May 17, 2015
Rep. Anne Donahue
We wrapped up the 2015 session passing a state general fund budget that was up by 4.1 percent, despite revenues that have increased only 2.4 percent. That vote came only a day after we passed an education bill that demands that schools restrain their funding to an average growth of two percent in each of the next two years.
This update will have a lot of numbers in it, to attempt to sort some of it out. The general fund budget, as passed, rounds off to $1.469 billion. With special accounts added (including the transportation fund of $266 million), it goes to $2.354 billion. The Education Fund is $1.552 billion. The federal government contributes $1.929 billion. Thus, our total state spending budget for next year is $5.532 billion.
There were multiple variations on how to raise money. In the end, the $46.2 million in new revenue to balance the increased spending looks like this:
Income tax changes will raise $22.9 million. These will mostly affect only persons who itemize deductions from their income. Deductions will no longer be allowed for income that is spent paying state and federal taxes, and most other deductions will be capped.
The House decision to cap deductions for charitable donations and for high medical expenses, however, was reversed.
Instead, the final compromise accepted a Senate proposal on an “alternative minimum tax” of three percent for persons making more than $150,000 per year. That means that regardless of any type of deductions, the bottom line can never be less than a three percent state income tax.
Everyone will see a slight increase in the tax that is charged for items bought out of state (e.g., on the Internet), where a Vermont sales tax was not charged. This is the spot on your tax return where you can choose to pay the automatic assessment, or you can provide verification that you purchased less than that. The current rate is .10 percent. It will increase to .15 next year and .20 the year after, and then automatically increase based upon the consumer price index.
After income taxes, the next biggest revenue stream is expected to be the change in the sales tax food exemption. “Soft drinks” will no longer be considered food, and so will be subject to the regular six percent sales tax.
That is expected to raise $5.1 million for the general fund. Soft drinks have a broad definition; it’s not solely soda. They include all flavored and sweetened beverages (including artificial sweeteners) unless containing more than 50 percent juice. As a whole, taxing soft drinks will bring in $7.9 million, but a percentage of sales tax revenues go to the Education Fund, so $2.8 million of it goes to the Ed Fund.
Vending machine products will now be taxed at the same rate as restaurant meals (9 percent), which is projected to raise $1 million. A new program to garnish wages or attach bank accounts for unpaid taxes is expected to raise $2 million.
That’s the bulk of new taxes, but there is another $14.3 million in increased special funds or fees. A cigarette tax increase of 33 cents per pack will raise $3.2 million for several specific health care line items. An increase in the property transfer tax will raise $5.3 million for the water clean-up bill.
Filing fees for various court actions (filing a will in Probate Court, for example) will raise an added $.7 million for the judicial branch budget, and additional fees for agriculture and developers will bring another projected $2.1 million for the water bill. The routine increase in professional licensing and other fees will raise another $2.9 million.
The grand totals raise $30.4 million for the general fund, $2.2 for the Ed Fund, and $13.6 for specially targeted funds (including the $7.5 million water clean-up bill), making the total $46.2 million.
Is there good news in that?
Yes! The versions passed in the House totaled $55.8 million; the Senate, $50.9; so the final version was pared back slightly. The two biggest proposed increases that were eliminated were an increase in the assessment on small businesses that cannot afford to provide health insurance (the Senate proposed to raise $5.1 million with it), and the cap on charitable and medical deductions on income tax (the House income tax changes would have totaled $33.2 million in new revenue, rather than the final $22.9, as passed.)
Much was made of the report that we “closed” a budget gap of $113 million. That was based on an assumption of a much larger increase in spending. Although we reduced some of that increased spending, and increased taxes, we already are projecting a gap of $50 to $70 million in next year’s budget – assuming that we continue to spend at the same rate, and that revenues (including the new revenues sources) continue to grow at the same (lower) rate.
We can only change that trajectory by spending less or by growth in the economy as a whole. That leads to the importance of the economic development bill, which also passed on the last day of the session. It invests $425,000 in initiatives to spur growth.
Health Care Reform
The session began with a proposal from the governor to raise $90 million in a new employer payroll tax to fund major health care initiatives. The largest piece was a jump in Medicaid payment rates so that private insurance rates wouldn’t have to be paying for Medicaid underpayment – as they do now. The concept was flawed, but beyond that, the economy clearly could not tolerate that kind of tax increase.
That tax package proposal, however, included health care budget items that would normally have been included in the general fund budget. Leaving them out of the general fund meant two things. First, the general fund total was misleading because it did not include budget lines that would normally be included. Second, the most essential funds were placed at risk, since they were separated in a “stand alone” budget that required additional revenues.
The governor’s proposal left my committee reduced from $90 to $53 million; it left the House tax committee cut back to $20 million; and it left House Appropriations cut down to $10 million. The Senate cut it down to about $7 million, and it ended up about there. (The $3.2 in tobacco taxes is matched by federal funds.) That leaves no money invested in any reform efforts. It maintained the existing level of support for low income persons (those just above Medicaid eligibility) who purchase insurance on the Health Exchange. It provided tiny increases in some provider payments.
