Margolis: The governor’s balancing act

When is a broad-based tax not a broad-based tax?

Perhaps when a $71 million budget gap disappears in a puff of smoke.

Gov. Peter Shumlin neither asked that question nor gave that answer in his annual budget address Wednesday.

But he did propose raising $14 million by an 0.8 percent increase in the “health care claims assessment” paid by everyone who files a health insurance claim.

In the course of a year – even a fiscal year – that’s almost everyone. Meaning almost everyone will pay a little more to raise that $14 million.

But it is apparently not a “broad-based tax,” often defined in government jargon as an income tax, a general sales tax, or sometimes a property tax.

Instead, this is merely a tax with a broad base.

If, indeed, it is a tax at all. Shumlin never called it that either in his speech or in the 41-page booklet detailing his “Fiscal Year 2015 Budget Recommendations.” The governor and his associates called it neither a tax nor a fee. Just an “assessment.”

By any name, the increase does about a fifth of the job of filling that budget gap state officials have been talking about for weeks. The governor’s plan would fill the other four-fifths through a combination of one-time receipts (payments from Vermont Yankee and a tobacco lawsuit), lower-than-expected interest payments because the state paid some debts early, and funding more projects from federal sources.

Then there are accounting tricks. Both this year’s (FY 2014) and next year’s budget call for a 2 percent increase in funding for higher education. But the academic year starts in September, the fiscal year in July, so it’s not difficult to spread that 2 percent over two fiscal years, meaning only half the spending has to be paid for in each fiscal year.

The numbers all added up, with total revenue matching projected expenses, and without cutting any social programs. For weeks, the chatter around state government had been about how much would have to be cut from education, environmental protection, or support for the ill and the indigent in order to fill that expected $71 million gap between projected revenue and likely expenses.

The answer is: less than nothing. Instead of cuts, Shumlin proposed increases for higher education, rent subsidies, transportation, child care centers, mental health services for the poor, land conservation, and cleaning up polluted lakes

All of which raised the question of whether there was ever a $71 million budget gap to begin with.

The best answer appears to be that there was always a budget gap, but it was never really $71 million. Not that state officials made up that figure; it was right there on their spreadsheets. But they had to know about that tobacco settlement, the interest rate savings, and some of the ways they could exact more money from the feds. They may not have known exactly how much all this would add up to, but they probably knew it would reduce the gap below $71 million.

So why keep using that figure?

Perhaps because it’s good strategy to keep legislators, lobbyists, political opponents and the press on edge. Very little pleases human beings more than relaxed anxiety, and the public official who avoids or even alleviates a catastrophe appears unusually capable.

Shumlin did not invent this strategy, nor is it unique to Vermont. Rare is the state or big city whose leader did not find an unexpected pot of money hidden in some long-forgotten account just in time to avoid either a huge tax increase or draconian budget cuts. It’s how the game is played.

In addition to appearing capable, Shumlin’s budget proposals displayed another – more blatantly political – attribute, one he probably wanted to project even if he may not want attention called to it. The only word to describe his program is “liberal.”

Not radical or ultra-liberal. The governor did not call for raising taxes on the rich to finance more services for the poor as some leftish Vermonters have advocated. But just look at where he wants to spend more: child care, higher education, anti-poverty programs, the environment. He was reaching out to all the liberal constituencies.

He had to, especially after his unsuccessful effort last year to cut the state’s earned income tax credit for the working poor. Those constituencies are his base, and they were showing clear signs of becoming disillusioned with the governor they helped elect in 2010. At this point, Shumlin would appear to have little to fear this year from the Republicans, who have neither a candidate nor much energy or unity. But a politician who offends his base is always in some danger.

With the statewide school property tax rate likely to rise as much as seven cents, the governor did call for fiscal restraint, urging Vermonters “to carefully scrutinize school budgets” at their town meetings.

That may be good advice. The likelihood of it being very effective is small. It may, however, help Shumlin divert any anger that might arise from property tax increases from himself to the school boards, or even to the taxpayers who did not heed his warning.