing so policy will certainly be impacted. They want to get the opinion of the entire General Assembly before cutting the budget to this extent. So, respecting that position, the administration has suggested where cuts could be made for $19.7 million.

I know these decisions are tough. Putting the budget together in the beginning is a long complicated task and no one wants to take it apart. However the economic times demand difficult decisions. I commend the Governor for putting these suggestions on the table to get the discussion started. The Joint Fiscal Committee continues to take testimony from the public.

After looking at the Governor’s budget proposals these particular items stick out in my mind:

The $4.5 million in reductions from the Agency of Transportation are going to hurt because our roads are already in such dismal shape. The $339,000 aid in town highway structures, the $700,000 in Class 2 road aid and the $1,850,000 in general town highway aid are going to be discussed in every selectboard meeting across the state. This loss goes directly to the towns and is not taxpayer savings, because most towns will be forced to pick up the loss by adding to the municipal budget. This is a classic cost shift. Fortunately yesterday the Joint Fiscal Committee voted to shelve the reduction in general town highway aid. It may be considered at a later time though.

I’d like to know more about the additional 47 beds being added to Northwest Correctional Center. The proposal says this will save more money than the original proposal to change the prison. Are those beds for women?  Men? If there is some flexibility in adding beds, then why can’t the area police use some space for housing prisoners overnight instead of driving to Newport?

Room for more cuts?  There is always room for reducing expenses. The question is…..    what programs are we willing to reduce or eliminate? I like the administration’s proposal to not to hire positions already vacant. As others have mentioned, the Land Trust $15 million appropriation should be put on hold for this year. The legislature itself can save significant money by shortening the session. I, for one, am willing to work very long days if by doing so, we could shorten the session and use the savings to provide programs for needy Vermonters.

We need to think of efficiency and best methods to reduce duplication. For example, all law enforcement should be under the same agency.  Instead of having separate officers for DMV, Fish and Game, Sec of State, Statehouse and others all these should be under one umbrella, possibly the State Police.  There could be significant savings in administration and better coordination in training.  This would not reduce the total number of officers, but would allow administration and training to be more efficient and cheaper.

I have had doubts about the ability of Catamount to succeed from the beginning. Last year the state spent millions trying to advertise the program to attract more participants. Catamount was originally designed to serve 60,000 people. Only 6,000 have signed up.  We either need to loosen up the regulations so that more people are able to qualify and pay into the program, or find a way to cover the 6,000 and close the program. This is a huge outflow of money Vermont can no longer afford.  It's not working as is. 

We have not yet seen the bottom of this recession.  Further cuts are ahead of us. I am certain that before the end of the fiscal year, the legislature and the administration will be working together on further cuts due to downgrades in revenue. We know from Economics 101 that raising taxes in a recession is exactly the wrong thing to do.  I will continue to fight tax increases. Deficit spending is irresponsible and I am glad to see that neither the administration nor members of the Joint Fiscal Committee are willing to consider it.  The only viable option we have is exactly what is being done: the close examination of budget proposals and related revenue predictions and then cutting expenditures until the two match.


Rep.  Carolyn Branagan
Frankin-1, Fairfax/Georgia
Vermont House of Representatives

[j_gluck]

Carolyn,

There is historical prededent - here in Vermont - of a combination of tax increases and budget cuts to balance the State's budget. This article:
Budget Cuts or Tax Increases at the State Level: Which is Preferable During an Economic Downturn? by the Center on Budget and Policy Priorities http://www.cbpp.org/1-8-08sfp.htm points out that

Policymakers sometimes contend that the weakness of the economy means that a state should rely solely on cutting spending, rather than raising taxes.  The aversion to raising taxes during a recession, however, rests on a misconception of economic effects.

Two highly regarded economists — Nobel Prize winner Joseph Stiglitz of Columbia University, and Peter Orszag, now the director of the Congressional Budget Office — wrote during the last recession that spending cuts could actually be more harmful for a state’s economy during an economic downturn than tax increases.  This assertion still holds true, whether or not the nation is deemed to be in an official recession.

I hope that you will read this article - and share it with your colleagues. Here is another quote

“The conclusion is that, if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families. In any case, in terms of how counter-productive they are, there is no automatic preference for spending reductions rather than tax increases.”

As I said in a previous post, there are other options during this fiscal crisis other than cuts to services and programs and ALL options need to be discussed.

Joel

[j_gluck]

About Catamount

The Legislature wanted Catamount to be affordable health CARE for Vermonters (and maybe the start of a move to universal health care), the Governor wanted and succeeded in getting affordable health INSURANCE - big difference. Health insurance with all the exclusions and pre-existing condition clauses turned out to be not what most Vermonters needed. However, getting rid of it - and/or cutting other health programs - is not the answer. People are hurting out there, we are in a recession and people are making choices that put their health at risk.

We need universal health care - now.

The final Kaiser Health Tracking Poll: Election 2008 finds more people are reporting problems with health care bills, and paying for health care retains a solid hold on the public’s list of their top economic concerns.

About one in three Americans now report their family has had problems paying medical bills in the past year, up from about a quarter saying the same two years ago.  Almost one in five (18%) of Americans report household problems with medical bills amounting to more than $1,000 in the past year. 

