BRATTLEBORO—Vermont Gov. Peter Shumlin delivered proposed cuts and new revenue sources in part two of his agenda in his Jan. 15 budget address to lawmakers at the Statehouse.
Shumlin highlighted balancing the budget in an environment of stagnant growth, saying that the state needed to close a $94 million budget gap. State spending has been rising at a rate of 5 percent, outpacing the state’s revenue growth rate of 3 percent.
“Reduced growth rates in Vermont and across the country, dried up federal funds, the need to promote affordability for Vermonters — these realities lead to a single challenging conclusion: working together, we must take a different approach by curbing state spending to bring the cost of state services back in line with growth,” Shumlin said in his address.
The 16-page budget address included proposals such as a 0.7 percent payroll tax to increase Medicaid reimbursement rates, suggested cuts to the Working Lands Enterprise fund and Farm to School initiatives, a free two-year associate degree and internship program to students willing to stay and work in Vermont, education spending reforms, closing a tax loophole that could raise $15.5 million in revenue, and ongoing funding for opiate treatment.
Members of the Windham County delegation reported mixed reactions to Shumlin’s address. Those interviewed, however, all said that they would know more once they dug into the budget.
Shumlin’s address represents a starting point, not the final budget, they said. Legislators will vet and negotiate the governor’s proposals in their respective committees.
Speaking of Vermonters struggling to pay the bills, Shumlin said, “They play by the rules, work hard — sometimes at more than one job, but their bills keep piling up faster than they can bring in the money to pay them.
“We know many of the drivers of this unease: rising health care costs and rising property taxes, among others, with no corresponding rise in incomes and property values,” he said.
“Let’s not forget that the budget is just the math that shows us how we will achieve what really matters: to provide the services Vermonters need while creating opportunity for all of us to fulfill our full potential as citizens, family members, workers, and business owners,” he said.
The devil is in the details
Most of the Windham County lawmakers who weighed in on the budget address acknowledged the governor’s attempts to control costs. They struck a cautionary note when it came to cuts in the human services and education budgets.
The timing of budget conversations in the House committees will change this year. Senate Appropriations Committee Chairwoman Jane Kitchel, D-Caledonia, has asked committees to comment on parts of the budget that affect their work in an ongoing manner. In past budget sessions, the finance committees hammered out the budget then passed it to the policy committees.
The human services budget amounts to over 50 percent of the state’s budget, according to Rep. Michael Mrowicki, D-Putney, who serves on the House Human Services Committee. Those programs often make for easy targets.
While it may seem like low-hanging fruit, lawmakers said, cuts to human services can create drastic unintended consequences for struggling Vermonters.
Many of the legislators said they doubted limiting the Low Income Heating Assistance Program (LIHEAP) to only the $18 million received in federal funds was the best of ideas.
“It was a good-faith effort to offer up shared sacrifices,” Mrowicki said of the proposed budget. “This is a starting point.”
Mrowicki said he felt Shumlin took a political risk raising some taxes.
“Vermont is not a rich sate,” Mrowicki said. “Vermont does not even have a ‘1 percent.’”
He noted that estimates put about 3,000 residents in the state as earning above $200,000 a year.
“That’s half of 1 percent,” Mrowicki said.
Rep. Oliver Olsen, I-Jamaica, said the state needs to examine the Catch-22 of the gap between the comparatively quick rate of backing off state assistance versus the comparatively slow increase of recipients’ income, also known as “the benefits cliff.”
“This creates a disincentive for many to work more for more money, since many of these benefits have a hard income cap rather than a gradual slope,” Olsen said by email.
“In many cases, a family will lose more in state benefits than net value of their increased earnings, so they are forced to manage their income below certain thresholds. The result is that we have fewer Vermonters living up to their full earning potential, while the state continues to pay for the cost of a relatively high human services caseload,” he added.
