My Turn: The new New Deal for Vermont

December 17, 2008

STEVE SCHMIDA 

Gov. Douglas is looking for ways to cut spending on social services to cover the state budget shortfall. Meanwhile, state Treasurer Jeb Spaulding calls for a gas tax to pay for road and bridge repairs. In normal times, these efforts are typical of Vermont’s tradition of fiscal responsibility. Vermonters know the wisdom of frugality: If we don’t have the money, we don’t spend it. We balance out state’s budget, and as a result of our fiscal restraint we have the highest bond rating in New England.

Unfortunately, we are no longer living in normal times. The economy is at the beginning of what will be a severe and prolonged recession. According to the Vermont Department of Labor, unemployment has jumped from 3.9 percent to 5.2 percent and will go substantially higher before the economy turns around. The economy took a huge hit in the last quarter, and economists are predicting growth may not return until 2010.

During these tough times, Spaulding is right to call for spending on roads and bridges. These investments are long overdue and the upgrades will keep many Vermonters working and putting food on their families’ tables in difficult economic times. However, Spaulding is wrong to propose paying for these costs through a tax increase. A gas tax will hit rural poor Vermonters, who must drive to work, the hardest.

Gov. Douglas’ proposal for cutting social services in the midst of the worst economic crisis of our lifetime is as foolhardy as Herbert Hoover’s spending cuts after the 1929 stock market crash. Spending cuts exacerbated the Great Depression, and we know that government spending is critically important during economic recessions. Cuts in social service spending will hit the poorest the hardest and inhibit the ability of Vermont to get the state back on the road to recovery and growth. Vermont businesses will also suffer unnecessary hardship if Gov. Douglas attempts to penny-pinch now.

Rather than cut social services and increase taxes, Vermont’s political leadership needs to consider a radical notion: allowing the state government to use the rainy day fund to cover vital social services and issue bonds to finance public works. The state can run a deficit for a couple of years without creating a huge debt burden for future generations. Just as FDR ran deficits to keep people working during the New Deal, the state government can play a smaller similar role. We can keep people working and help soften the worst effects of the economic downturn.

Fiscal prudence does not mean penny-pinching in every circumstance. In fact, tax hikes and spending cuts in vital services at this moment in our economy would be fiscally imprudent during these difficult times.

We need our leaders to demonstrate political courage by maintaining social services and putting Vermonters to work without burdening families and businesses with more taxes. If we consider Spaulding’s gas tax proposal along with Douglas’ clear direction toward spending cuts, we can anticipate an unnecessarily long, hard road ahead.

Steve Schmida of Essex is the president of SSG Advisors, an international development consulting firm based in Burlington.