Nearly half (47%) of the public reports someone in their family skipping pills, postponing  or cutting back on medical care they said they needed in the past year due to the cost of care.  For example, just over one-third say they or a family member put off or postponed needed care and three in ten say they skipped a recommended test or treatment – increases of seven percentage points from last April’s tracking poll which asks the same question. 

http://www.kff.org/kaiserpolls/h08_posr102108pkg.cfm

[Carolyn Branagan]

Hi Joel,

Thanks for the references to the articles on the effects of cutting expenses vs. raising taxes. I am familiar the economists who authored both. The problem is here in Vermont we are so small our taxpaying public does not react as in larger states or middle sized states. There is evidence of scores of high income (that means high tax paying) taxpayers changing residency to avoid our 9.5% income tax bracket. The latest taxable income summary given to the Ways and Means Committee showed only 313 personal returns over $1million and 601 returns in the $500,000 to $1 mil income class. It is hard to have a lot of sympathy for folks who earn that much money when so many of us struggle to make ends meet, but the fact is these folks pay a LOT of tax for the rest of us.


Anyway, I hear you. I am looking into outcomes and scenarios for various revenue changes we might make. You are not the only one who has advised me to bite the bullet and vote to increase the gas tax. I just want to make sure it is the right decision, and am tracking down all the potential outcomes. The thing I am most worried about is the impact on low/middle income Franklin County residents traveling a long way to work. Over 3000 of them get on the interstate every weekday morning at exit 18 and travel into Chittenden County.  Reducing travel costs may more easily be done by expanding the bus service. And stopping the transfer of Transportation money out through  JTOC to Public Safety would help balance Transp.books. 

I very much appreciate your input. Continue, I’m listening.  Happy New Year to you and all.

from, Carolyn



Rep. Carolyn Branagan
Franklin-1, Fairfax/Georgia
Vermont House of Representatives

[j_gluck]

Carolyn,

Thanks for the response. I understand your concern about the gasoline tax. Here are some other ideas from Doug Hoffer at the Vt Progressive Party blog.

Some have suggested the FY09 & FY10 state budget shortfall will be $250 million. $250 million is a lot of money. However, it only seems scary if we only think of it as a one or two year hit.

Why not think of it in a somewhat longer time frame? If we bond for $250 million over 15 years, the quarterly bond payments are $4.7 million ($18.9m per year). Where do we get the funds?

1. Eliminate the 40% capital gains exclusion. Include safeguards for the one time hits from the sale of small businesses & farms/woodlots (do this by redefining “long-term” capital gains as five years or more instead of one year as the feds do). This should raise at least $8.5 million in a bad year (the first year of the exclusion - right after the last recession - we gave up almost $15 million in lost revenue so I think $8.5m is conservative. BTW - When things pick up, this will provide a LOT more revenue; according to the last tax expenditure report, we lost $48 million in 2005 alone.

2. Add a surcharge to the personal income tax of those who earn more than $500,000. A 1% surcharge on this group should raise at least $5 million even in bad times (I don’t think it would change their vacation plans).

Note: Before anyone gets the wrong idea, this would not be much of a burden for this group. At present, if someone earns $1 million (forget capital gains for now), they will pay just over $88,000 in VT state income tax (thanks to the standard deduction and the personal exemption plus the graduated tax rates, the effective rate is well below the 9.5% statutory rate). If we increase the top rate for this group by 1% (actually 10% - from 9.5% to 10.45%), the same person earning $1 milion would pay $94,000 instead of $88,000; only $6,000 more on an income of $1 million. Since there were 1,373 filers over $500,000, the net new revenue would be about $7 - $8 million (probably more because for all those between $500,000 and $1 million, there are some at much higher incomes). As I noted, it would be prudent to assume less under these circumstances so I said $5 million.

3. Raise the gas tax two cents. According to JFO that raises $6.8 million. OK, drop it somewhat due to reduced driving and its $5 million. Note: two cents would cost the avg. driver a little more than $1.00 per month.

Ok. That get’s us to $18.5 million and the goal was $18.9 million.

If you don’t like those, here are two other options

1. Raise the rooms & meals tax by 1%. Much of this would be paid by tourists. A 1% increase would raise the cost of a $100 hotel room by $1.00. JFO estimates this would raise $14.1 million; let’s assume it would be only half that - $7 million.

2. Extend the sales tax to selected services (not health care). JFO estimates it would raise almost $75 million. But let’s be cautious and make it only one penny instead of six. And assume somewhat less revenue because of hard times we get $8 million. And build in a modest exclusion - perhaps $1,000 - so regular folks who need a lawyer or an accountant for unexpected reasons don’t get clobbered.

Obviously, you don’t get bond proceeds overnight so we need to bridge part of the gap now with rainy day funds + a little deficit spending (gasp!).

In addition, any federal funds ($100m to $200m seems likely) can be used to do road & bridge work or catch up on school construction or build out the telecom infrastructure or invest more in energy efficiency, etc.

In any case, I’m convinced we can avoid the deep cuts under discussion. Of course this scenario assumes sufficient votes to override the Governor’s veto. Now that’s a challenge.

http://www.progressiveparty.org/blog/?p=543