The Governor’s Budget

February 9, 2016

The 2016 legislature has been in session for six weeks, and it is high time to resume the Jim & Tim report. This piece on the Governor’s Budget is somewhat detailed, but that’s unavoidable. We enjoy communicating with you, so here goes.

 

In early January, Governor Shumlin presented his FY 2017 budget. If passed as presented, total appropriations would be nearly $7.6 billion. Of that, $3.734 billion would come through the General, Transportation and Education Funds, and approximately $3.85 billion from an array of Federal funds (including Global Commitment that provides money for health care and Medicaid).

 

As presented, the Governor’s budget is balanced and does not raise any broad based taxes. However, in total his budget increases spending by over $66 million. While total tax revenues may rise around 2% in the coming year, this is certainly not nearly enough to cover the total cost of government. How can the budget balance if it doesn’t raise taxes? The proof (or lack thereof) is in the pudding.

 

Governor Shumlin does propose to raise new money. The principal components of his revenue package include the following:

  •  A new mutual fund filing fee that will raise $17.2 million

  •  A 2.35% health care provider tax imposed on independent physicians and dentists that will raise $13 million

  • Drawing down a federal Medicaid match of $17 million dollars that would accompany the provider tax, and

  • By raising $26.8 million in new or increased fees. Fees, which are not taxes, are explained below.

 

The mutual fund filing fee is perhaps the easiest to sort out. The fee is imposed on the financial institution that registers its mutual funds, not on consumers like you and me. All of our neighboring states impose similar fees, while heretofore Vermont has not. While the total to be raised is substantial, it will not adversely affect Vermonters’ benefits or the price we pay. To date no one, including the Vermont Bankers Association, has offered adverse testimony. It is likely that the Ways and Means Committee will support this proposal in whole or in part.

 

Provider taxes, on the other hand, are more problematic. These taxes would be imposed on all dentists and doctors whose independent practices are not part of a hospital umbrella. Both dentists and independent doctors are adamantly opposed to these taxes and have testified that they would significantly affect their profitability, even to the point of causing many of them to go out of business. We will be taking significant testimony from all parties to sort fact from fiction. It’s worth noting that Ways and Means declined to adopt similar provider taxes that Shumlin proposed five years ago.

 

The administration also proposes to raise $26.8 new revenue from fees. The Legislature passes a fee bill each year, but this year’s fee increase in the largest on record. Fees are charges on specific services that are consumed by individual parties but that are not levied across the entire population. There are literally several hundred fees scattered all across Vermont Government.  They include such common items as drivers’ licenses and car registrations and also a myriad or permits and other types of registrations, many of which are obscure and unseen by most Vermonters. Other states impose similar fees on the same sort of services. We review all fees on a three year rotating basis. This year’s Fee Bill covers the Agency of Agriculture, Food and Markets, the Departments of Financial Regulation, Liquor Control, Fish and Wildlife, Labor and the Department of Motor Vehicles.

 

Bear in mind that if the legislature wants to go forward with the Governor’s proposed spending or our own spending priorities, but declines to adopt the Governor’s funding ideas, we will be obligated to come up with other sources of revenue.

 

Many of Governor’s priorities have great merit. In addition to funding general government, transportation, education, the courts, corrections and protecting our natural resources they include

  • Money to increase Medicaid reimbursement rates for doctors providing primary care. Better primary care equates to healthier Vermonters who spend more time with their families and at work, rather than in emergency rooms.

  • Hiring more case workers in the Department of Children and Families and providing better protection for them when they call on families rife with abuse and/or substance addiction.

  • Funding his College Savings Plan to insure that every child born in Vermont will receive a $250 contribution towards saving for postsecondary education

 

To add to the big picture and to the complexity of closing the budget, the Governor makes some assumptions about revenue and savings that might not pan out. Among these are

  • Assumed net savings of $1 million by closing the St. Johnsbury Work Camp

  • Savings of $2.3 million by changing the protocol for involuntary medication of certain mental health patients

  • Extending long term pregnancy prevention for women up to 138% of poverty

  • Ignoring a likely $4.5 million Pay Act COLA for the largest group of state workers.

 

To be sure, this will be an interesting although difficult budget year. We look forward to keeping you informed and would appreciate any feedback or suggestions you may have to offer.

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