Incoming Sen. Becca Balint, D-Windham, said in an email, “If we don’t rightsize our spending, we will continue to get hammered by $100 million budget gaps.”
“Of course, although I appreciate the call to be more honest in discussing the funds we actually have to work with, the remedy is often unpalatable,” Balint wrote. “I am very concerned about the proposed cuts to the Low Income Heating Assistance Program, to the judiciary, the Working Lands Enterprise Program, and the state library system.”
According to Rep. Valerie Stuart, D-Brattleboro, the state needs to align its revenue and spending in order to maintain its strong bond rating. Without a good bond rating it can’t borrow money with a low interest rate.
“Hopefully, we can rightsize our spending as a state,” she said.
Rep. Matt Trieber, D-Rockingham, noted, “The devil is always in the details, not the speech.” This session, Trieber moved from the House Human Services Committee to the House Appropriations Committee.
Trieber commented that this year’s tight economic situation could serve as an opportunity in disguise.
When times are prosperous, he said, it’s easy to fund or expand programs without examining their outcomes. A period of belt tightening could provide an opportunity to adjust spending, programs, and their outcomes intelligently so that the state takes in more and spends less.
“The harder look is what bothers people,” Trieber said.
Yet, to Trieber, finding streamlined or creative ways to deliver services, “that’s not a cut; that’s just spending better.”
New revenues and raising payments
Most of the lawmakers lauded the Governor’s proposal to increase Medicaid payments to providers.
Shumlin said in his address that providers treating patients with Medicaid are reimbursed 40 cents to 60 cents on the dollar. This underpaying results in $150 million in private premium inflation annually.
“All across Vermont, providers who treat Medicaid patients have two choices to limit losses: charge patients with private insurance a higher rate or turn away Medicaid patients who desperately need care,” Shumlin said.
Shumlin proposed a 0.7 percent payroll tax to raise the Medicaid reimbursement amount and expand premium subsidies for families earning $48,000 to $72,000.
Of the payroll tax, Shumlin said, “It benefits all Vermonters because the combined state and federal dollars raised increase payments to providers and increase access for Vermonters, while making commercial insurance more affordable for individuals and businesses.”
Lawmakers said they supported increasing Medicaid payments through the payroll tax. Many called the Medicaid cost shift “an invisible tax on the middle class.”
Sen. Jeanette White, D-Windham, said the low payroll tax was a good compromise between keeping the tax low and ensuring that employers who don’t offer health insurance still pay their share.
Freshman Rep. Emily Long, D-Newfane, said by email, “While Gov. Shumlin may have taken single payer off the table this year, health care reform is alive and well in Vermont and I believe he reaffirmed his commitment to it. Improving our health care system and providing equitable access to health care for all Vermonters must be a top priority this year.”
Long, who will also serve on the House Education Committee, said she will dig into the governor’s education proposals.
The small payroll tax will help “level the playing field” for businesses, Mrowicki said. Businesses that don’t offer health insurance possess an unfair cost advantage over businesses that do. Raising a payroll tax sends the message that we all have a responsibility to each other.
Olsen applauded the governor’s focus on education spending reform. In an email, he called Shumlin’s proposal to address the Medicaid cost shift “intriguing.”
“There is no question that the chronic underfunding of state healthcare programs has resulted in an ongoing cost-shift to the private health insurance market — one of the many reasons why the cost of health insurance continues to skyrocket,” Olsen wrote.
Olsen also expressed concern about how the change could filter down to small businesses.
“We need to look seriously at any proposal that leverages federal funding to boost Medicaid reimbursement rates but I am wary of any proposal that puts more of the burden on small businesses,” he wrote. “Many small businesses, particularly those in Windham County, are barely treading water.”
Rep. Mike Hebert, R-Vernon, said he was “a little wary” of the payroll tax.
“It always rolls down to the guy at the bottom of the hill,” Hebert said of the tax’s potential impacts.
