Editor’s note: This commentary is by Tom Pelham, formerly finance commissioner in the Dean administration, tax commissioner in the Douglas administration, a state representative elected as an independent and who served on the Appropriations Committee, and now a co-founder of Campaign for Vermont.
[L]ike a Tunbridge Fair carnival barker or a TV pitchman for the latest kitchen gadget, Gov. Shumlin’s two-for-one sales job for a new $90 million payroll tax during his budget address was a wonder.
Give him a .7 percent payroll tax, the governor urged, and he’ll take that $90 million and run it through Medicaid’s global commitment black box and turn it into $190 million. Further, the governor exhorted, he’d use a portion of that $190 million to pay down a portion of Vermont’s Medicaid “cost shift” to help reduce private insurances rates. With the rest of the $190 million, he’d “invest … in strengthening the overall health care system,” whatever that means.
But, before we get too excited about the governor’s wizardry over state finances, let’s keep in mind that every year he’s been governor there have been major “budget gaps,” which are now recognized as structural in nature and caused by the governor’s and Legislature’s profligate spending since 2010.
Also keep in mind that according to the Green Mountain Care Board the annual “cost shift” has grown from $138 million in 2010 to $153 million in 2014. Gov. Shumlin was, well, governor, during these “cost shift” expansion years and is now asking employers for a new payroll tax to fix the problem.
Further, let’s take a closer look at the history of “global commitment” and its seductive effect on state spending.
Global commitment is an agreement between the state’s Agency of Human Services (AHS) and the federal Centers for Medicaid and Medicare Services (CMS) on how to spend Medicaid dollars. These dollars are comprised of a federal share and a state share which are adjusted each year. Since 2011, the state’s share has increased from 41.9 percent to 46.1 percent while the federal share has dropped in inverse amounts, from 58.7 percent to 53.9 percent.
The door to sustainable spending is ready to be opened by Speaker Shap Smith and Senate Pro Tem Campbell and Appropriation chairs Rep. Mitzi Johnson and Sen. Jane Kitchell.
Further, JFO budget documents show that global commitment budgets have grown from $1.052 billion in 2011 to $1.288 billion in 2015 and the governor’s proposed spending level is $1.367 billion for fiscal 2016. If the governor’s recommendation is approved, the annual growth rate in global commitment spending will be an extraordinary 6 percent. Also, in Vermont’s most recent multi-year application for global commitment funds, the projected growth rate request to CMS were 7.1 percent for 2017 and 6.65 percent for 2018, requiring additional tens of millions in state fund increases each year.
For Vermont’s taxpayers, the growth rate is even larger. The combined effect of spending growth in global commitment programs compounded by the increase in the state’s share results in an almost 8 percent annual increase in state funds to support global commitment. By any measure, such growth is unsustainable.
The AHS budget is the largest in the state and programs funded with global commitment comprise the largest portion of AHS spending. Since 2010 through 2015, the portion of all state dollars invested in AHS programs has risen from 39.7 percent to 43.9 percent. This is good news for AHS but bad news for other agencies and departments also funded with state dollars. Once necessary increases are made to pension funds, the Education Fund and other fixed areas, there is little left for our judicial system, natural resources, higher education and other critical areas of state responsibility.
Rather than add rocket fuel to global commitment spending growth via a new $90 million payroll tax, there is an alternative. When Govs. Snelling and Dean found the state budget in disarray, they committed themselves to a multi-year strategy to put state government on a sustainable spending foundation with the result that Vermont enjoyed an extended period of budget stability from 1996 through 2009. They achieved this result by constraining spending growth to underlying growth in the state’s economy and instituted reforms in state government to achieve cost savings.
Such an approach has not been the way of the governor or Legislature since 2010. Unfortunately, for fiscal 2016 the governor has missed this opportunity once more. However, the door to sustainable spending is ready to be opened by Speaker Shap Smith and Senate Pro Tem Campbell and Appropriation chairs Rep. Mitzi Johnson and Sen. Jane Kitchell.
But first, the seduction of ever increasing global commitment spending fueled by more taxes must be rejected.
