Legislative Update April 5, 2015

Legislative Update

Rep. Anne Donahue

April 5, 2015

 

Where to begin, in the list of new taxes?

None of them are smack-you-in-the-face taxes. They are the little ones that pile up from behind the scenes, but by the end of next week they will likely add up to $63 million in new revenue in order to enable more spending. When you start putting these things together, there are some obvious ironies. There have been many media sound bites that reference the deep cuts in spending this year -- $56 million from the general fund – but the general fund actually went up by $68 million in spending. The cuts were reductions from projected increases, not from the existing base.

That increase amounted to a 4.8 percent increase in the general fund. This week, however, we passed a bill to restrict school boards to stay below a 3 percent increase in their budgets. This was in response to the “call from voters” to address unsustainable tax increases. What’s good for the goose is apparently not good for the gander.

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Lining Up the Taxes

The deficit between projected spending and projected revenues this year was $113 million. Two weeks ago the House addressed this by cutting the increased spending by $56 million, raising taxes and fees by $35 million, and using $25 million in “one time” funds. One-time funding means it is not a repeating source of revenue. It won’t be there next year, so we will start next year with that amount as a new deficit.

Most of this year’s one-time money came through paying for general fund items in the capital construction budget. Thus we deferred construction needs in order to avoid further general fund reductions, and will start the fiscal year 2017 budget with a $25 million hole. The hole will stay that “small” only if we restrain that budget’s increase to actual revenues, something we have not achieved for six years now. Thus, the cycle continues.

The new taxes in this bill came through reducing what can be included as state income tax deductions. Our current policies say that we shouldn’t count as income (thus, shouldn’t tax) the money you had to spend on paying income taxes; the money you have to spend on high medical expenses; the money you spent repaying a home mortgage or student loan; and income you receive but give away to charities.

We all have a choice of using the “standard deduction” that simply discounts a percentage of income without have to list any specific items. Those who have higher amounts of this kind of spending, however, can receive a higher deduction if they list out (“itemize”) the deductions from income. About a third of Vermonters itemize deductions. Under this bill, any money you use to pay taxes would now be taxed. You can still deduct the others, but only to the amount of two-and-a-half times what your standard deduction would have been. I voted no.

More Spending, More Taxes

In most years, our state spending is divided into four buckets: the education fund (combined statewide property tax plus income and part of the sales and other taxes); the transportation fund (mostly gas taxes and motor vehicle fees); the capital bill (major projects that are paid with long term bonds); and “everything else,” which is the general fund. This year, we have removed items that would normally be paid for in the general fund into two new special categories.

One category is increases in health care spending. If we had included this as usual as part of the general fund budget, it would have increased the deficit by that amount of spending – in this case, by another $20 million – and living within our means would have meant sorting out all of our state priorities within that single revenue and spending bucket.

The other new bucket is the water quality bill. I think there was greater justification for accounting for that separately, because it is a major new initiative to clean up our many impaired lakes and streams.

More About Water

Virtually everyone agrees that we have a crisis in our water quality. Beyond what we want for ourselves… shhhhhh… don’t let the tourists know that Vermont -- Vermont! -- has polluted lakes and streams. On top of that, we are under a threat from the federal Environmental Protection Agency that they will force us to do it their way, if we don’t do it ourselves.

The bill we passed last week focuses on all three of our big pollution contributors: farm run-off, highway and roads run-off, and run-off from the development of land. It sets a number of new standards, and includes hiring new positions for education and enforcement. The $8 million annual price tag would be covered through a wide assortment of new fees and taxes, including farm assessments, development fees, and a small increase in the property transfer tax. For the first time, small farms (not yet defined) will require certification and an annual fee.

Some of us argued that there were other places we could get the money without new taxes. Specifically, we have a large housing and conservation fund, and if saving our water quality isn’t part of conservation, I don’t know what is. We could have deferred purchasing additional conservation land while working on water cleanup. I voted for that alternative funding, but when it failed, I did vote to support the bill as a whole, taxes included.

The Coming Health Care Tax

I’ve written at length in past updates about the $56 million expanded state spending in health care that my committee passed (over my opposition), to be paid for with a payroll tax plus a 2-cent-per-ounce tax on sugar-added drinks. We were asked by the Speaker to cut the total back to $20 million, and the Ways and Means Committee was told to find that amount in new taxes. We kept the same priorities, but cut the investments back.

The shell game is such that one part of this bill now includes an item that was cut from the general fund budget! In other words, it wasn’t a cut… it was a transfer to save general fund revenue for other spending, and to move it into this “new taxes” bucket. (The item was our existing subsidy for those with low income, but above eligibility for Medicaid, to make health care more affordable for those who are buying insurance products on the exchange – something I strongly support.)

Last week, Ways and Means dropped the payroll tax, which had been the governor’s proposal; reduced the sugar-beverage tax to a half-cent-per-ounce tax and added diet soda to it; and proposed taxes on several other items and another cigarette tax increase. The sugar-tax change turns it into being just another new tax. The fight-obesity rationale that my Health Care Committee used is eliminated when the tax is lowered to a point that it won’t affect buying patterns…. and when diet soda is added. That bill is expected to be on the House floor on Thursday and Friday.

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Education Reform

From my perspective, don’t expect anything in our education reform bill to have an impact on school taxes any time soon. If creating larger supervisory unions over time saves money, it won’t happen for a while. The proposed cap on school budgets – that spending limit that we find impossible to live by in the legislature – was deferred for a year in the bill as passed. The cap may have been unfair for some, but it would have held tax increases down.

The big problem we face in education funding is our attempt to run a statewide system, yet also allow local towns to set their own budgets. It is a combination that is unworkable, because no town can actually control its own local tax impact. Increases are driven by what every other town spends as well, and by how a town’s property value assessment is compared to others (the “common level of appraisal.”) This bill does nothing to address that core problem, and an alternative to establish regional administrative districts that would set and vote for a budget as a district – which I supported -- failed on a 37-83 vote. This was a rare year where we had momentum for fundamental change, and this bill doesn’t achieve it. I voted no.

When we debate education reform, there is always one refreshing aspect. There are no party-line divisions. The bill passed 88-55, but many votes lined up based on small or large school district representation, rather than based on Democratic, Republican or Progressive perspectives.

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Much Yet To Come

Sitting in the House, it is easy to forget that nothing we pass is anywhere near being a “done deal.” The Senate often comes out with very different approaches. Those get resolved in a madcap process in the last week or two of the session, and the governor still has veto power. Beyond the money bills, there are many policy issues yet to be decided.

The House, last week, agreed to require “federal prevailing wages” for capital construction bids. It sounds worthy to protect construction workers, but creates two different problems: more bids will likely go to out-of-state companies (thus, counter to helping Vermont workers) and the higher costs will mean fewer projects to go out to bid.

Next week we will be debating whether to include teachers in the category of “too essential to permit strikes” (as with police and rescue services) with a bill that would ban both striking and school-board-imposed contracts.

Among the major Senate bills under review in the House are improvements to our child protection statutes, addition of gun restriction provisions to state law, and same-day voter registration.

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 Please keep sending me your thoughts and concerns – they are important to me. Contact me any time via messages at the state house (828-2228), home (485-6431) or by email: counterp@tds.net. You can read my past updates on my blog site, www.representativeannedonahue.blogspot.com.