Hebert added concerns about the state relying on federal monies for ongoing programs. Use federal funds for a onetime injection to launch a program — maybe — said Hebert. But using them to maintain a program like the Medicaid payments could disadvantage the state.
Hebert commended Shumlin for returning to the podium after the protests that took place during the inauguration.
“That took guts,” he said.
Small schools and economies of scale
While lawmakers agreed with Shumlin that the rising education property tax must be brought to heel, they stopped short of agreeing wholeheartedly with his proposed solutions.
“I know my proposals will not be welcome by everyone, but I hope you will consider them thoroughly and review them with an open mind, realizing that even more drastic solutions may be demanded by Vermonters if we fail to act,” Shumlin said about increasing property taxes.
“It will take time, hard work, courage and partnership — in Montpelier and in our schools and communities — to see progress, but it is critical that we start now,” he added.
In his address, the governor focused his audience’s attention on the costs of small schools. He proposes doing away with small school grants and voluntary school consolidation.
“I look forward to seeing a more fleshed-out budget,” said Rep. Carolyn Partridge, D-Windham.
Partridge said that while some of the governor’s proposals were interesting, she didn’t see how they would work in reality.
Partridge was disappointed that Shumlin once again seeks to cut grants to small schools or consolidate rural schools. Rep. Mollie Burke, D-Brattleboro, agreed with Partridge’s concerns about protecting small schools.
According to Partridge, the state created the small schools grants to remedy an unintended consequence of Acts 60 and 68. Larger schools have greater economies of scale. Small schools almost always have higher per-pupil spending than larger schools. Small-school grants were supposed to help balance the economies of scale, she said.
Windham is one of many towns, like Dover, that sends more money in education tax than it spends educating its students, Partridge said.
“We’re doing more than our share,” Partridge said.
Contrary to Shumlin’s statement that some schools are so small they can’t report student data, Partridge said small schools know exactly how well their students meet state standards.
The “no reportable data” thought comes about because the schools are small enough that students’ test scores and other data is identifiable so they’re not supposed to report or risk confidentiality, Partridge said.
Rep. Ann Manwaring, D-Wilmington, made the shift this session from the House Appropriations Committee to the House Education Committee.
Lawmakers say that this session marks the first time people with experience on the education and finance committees are serving on the same committee.
Manwaring said that with solving the rising education property tax problem she still has more questions than answers. Acts 60 and 68, she said, have never asked what taxpayers get for having an education fund.NOTE (Unknown Author, 2015-01-20T11:50:26): Might rewrite. Do we mean the authors of those acts? And instead of asked, do we mean made clear?
Manwaring has submitted legislation to place a temporary moratorium on any measures that increase property taxes.
Working lands and climate
Partridge and Stuart suggested they had hoped for more in parts of the address.
Shumlin has proposed what Partridge described as “drastic” cuts to some agricultural programs like the Working Landscape Enterprise Fund and the Farm to School program.
Referring to five principles and values Shumlin listed in his address, Partridge said, “The cutting of those programs [such as Working Lands] — some of those cuts violate one if not two or three of those principles.”
The Working Landscape Enterprise Fund helped create 3,600 jobs in four years, far ahead of the 1,500 jobs in double the time initially predicted when the Legislature created the fund, Partridge said.
“Mixed, I would say,” said Burke of her reaction to Shumlin’s address.
Like many of her fellow delegates, Burke lauded Shumlin’s proposals on healthcare and raising taxes.
“It’s sort of a wait-and-see,” she said of Shumlin’s proposals. “I think it’s a good start.”
Overall, Burke said she wants to know that any cuts the Legislature makes in fiscal year 2016 are proportional to people’s ability to pay.
Burke said she wished Shumlin had discussed climate change directly in his address. Without his focus, she said, the sense of urgency to focus on mitigating the warming climate could fall by the wayside.
Balint added: “But, of course, our job now as legislators is to make counterproposals that will achieve the same goals while protecting programs we view as vital.”