More big layoffs last year
Vermont saw a jump in extended mass layoffs in 2011. A mass layoff occurs when an employer lets go 50 or more people within a five-week period. To be counted as extended, at least 50 of those people have to be out of work for at least 30 days. In 2009, in the depths of the recession, more than 5,700 Vermonters lost jobs as the result of 35 extended mass layoffs. The number dropped in 2010, but last year saw 27 extended mass layoffs, hitting almost 4,500 people. The bulk of those layoffs happened in the spring, before Tropical Storm Irene arrived.

Smaller average paychecks
A slight decrease in the average workweek and essentially no change in average hourly wages meant that Vermonters’ average weekly earnings dipped a little in 2011. That was the average of all private sector workers, but the story varied by sector. Professional and business services saw the biggest increase in weekly earnings last year, about 6.5 percent; earnings also rose in manufacturing. The other major sectors experienced declines.

Download the Jobs Brief in PDF.

First, at the urging of the Vermont Workers’ Center, there is now a clear statement in law that the purpose of the Vermont budget is to provide for the wellbeing of the citizens of the state. That’s a great advance. Typically, budget talk is all about numbers. Was the budget balanced—that is, did the Legislature come up with a way to match spending to anticipated revenue? How much did spending go up or down?

That’s how House Speaker Shap Smith (D-Morristown) and House Minority Leader Don Turner (R-Milton) talked on Vermont Public Radio recently, in offering their post-mortems on the session. Smith pointed out that during the depths of the recession, the Legislature confronted budget gaps of $200 million or more. This year, the projected gap at the session’s start was about $50 million, and the Legislature successfully balanced spending and revenue.

Turner gave the Legislature generally good marks. But he was disappointed that the fiscal 2013 budget will increase General Fund spending by about 6 percent, following on a similar increase in fiscal 2012. (In fact, spending on General Fund programs went down by 6.6 percent in fiscal 2012, according to figures from the Legislature’s Joint Fiscal Office, which take into account federal funds used to replace General Fund revenue during the recession.)

Certainly, maintaining a balanced budget is responsible fiscal policy. But the goal should be sustainable growth rate over the long term. In recessions, revenues take a dive just when spending goes up, because more people turn to public services for help. When things improve, the state catches up. Revenues don’t have to match spending every year. What’s more important is meeting people’s needs when times are tough.

The second important change is a requirement that the administration prepare an annual “current services budget.” That’s an estimate of the cost of the services the state is legally required to provide. For example, if the state were behind in investigating reports of elderly abuse or processing Medicaid claims, the current services budget would have to include the cost of additional staff to bring the state into compliance. Now when the Legislature cuts back on services to save money, the assumption seems to be that the services are no longer needed. Cuts made one year are carried forward to a subsequent year, which is part of the reason for the shrinking budget gap that Speaker Smith described. The current services budget should help Vermonters understand the cumulative effect of cuts and see whether we are adequately funding existing services and programs.

The final change provides for the first time an opportunity for Vermonters to weigh in as the governor is developing his budget. Currently, citizens get to comment on the budget only after the governor submits it in January.

There’s more to do. We should be tracking how Vermonters are faring and whether the $5 billion we’re spending each year is creating a state that works for everybody. Both the administration and the Legislature appear committed to developing the kind of performance indicators that measure Vermonters’ wellbeing. But these three new provisions are moving us in the right direction.

The large majority of resident homeowners pay most or all of their school taxes based on their income instead of the value of their home. That’s because Vermont’s school financing system recognizes that income, rather than property wealth, is a better measure of a person’s ability to pay taxes.

In 2010, in response to criticism from opponents of the school funding system, the Legislature decided that some homeowners with valuable property but modest incomes should pay higher school taxes. They also decided that people with income from investments should pay more. Lawmakers changed the law that year, and now residents must pay property tax on the value of their home above $500,000, regardless of their income. And for the purposes of calculating income-based school taxes, dividend and interest income of more than $10,000 is counted double.

Both changes have been hard on retired Vermonters on fixed incomes. Sadly, some lawmakers have suggested that people with modest incomes and expensive property should simply sell their homes and move into something cheaper so they can afford their school taxes.

First of all, some of these homeowners have seen their property values rise through no fault of their own. Do we really want a policy that says middle class residents have to move when the market pushes the value of their home past a certain point? That will only lead to the further gentrification of Vermont.

And a tax policy that forces people to move doesn’t square with other state policies that are designed to keep people at home as long as possible. Home health services, respite care, even weatherization programs are geared toward helping Vermonters stay in their homes.

The rationale for the change seemed to be that anyone who could afford to live in a house worth more than $500,000 could afford to pay more school taxes. Similarly, there appeared to be a hint of resentment behind the provision to double-count interest or dividend income, as though these people were getting away with something by paying school taxes based on their income.

But the same year the Legislature made life harder for the middle class, it reinstated preferential tax treatment for capital gains, which primarily benefited people in upper income brackets, including some who live in houses worth more than $500,000. It was not clear what public policy was being advanced by reducing taxes on capital gains. And there was no evidence to show that savings from the capital gains tax cuts would be invested in Vermont and not in a hedge fund or other high-risk financial bet that provided no benefit to the state.

