Rep. Anne Donahue
March 9, 2014
The budget will become the big focus in the House as we move through March. Thus far, the governor’s budget, with its $88 million increase, is not selling well, in that it relies on a $14 million increase in taxes on health insurance claims.
The Ways and Means Committee, which has responsibility for revenues, hasn’t accepted this tax or an alternative yet. At the same time, the Appropriations Committee is desperate for that money to be found in order to balance the budget, as it sees little flexibility in budget pressures.
The $88 million would be a five percent increase over last year, and there is an irony to that, since the governor challenged local school boards around the state to hold down their budgets to a much lower growth rate.
The Republican caucus is pressing to hold the growth to three percent, or $54 million.
A full 35 percent of our $5.3 billion state budget comes from federal dollars. Last week, the Joint Fiscal Office published its annual “Fiscal Facts” booklet, which is a fascinating summary of almost any budget question you might have. You can access it directly at www.leg.state.vt.us/jfo.
I went through it to put together a few highlights for poster boards for town meeting, so I’ll share several of the things that caught my eye here.
Where Does the Tax Revenue Come From?
For the state budget (this doesn’t count local government funding or the local share of school budgets), the largest pot is the income tax, raising $738 million, followed by the non-homestead property tax, at $598 million.
The homestead property tax raises another $596 million, but $154 million of that is returned through income sensitivity rebates, so the net is $442. There is also $6.2 million returned in renter rebates. About another $45 million is excluded from the pool of property tax revenue as a result of the current use program, which reduces rates for property that is kept undeveloped.
Sales and use taxes raise $367 million and rooms and meals taxes raise $145 million. Gas and diesel taxes raise $98 million, the purchase and use tax, $96 million, and motor vehicle fees, $80 million. Other revenue sources are smaller and include the $23 million raised by the lottery.
That ranks us nationally as 20th in state income taxes, 8th in total state and local taxes, and 5th in state and local property taxes (2011 data.)
Where Does It Get Spent?
The big pieces of the pie are really big, while the rest of state government functions are minute in comparison. Some funds are restricted (property tax and the lottery to education, and the gas tax and motor vehicle fees to transportation, for example), but there is some crossover.
On the top of the list is education, at $1.68 billion last year, or 32 percent of the whole. Next is all state-funded health care, 20 percent, followed closely by human services, for another 20 percent, at just over $1 billion each.
The transportation budget is 11.6 percent, $612 million.
Protection to persons and property (the courts, state regulators, and state police) receives 5.4 percent ($247 million); the corrections system takes up three percent ($152 million), and the other shares are all two percent or less: (natural resources, higher education, general government, labor, commerce and community development and debt service).
We are 9th, nationally, in government spending per capita.
Who Pays for It?
Everyone chips in to an equal degree on everything we buy, to the extent that we buy more or fewer things. Property tax is a function of the amount of property one owns, unless, for those making under $80,000, some of it comes back as a rebate.
The big range comes in how the income tax is distributed, which is broken down in detail in the Fiscal Facts booklet.
Several facts struck me the most from this data. First is that 31 percent of Vermont wage earners make less than $20,000 per year. (Many benefit from the earned income refund, so on average, those in this group receive $23 each per year).
Second is that the three percent of Vermonters with the highest earnings – those making $200,000 per year or more -- pay almost 42 percent of all income tax revenue. (Our 520 individual millionaires contribute 16 percent of income taxes.)
If you drop down to the next grouping, and include all those who earn more than $100,000 per year, it adds up to 13 percent of all those filing, but they pay 68 percent of the state income tax.
The lowest 59 percent of wage earners contribute a bit less than two percent of the total raised. This reflects our progressive income tax structure, but also our low average earnings, since that 59 percent reflect incomes of less than $50,000 per return.
The Education Fund
The Education Fund is made up principally of all the state property tax revenues ($1.04 billion), a share of all sales taxes ($161 million), a contribution from the general fund ($296 million) and the lottery. It goes back to towns in the form of an equal amount per pupil, next year expected to be set at $9,382 each.
The rest that a town spends per pupil gets raised by the local share of the property tax. That is how a local school budget affects local property taxes. This year in Northfield, for example, the cost is $12,965 per student, so $3,583 will be raised by the local property tax share. Berlin has a $15,188 per student cost (including tuition to U-32.)
It is estimated that next year’s statewide average will be $14,050. Vermont is ranked fifth nationally by the census bureau on per pupil spending (most recent data 2011), and Governing magazine adjusts that to number 1 when regional cost differences are considered.
The devil is in the details of how the tax rate is determined. There is one rate statewide based on the total amount that needs to be raised as determined by the town budgets. However it is applied in each town differently based upon a calculation of local property values compared to all other towns (the infamous “common level of appraisal” factor.)
That’s what creates all the confusion and all of the risks of inequities… and would take an entire update to attempt to explain.
Back to the Future
The single largest general fund line item increase each year for the past several years has been in the overall administration of the health care system as it evolves from merely administering Medicaid to setting up the health care exchange to developing our state single-payer system.
It was $52 million in 2012; $92 million in 2013; $133 million in 2014; and budgeted at $152 million for 2015.
To get a relative sense of what $152 million means in what the state budget buys: the entire Agency of Natural Resources budget for 2015 is $99.5 million; Protection of Persons and Property, which includes the entire court system and state police, Secretary of State, insurance regulation and agriculture regulation, is budgeted at $302 million.
That may be why those watching the development of our new health care system financing plan question whether we can run it for less than private insurers do, or why they predict it will bring on the largest tax increase in the state’s history.
The assertion of billions in tax increases isn’t fair if its costs are offset by elimination of health care premiums but these questions – along with whether we can reduce health care cost increases – will be the devil in the health care details.
The administration has pushed back several deadlines for presenting the cost and financing, so this debate won’t begin until next year.
The second half of the second year of this legislative biennium will soon become very chaotic, and only snippets can be covered in these updates. Keeping you informed is part of my job in serving you. Please feel free to get in touch with questions or input, particularly if you hear news reports of concern. You can reach me at 485-6431, or by email at email@example.com. Rep. Patti Lewis’ number is 223-6319, and her email is firstname.lastname@example.org. You can leave messages for either of us with the Sergeant-at-Arms at 828-2228. This, and past updates, can be found at http://representativeannedonahue.blogspot.com