January 23, 2016 Update

The effort to curb education spending increases (and thus tax increases) last year appears to be in serious jeopardy already this winter as school boards react to the “allowable growth rates” that affect the budgets now being completed.

There is a lot of misunderstanding about what the “cap” actually does, and a lot of politics surrounding the reaction.

There is a major disagreement between the House and Senate on what to do (something I think is really healthy, especially given the single-party super-majority), and very little time to act before school budgets are locked in for March town meeting voting.

I voted against Act 46 last year, not because I thought we should not push for greater consolidation of districts, but because I thought the predicted budget savings were overstated, and this alleged reform bill did little to address underlying cost and financing issues.

I believe that the “caps” were a poor, stop-gap measure to avoid any more serious efforts at reforming the financing infrastructure, but in the absence of other measures, they need to be maintained in the short term.

Why? What they do is protect districts against bearing the costs of those who are spending much more. Going above the growth rate is not banned. The limit on the growth rate varies for each school district based on prior spending. The penalty is simply that the local district must pay for its own increases in costs, instead of forcing others to pay.

The governor produced his annual budget proposal this past week, and he began by saying, “This will be my sixth budget that does not increase income, sales, or rooms and meals tax rates that are already too high.”

As pointed out in the weekly newsletter of the Vermont League of Cities and Towns, however, the governor has never included property taxes in his list of broad-based taxes that he has been unwilling to raise and therefore (appropriately) did not mention property taxes in that statement.

The state’s budget has many direct impacts on the property tax, and they cannot be left as though unrelated.

A New Distraction

As if existing controversy was not enough, a crisis erupted last week with the discovery that the Agency of Education had made an error in how it calculated the “allowable growth rate” provided to school districts. Budgets were, in some cases, based on wrong information.

The Senate had already indicated it would repeal the spending limits in Act 46, but this error became an added rationale. The Senate had opposed any spending restrictions last year, and only agreed to a compromise provision in the bill that finally passed.

The confusion resulted in the House Education Committee reconsidering its own actions, and a bill we were supposed to take up on the House floor last Tuesday was delayed. That bill proposed allowing an increase in the growth rates that would apply to all district budgets.

This means that in the coming week, the House will take up a bill with multiple components (and likely proposed amendments with lots of floor debate.) It will include the increase in growth rate, a “hold harmless” provision for the error by the Agency of Education, and potentially, a change in the limit on property tax rebates to make up for the Education Fund shortfall that will result from the allowed increase in the growth rate.

Party line politics emerged on Friday, when Republicans proposed that the House act immediately on the piece that everyone agrees on: protecting districts from negative consequences from the Agency error (the “hold harmless” provision.) That would have ensured that section passed, even if the other pieces are not addressed or the bill is voted down.

That proposal was voted down on a split between Republicans and Independents versus Democrats and Progressives.

What Is the ‘Cap’ Under Debate?

A Republican member of the House Education Committee, Scott Beck, did a superb job of explaining to his constituents the crux of this issue. Rather than duplicating his effort, I will share it directly:

“Facts can be stubborn. On average, for every additional dollar spent by a Vermont school district, their homestead taxpayers only fund half; the other half comes from homestead taxpayers in the other 276 districts through higher homestead education property tax rates. In St. Johnsbury (per pupil spending of $12,106 in FY16), $.27 of our $1.27 homestead tax rate goes to subsidize districts that spend more. In a district that spent $16,000, their homestead tax rate would have been $1.69 in FY16. If every district had spent $16,000, their tax rate would have been approximately $1.91, a $.22 subsidy.

“Given these unfortunate circumstances, it is no surprise that many school districts have spent at a rate that eclipses inflation, income growth, and grand list growth. The money comes cheap, and gets cheaper if the district spends even more. It is the equivalent of buying a compact car and paying a surcharge, while the person purchasing the full-size sedan gets a sizable discount. Even though the full-size costs more, more value is received for the money and a lot of full-size sedans leave the lot. The end result, of course, is high education property tax rates to pay for all of those full-size sedans.