The House and Senate have passed different versions of a bill to adjust Vermont’s tax laws this year. In one, the House dropped the double-counting of investment income; in the other, the Senate repealed the provision for homes valued at more than $500,000. A smart compromise would have been for each side to accept the other’s proposal and repeal both provisions that have unnecessarily hurt middle income Vermonters. Instead, the proposed deal is to continue to collect property taxes on home values greater than $500,000, regardless of the homeowner’s income. And investment income will be double-counted for those under 65 years old.

Raising school taxes on the basis of residents’ ability to pay is fair, and it’s a policy that everyone can understand. Every time we add exceptions to that basic approach—treating people differently because of their age or the value of their home—we make the tax system more complicated and less fair.

There is still time for the full House or Senate to reject the current deal and move back toward a more straight-forward income-based tax system to pay for education, while helping more middle class Vermonters stay in their homes.

Continue reading April 2012 Update

Average rates ranged from 0 percent in Averill and Buel’s Gore to more than 22 percent in Norton, according to the latest data from the Vermont Department of Labor. Just over half the towns had rates below the state average. A dozen had 10 percent unemployment or higher.

The map shows the annual unemployment rate for towns with a labor force of at least 20 people—that is, employed or unemployed and actively seeking work. The rates reflect individuals’ place of residence, not their place of employment.

• Extension of Vermont Employment Growth Incentive (VEGI). Despite numerous studies that challenge such tax-break programs and make the case that the money could be better spent elsewhere, the Miscellaneous Tax Changes (page 13) bill breathes five more years of life into VEGI. Nowhere in the bill can the average citizen—or average legislator—get a clue how much this will cost between now and 2017. The House has approved the bill; it’s pending in the Senate.
• Sales tax refunds. Since 2006, the Vermont Tax Department has been collecting the state’s 6 percent sales tax on prewritten software. Recently, some businesses complained they weren’t aware the tax applied to “cloud computing” software—that is, programs that aren’t installed on the purchaser’s own computers but are used remotely through an Internet connection. A bill in the House would give businesses a reprieve and refund the taxes collected on remotely accessed, prewritten software from January 2007 through June 2012. But the tax would apply going forward. The Shumlin administration wants to take the House proposal one step further and stop collecting the tax altogether. The House version would cost about $2 million. The governor’s plan would cost another $1.7 million in fiscal 2013—and grow about 20 percent a year. Either approach would seem to put the cart before the horse: Whatever changes the Legislature ultimately adopts this year, lawmakers want a special commission to study incentives for the software industry and report back next year.
• Broader tax exemption for manufacturing equipment. Certain equipment purchased by businesses is exempt from the state sales tax. The Blue Ribbon Tax Structure Commission raised questions about the fairness of the policy as it’s currently applied. Manufacturing equipment qualifies for the exemption—at a cost of about $320 million in annual lost revenue—but a software development company pays the sales tax on all of the computers it buys to “manufacture” its product. This dichotomy should be enough to trigger a thorough review of the exemption—the purpose and whether it’s achieving its end. But the bill that’s making it’s way through the Legislature adds a special interest exemption by expanding the definition of manufacturing equipment to include packaging equipment used by certain companies in Vermont.

The Legislature needs to do an analysis of existing tax breaks, which requires more than simply listing the programs in one place and estimating how much money the state forgoes each year. Any analysis should review the purpose of the tax breaks as well as who benefits, assess whether they’re achieving the desired effect,  and determine whether there would be more value in using the money for something else.

Adding more tax breaks only makes that task more urgent.

Still, why would anyone want to convince Vermonters there was something wrong with bending the curve on health care costs—that is, reducing the long-term growth rate? Recent radio ads have been dismissive of slowing the growth of health care expenditures and have criticized the Shumlin administration for acknowledging that overall costs will continue to go up even with reform.

There are two things that determine the size of our annual health care bill: the number of people receiving care and the cost per person. The cost per person in the United States is much higher than other developed countries. But even if reform succeeds in bringing down this half of the equation—through lower administration costs, reducing unnecessary procedures, promoting healthy living—total spending on health care will continue to grow because the population is growing and the big Baby Boom generation isn’t getting any younger.

According to the most recent analysis by the Joint Fiscal Office and the newly renamed Department of Financial Regulation, without reform, the amount we spend on health care for Vermont residents will rise an average of 7 percent a year—doubling from roughly $5 billion in 2010 to $10 billion in 2020. With reform, the analysis found, our health care bill in 2020 could be cut between $500 million and $2 billion. The higher estimate would mean about a 20 percent savings from what we can expect to spend without reform.

Lowering the total costs to around $8 billion by 2020 also would mean that health care cost growth was more in line with the state’s long-term economic growth. Health care would still be growing faster, but moving toward a more sustainable rate. And that’s one of the things health care reform needs to do: bend the growth curve of health care expenditures so they don’t continue to eat up more and more of our income every year.

