Public Assets Institute > Press > Op-Eds > Responsible funding begins at home

Responsible funding begins at home

Aug. 4, 2009, Times Argus

Gov. James Douglas, in his new role as chairman of the National Governors Association, delivered a pointed message recently to President Barack Obama and Congress: Don’t shift new costs for health care onto the states without additional resources to pay for them. Douglas was at the association’s annual summer meeting, and he was expressing the fear many governors have about the health care reform plan taking shape in Washington, D.C.

“I think the governors would all agree that what we don’t want from the federal government is unfunded mandates,” Douglas said. “We can’t have the Congress impose requirements that we are forced to absorb beyond our capacity to do so.”

The president and many members of Congress say they want to make health care available to all, or nearly all, Americans. But that effort is likely to increase costs to the states, especially those like Vermont that have expanded coverage to many of their residents who couldn’t afford private health insurance premiums. Health care is already crippling Vermont’s budget. Costs are rising much faster than inflation or tax revenues, and that has forced cuts in other areas of state government to cover the increased spending.

The promise of health care reform is that it will slow the growth in costs. But Douglas and the other governors are worried about what will happen in the meantime. If reform increases the number of people who qualify for Medicaid, the governors want the federal government to provide the money to cover them.

Fair enough. But the governor should practice at home what he preaches to Washington. Here in Vermont, he wants to shift the cost of teachers’ retirement onto local school districts, which is every bit an unfunded mandate as the cost-shift he fears from health care reform.

The administration argues that teachers’ retirement should be paid out of the state’s Education Fund because that is the primary account for school funding. For the sake of consistent accounting, this makes sense. But then the revenue to cover the cost of the retirement benefits should be shifted from the General Fund to the Education Fund along with the costs, which was the policy Vermont adopted when the Education Fund was created a dozen years ago.

What the administration wants to do is transfer the cost of teachers’ retirement – about $40 million a year now, but more than $100 million in a couple of years – without any General Fund revenue to pay for it. The governor says that local school districts should be able to simply absorb this additional cost. But if they can’t – or if local voters decide they don’t want to scrimp on their children’s education to pay retirement benefits – the additional money will have to come out of the property tax, which we rely on too much already.

Vermont needs to address the problem of teachers’ retirement and health care for retirees. But like many of the state’s budget problems, it is unrealistic to think we can simply cut other services and programs to meet this growing obligation. It’s equally unrealistic to think that the already overused property tax can absorb this cost.

In his warning to Congress, the governor understood it was too much to expect the states to take on additional costs for health care by squeezing everything else in their budgets. The same holds true for local school budgets. If local districts are going to be asked to take on more financial obligations, they need additional revenue. No one wants to shoulder an unfunded mandate, whether it comes from Washington or Montpelier.

Jack Hoffman is a senior policy analyst for Public Assets Institute in Montpelier.

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