“Act 46 and its allowable growth rate is intended to address at least part of this dysfunctional funding system. Prior to Act 46, if a district picked the full-size sedan, other districts that picked the compact car had to help pay for the full-size. The allowable growth rate puts an end to this practice going forward. For FY17 and FY18, the district(s) that pick the full-size sedan are going to have to pay more in the form of a penalty for exceeding their allowable growth rate.

“For those districts that cannot or will not control their education spending, this allowable growth rate probably seems unfair. They should take a moment to consider the perspective of districts that have committed to controlling their spending increases and remained within their allowable growth rate. It’s not that they don’t want any other district to be able to choose the full-size sedan, they just don’t want to have their homestead property tax rate increased to pay for it.

“What would be the result of repealing or delaying the allowable growth rate? Simple, a run on full-size sedans and homestead taxpayers up in arms over the homestead education property tax rates required to pay for them.”

How Does This Impact Us?

Many towns have a lower allowable growth rate under Act 46 than our local districts, which means that we would benefit from the greater spending reduction pressure on the higher-spending districts with lower AGRs. Without Act 46, we will continue to bear the negative impact of higher statewide spending despite our ongoing frugality.

What’s important to recognize is that Act 46 does not force any district into draconian cuts, as some folks are asserting. A decision can be made to exceed the “allowable growth rate” by whatever a district feels is necessary, and the penalty is having to pay for that extra spending from our own local property taxes, without help from the statewide education fund.

That’s a local voter decision, which affects local property taxes, as it should.

I will support any effort to “hold harmless” districts affected by the Agency of Education error, but I will not vote to repeal the Act 46 restrictions, nor to raise the thresholds.

What’s more important in the long run is that I will continue to press for an overhaul of our outdated, complex, inequitable education funding formula.

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Thanks for the honor of representing you! You can contact me or Rep. Patti Lewis by email (counterp@tds.net for me; pattijlewis@myfairpoint.net  for Patti) or by leaving a message at the statehouse at 828-2228. We welcome your feedback and input.

January 9, 2016 Legislative Update

A new year and a new legislative session have begun, and it sounds a bit like a broken record: a mid-year budget deficit and an even bigger deficit looming for the coming fiscal year. We just keep on passing budgets that spend more than the economy is expected to grow, and should hardly be surprised by the outcome.

The chair of my Health Care Committee took a moment for reflection, nonetheless, to ground us for our work ahead, reminding us of the “extraordinary ongoing experiment in democracy” that we are participating in.

Imagine the concept, he said, of people deciding to have every town elect someone from among themselves – just another ordinary lay person without any special expertise – to send to Montpelier to try to make decisions about what is best for the town and the state.

We’ve only been trying it for a few hundred years, and it’s not a perfect system, but it’s what we’ve got and it’s better than the alternatives other folks have tried.

For the 11 of us around the table in the Health Care Committee room – six Democrats, three Republicans, one Progressive and one Independent – it was a time to remember that we share the common purpose of trying to make Vermont a better place for us all and future generations, even if we don’t agree on how to best get there.

Our Chair, Bill Lippert, suggested that in the midst of the turmoil of pressing issues of the months ahead, we keep in mind our goals and aspirations for a better system for the delivery of health care, even if they cannot or will not be achieved in the short term.

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What are those most pressing short term issues?

Medicaid

Headlines have been telling us that a third of Vermonters are now on Medicaid, and that we hadn’t projected the size of the Obamacare increase, driving our tax burden to unsustainable levels.

That’s not fully accurate; the devil is always in the details.

About a quarter of Vermonters now have Medicaid as their primary form of health insurance. The rest of those leading to the “one third” number are those who receive some level of financial help through Medicaid for their regular health insurance: premium assistance for insurance bought through the health exchange, for example, or Medicaid as a secondary payer while on Medicare but financially needy.

Our forecasters were actually pretty accurate about how many persons would be eligible for help, but the numbers of which persons would fall into which category were off. More people were eligible for regular Medicaid as a result of both the economy (lower incomes) and the changes in federal definitions of what constitutes “income.”