At the same time, we learned that Medicaid costs from use of services is “running hot” at about $15 million over budget in the current year, and projected to continue at that rate next year. That was not included in the fiscal year 2016 budget we just passed. As of this particular moment in time, tax revenues have shown a spurt upward. That, it is hoped, will cover the shortfall in the current year budget.
If we are very, very lucky, we will end up with a little bit of leftover in the current budget. If so, $5 million will be set aside first for low income heating assistance next winter, and then another $13 million will be set aside for additional Medicaid costs. (That was money that is supposed to go towards repaying the Teacher’s Retirement fund loan that we borrowed from ourselves last year… but that’s another, much longer story.)
The education bill deserves more discussion, and I will include it in a later end-of-session update. The short version is that it creates strong financial incentives to create larger school districts of at least 900 students. Since there is only one Education Fund, incentives for some means, in effect, financial penalties for those who move more slowly.
In addition, there is a spending increase threshold that averages 2 percent, but varies based upon how a school district’s per pupil cost compares to the state average. Northfield is just a hair below the state average and thus would be allowed slightly more; Berlin is a bit above, so it would be held to below 2 percent. If the threshold is exceeded, it triggers the existing excess spending penalty.
(This report was shared last week on Front Porch Forum.)
Before the final week of budget wrap-up, we had an intense debate over elimination of the philosophical exemption from required immunizations. I want to thank constituents from both sides who shared views on removal of the “philosophical exemption” from mandatory childhood immunizations. I also want to share my conclusion, which was that we had a better option for achieving the vital need to increase immunization rates. I presented a proposal for that option which was rejected by a razor-thin, 73-71 vote.
These are the comments I made in explaining my amendment on the House floor:
I grew up with a father who was deeply committed to civil rights. But he also taught us – and I did not know at the time that he was quoting a Supreme Court justice – that “your right to swing your fist ends just short of my nose.” We do not have the right to place others at risk of injury, and it is the obligation of society to protect those who are vulnerable to injury. It is clear from the medical evidence that if our levels of immunization are not high enough, other children in our day care centers or schools are placed at risk.
We also do know that throughout all of history, science has been capable of errors in what is believed at a point in time. I have deep sympathy for parents who are concerned about vaccines, despite current medical knowledge, because of my own experience with a medical treatment which was identified as being safe. After decades of research, the reports of serious adverse effect were declared to be “nonsense,” and as being based on a fringe, anti-medical minority view. I suffered severe and permanent side effects. In our state legislature, before I became a representative myself, when I testified about the need for state oversight, a medical expert testified that my perception of an adverse effect was solely based upon my underlying illness and an effort to seek attention. I continued my own research, and later met with a researcher who was a leader in the country on the treatment, and who told me about the emerging new evidence that now recognized that the effect I experienced was a rare, but actual, adverse effect resulting from that treatment. Patients today receive informed consent information about that reality.
So we need to understand what we are asking of parents. We are asking – we are mandating -- that they surrender the ability to choose what they believe to be in the best interests for the wellbeing and safety of their child – a decision that they otherwise have the right to make – in order to meet the greater good of others in society. Taking away individual rights in this way is something that we must do when necessary to protect others. In this situation, the evidence is clear that we must increase our immunization rates in this state. As a result, if this is the only way to achieve that, I support our obligation to do so.
But if there is another way to achieve that goal – in fact, to improve the likelihood of achieving that goal – without taking away the rights of parents to decide upon the best interests of their own children – then that is what we should be doing. This amendment is that other way. If this approach will increase vaccination rates, as I believe it will, it will meet the important goals of the underlying bill without interfering with that very small group of parents who would choose a different health care approach. And I believe it will be more effective in reaching that critical goal.
This amendment follows the evidence we heard in our committee that if we increase the barriers to access an exemption, it will reduce the rates of exemptions. Our own Commissioner of Health – and to be clear and not distort his position, he remains explicit that he believes we should eliminate the philosophical exemption – but he testified that the harder it is to seek exemptions, the less they will be used.
We have the evidence of that from Oregon, where in a single year, exemption requests dropped by 17 percent, based upon required use of an online module that took time to complete, and despite grandfathering those with existing exemptions. It offered an alternative of meeting with a doctor for that purpose. It only requires the process a single time. My proposal requires both the module and a consultation with a prescribing practitioner, repeated annually. It requires that a person affirm under penalty of perjury that they are following a health care practice – not just ignoring health care – that is based upon religious, moral or ethical beliefs. It thus applies to both ethical and religious beliefs.
The underlying amendment eliminates the philosophical exemption but leaves the religious exemption untouched, with merely the existing requirement of reading brief information and checking a box. We know that many parents will simply check “religious belief” instead of “philosophical objection.” Thus it is less likely to meet our common goal of increasing immunization rates.
I firmly believe in and support the importance of increasing those rates. I simply believe this is a better way to achieve it.
Please keep sending me your thoughts and concerns – they are important to me. Contact me any time via messages at home (485-6431) or by email: firstname.lastname@example.org. You can read my past updates on my blog site, www.representativeannedonahue.blogspot.com.