No one ever promised that after reform our health care expenditures would go down every year. If you hear anything different, assume it’s just a campaign ad.

Fewer jobless claims
Vermont had the fourth-lowest unemployment rate in the country in March, even as more than 4,500 workers filed new claims for unemployment compensation. Initial unemployment claims hit a peak in December 2008, when more than 8,600 Vermonters filed. Typically, first-time jobless claims rise during the winter months and drop in the summer. The number of applicants at the peaks has declined since the recession officially ended, and the monthly average of new claims has fallen for two years.

The end of extended unemployment benefits
Barring a sudden spike in unemployment, Vermonters will no longer be eligible for extended unemployment compensation after the end of this year. In the depths of the recession, jobless workers who had used up their 26 weeks of regular unemployment compensation could qualify for federal emergency unemployment compensation programs (EUC08 Tiers I-III) and a state program that together provided up to 60 weeks of additional compensation. After May, the Tier II program—providing 14 weeks’ benefits—will not be available in states with unemployment rates lower than 6 percent. All EUC08 programs are scheduled to expire at the end of 2012.

Download the Jobs Brief in PDF.

The proposal being considered in the Senate Appropriations committee would return half of any General Fund budget surplus at the end of each fiscal year to Vermont homeowners as a rebate check. One version of the plan would have the checks be the same amount for every homeowner, regardless of how much tax the homeowner had paid.

Ostensibly, the rebate checks are meant to compensate for General Fund cuts to the Education Fund the Legislature has made in recent years, which have driven up property taxes. The House proposed dedicating half of any General Fund budget surpluses to the Education Fund until the cuts were restored. The Senate, however, is talking about sending the money directly to Vermont resident homeowners in the form of budget-surplus, property-tax rebate checks, which might be a little as $30.

If the Legislature’s goal is to reduce property taxes, the way to do that is to restore the General Fund transfer. Every dollar from the General Fund that is paid into the Education Fund is a dollar that does not have to be raised through property taxes. The solution to high property taxes is to lower them, not to raise property taxes and then give Vermonters a rebate, which is exactly what the Senate plan would do.

And if the goal is to reduce property taxes just for Vermont resident homeowners, the Legislature can reduce the homestead tax rates—the homestead property tax rate and the income-based rate that is available only to Vermont residents.

A rebate check adds a needless complication to Vermont’s education finance system, not to mention the cost to write and mail the checks. Vermont used to send rebate checks to eligible homeowners, and the Legislature discontinued them after people said the system was too confusing. People didn’t see the connection between their property tax bills and the rebate checks and continued to complain that property taxes were too high. Now, they just get a lower tax bill instead of a higher bill and rebate check. Why create that problem all over again?

Finally, the rebate idea lacks the kind of analysis that is missing with much of Vermont’s budget process: Is this really the best use of the $5 million or $10 million or $15 million that might be paid out in any given year? Does it make sense to send money to rich and poor alike if we’re trying to expand the middle class? Should we be cutting support for education when we’re trying to do something about declining math scores?

Time is short if lawmakers want to get out before the end of April. One way they could lighten their load is to shelve the rebate proposal and move on to more urgent business. Come summer, they and we will be glad they did.

People who do real public opinion polling have an unflattering term for these kinds of surveys. They predate that Internet and are known as SLOPs, which stands for self-selecting listener opinion polls. The problem lies in the “self-selecting” part. Polls that are not based on carefully designed random samples do not represent anything but the opinions of the people who chose to respond to the survey. And because the respondents selected themselves, neither we nor the people who compiled the results have any idea whether the answers were representative of the entire population of the state.

Statistically valid surveys don’t require a lot of responses as long as the people questioned are picked at random. You only need a sample of about 400-500 people to get good results about the population as a whole. Such results are defined by the margin of error and the confidence level. For example, from a sample of about 400 randomly chosen Vermont residents, you would be able to say you were 95 percent confident that the results were plus or minus 5 percentage points of the results you would get if you surveyed everyone in Vermont.

The fact that thousands or even tens of thousands of people might answer an online survey—or the Doyle poll—doesn’t make it more accurate than a random survey of 400-500 people.

In its mission statement, Campaign for Vermont talks about positive consensus building and greater government transparency and accountability. And in the interest of promoting transparency and accountability, the organization’s principle backer, Bruce Lisman, has supported efforts to make information available to help shape public policy. Campaign for Vermont is a sponsor of the website developed by Public Assets and Ethan Allen Institute, Vermont Transparency, to make state fiscal data more easily accessible.

If Campaign for Vermont wants to fund some real polling, that would be a useful contribution to the debate about public policy. It would be helpful to know how Vermonters really feel about some of the tough issues being discussed.

These online surveys don’t build consensus; they are  inherently divisive because they don’t reflect the opinions of all Vermonters. Instead, they represent the opinions of a small minority that has answered the survey, and Campaign for Vermont becomes the megaphone for that minority. We happen to agree that the $27 million should be restored to the Education Fund, and it may even be true that a majority of Vermonters support that idea, too. But this kind of survey does not contribute to good public policy debate.

Campaign for Vermont should reconsider.