Fewer ended up on premium assistance, and the cost ended up $52 million higher than expected this year. Of that, $23 million is the state’s share.

That $23 million shortfall is the largest, but not the only increase in health care spending being proposed for this mid-year adjustment to the current year’s budget. The “$1 million here, $2 million there” other increases (called “upward pressures” in government bureaucrat language) bring the total shortfall to $35 million.

That, of course, will carry forward into the needs in the budget for the year ahead.

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All Payer Model

When the governor decided last year what some of us had known for a long time – that Vermont couldn’t go it alone to create a universal health care system – our Green Mountain Care Board began exploring other mechanisms to achieve payment reforms that would create a fairer and more sustainable way of financing our health care.

The Green Mountain Care Board was created by the legislature to lead health care reform, and this five-member board was vested with significant power to regulate hospital and private insurance rates.

Many parts of the Affordable Care Act (Obamacare) are still rolling out. Medicaid expansion was only one piece. The federal government is in particular pushing for cost containment measures for Medicare. (Refresher: Medicaid is health care funded by the state and federal government for those with low income; Medicare is the federal health insurance paid for through payroll deductions for the elderly and persons with disabilities.)

One of its tools is the “Accountable Care Organization” – ACOs – which are a lot like old managed care companies except that the management of care and costs is done by the provider organizations themselves, rather than an insurance company. Many Vermonters are not even aware that their Medicare is now being managed by an ACO.

The ACO gets paid for the Medicare services delivered, and if, through better management of patient care, it costs Medicare less than the estimate of what it would have cost otherwise, the ACO gets to split the savings with the government.

In our current payment system, care providers are paid differently by private insurance, Medicare, and Medicaid. One of the things that drive health insurance premiums up so high is that Medicaid doesn’t pay its full share of costs, so that cost is transferred to private payers, something called the “cost shift” that amounts to a hidden tax to pay for Medicaid.

The vision of the “all payer model” is for Vermont to set payment amounts for all providers: payments by Medicaid (which it already does); by private insurance (which it does indirectly, through its insurance rate-setting authority); and for Medicare (which would require federal approval, called a “waiver.”)

An ACO could then manage care for all the patients it serves without receiving different rates for different patients. The actual services a patient receives would remain controlled by existing law. In other words, if Vermont obtained a “Medicare waiver” in order to build an all-payer model, it could not touch the benefits that Medicare recipients are entitled to, but it could set the rates that are paid to the ACO.

The Achilles heel in this that isn’t discussed much is that an all payer model would mean Vermont would have to start bringing Medicaid rates up to even off into a similar range as the other two payers. Where would that money come from?

This whole idea needs a great deal of care and thought, but right now, under Vermont and federal law, the state can seek the Medicare waiver without the consent of the legislature.

Another member of the Health Care Committee – Paul Poirier, an Independent from Barre City – and I are having a bill drafted to require legislative approval before a waiver could be signed with the federal government.

This model may actually prove to be a valuable tool for payment reform, but it is full of potential pitfalls as well. We need to have the scrutiny and the confidence of much more oversight if we are going to take this plunge.

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The Health Exchange

Much more out of the public eye these days is Vermont Health Connect, the exchange for signing up for health insurance that was such a fiasco in its first year of attempted operation.

It’s doing better, but it’s far from functioning smoothly or the way intended, and new glitches keep erupting.

One of the new “glitches” has to do with people who discover their insurance has been cancelled because they didn’t pay their premium by the due date, even after receiving a grace period.

Nothing wrong with that, it would seem.

Except that we are cashing their checks!

Usually, in business, if your check is cashed it means acceptance of a late payment.

The state says it plans on fixing this, not cashing checks if a person is being cancelled, but it isn’t a priority. There are too many other priorities – other “glitches – that are ahead of it in line.

That gives an idea of how much work is still ahead.

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Thanks for the honor of representing you! You can contact me or Rep. Patti Lewis by email (counterp@tds.net for me; pattijlewis@myfairpoint.net  for Patti) or by leaving a message at the statehouse at 828-2228. We welcome your feedback and input.