Vermont Business Roundtable Blog

In three months the state will begin FY 2010 with a budget deficit of $200m+ and the administration and legislature are counting on Vermont’s share of the stimulus package to bridge any major gaps, along with budget cuts and layoffs. To strategically address the immediate deficit issue and position ourselves for future sustainability, a reduction in the size of state government is necessary. How it happens is a function of thoughtful stewardship and innovative thinking on the part of agency heads.

In one case, the Agency of Human Services, which employs 3,500 people, was told to cut $6.8m (or roughly 285 positions.) Secretary Hoffman and his team are working hard to hit that budget amount with as minimal impact on workforce or service delivery as possible. So far, he’s identified 5% of his staff positions for elimination, or 195 people. For a front-line agency that sees the clash between economic crisis and human suffering, and where caseloads are skyrocketing, that’s a tough assignment. Nonetheless, Hoffman, whose experience in the financial sector and tenure in corrections, is an experienced and capable leader; one who understands the risks from both sides of the challenge.

To date, proposals from the state employees’ union have not yielded the kind of savings necessary to avoid further workforce layoffs within the state workforce of 8,400+. But cut we must, otherwise the four constituents of state government ~ citizens, businesses, employees, and other levels of government ~ will suffer death by a thousand paper cuts. It is in everyone’s best interests that the union negotiators and administration find creative ways in which to achieve cost savings and avoid layoffs. Keep talking and sharpen those pencils.

According to one source, the American Legislative Exchange Council (ALEC), Vermont ranks 16^th in terms of economic performance (measured by personal income growth per capita; absolute domestic migration; and, non-farm payroll employment) and 49^th in terms of economic outlook (up from 50^th in 2008). There are fifteen variables that comprise the outlook ranking, which focus largely on tax and fiscal policy. By contrast, Utah, Colorado and Arizona rank 1, 2, 3, respectively; Massachusetts was the highest ranking New England state at 26^th.

ALEC is comprised of conservative legislators who share common beliefs in free market, limited government, federalism and individual liberty. So the more liberal among us may disagree with the assumptions behind these results. However, in the current economic crisis where strong debates are emerging around spending cuts, new tax revenue, and threats of gubernatorial veto, or where people still have their heads in the sand around all of the above, Laffer and his co-authors of this “Rich States, Poor States” economic competitiveness index provide a necessary perspective for policymakers, beginning with its Ten Principles of Effective Taxation. Bottom line: when one compares the top ten economic performing states against the bottom ten, those states that spend less and tax less enjoy a higher rate of in-migration and economic growth. 

The full report, executive summary and individual state highlights can be found at www.alec.org. 

The Good and/or the Possible. That’s the nature of the choices lawmakers, businesses, and private residents are faced with these days. Good isn’t always possible; possible isn’t always good. You’re lucky if you kill two birds with one stone.

So, when lawmakers reconvene the week of March 16^th, they will have roughly eight weeks, if the proposed May 8^th adjournment date holds up, to craft the new budget and allocate stimulus monies. And new revenue forecasts will come out in April, which will add another level of complexity to the process.

This is not the time for stimulus monies to further delay the necessary decisions that must be made around the size and scope of state government, though convincing people will be hard. Seven hundred million dollars is intoxicating to think of, so one can’t help but feel that the demon has been held at bay for a little bit. But we’ll hate ourselves in the morning if we go out on a bender and then wake up in two years to find we’re not better off.

The Wall Street Journal’s Review and Outlook article was entitled, “The Decline of California”, but the table included Vermont as having the third highest income tax rate (9.5%, behind California at 10.5% and Rhode Island at 9.9%, and just above Oregon at 9.0%). This is the quote that caught my attention: “The tragedy … is that the political class still won’t address the root cause of its financial problems, which is that the state is becoming less economically competitive.” The article suggests that Californians will not solve their woes unless they reduce their tax burden and adopt more radical spending controls. (http://online.wsj.com/article/SB123491737158404543.html)

Everything is relative, but Vermont’s challenges are similar. Our public generosity has become unsustainable, our tax base is small and capacity is limited, and we now find ourselves on the horns of a dilemma. How do we make it through this recession while inflicting the least harm on the neediest, and how do we invest now in the near term so that we are positioned for a fast start when it’s over? There are certainly proposals floating throughout the halls of the State House that merit thoughtful examination. But in this era of profound pressures and demands on state government, do we have the will to think and act radically rather than incrementally?

In addition to rethinking the structural organization of state government, is there capacity and political will to think anew about how we fund state government? Some would suggest it’s time for temporary tax increases, or whatever euphemism is used to describe the same thing. But, does the current tax structure reflect the old economy or the new economy? Are we taxing the right things? Are the rates at the right levels? Would such an effort accomplish the intended goal?

There is spirited chatter on these questions from all sides. Perhaps it is time after all, as some suggest, for objectively examining the state’s tax structure and all its myriad fees so that we are encouraging those things we desire more of - like the creation of new wealth that can support the state’s reprioritized obligations.

This was the challenge as described by Justice John Dooley when he spoke to the membership about the ways in which the Judiciary branch of government is attempting to reduce its spending. Faced with significant cutbacks, and with the low-hanging fruit long gone, they are now closing courthouses, furloughing employees, and reducing work weeks. But, as happens in economic downturns, caseloads are on the increase, which only exacerbates the dilemma.

So the optimist looks for opportunity amid the turmoil. Where are the Mothers of Invention? Where is the genius who will turn chaos into order by changing the paradigm from old to new systems thinking? There are ways in which Vermont can turn itself around, if we only leverage the bold decision-making and strategic visioning that are the hallmarks of the private sector, and apply them to government reorganization itself.

At the Roundtable’s membership meeting in mid-January David Coates, one of Vermont’s most respected statesmen and the 2006 recipient of the Roundtable’s Vision Award, presented “Dangerous Trends and the Need for Action” to the membership. At the onset, Coates framed his remarks by saying that there are no long-term problems; Vermont’s problems are all short-term and require immediate attention.  Then he launched into a presentation of heavy commitments - mandatory expenditures and unfunded liabilities- that Vermont has on its books: debt service, retirement plans, other post-retirement benefits, and education funding. Taken in their totality the figures were staggering and implications alarming.

In addition to the data, which couldn’t be disputed, Coates identified various structural issues that prompted the audience to wonder about the fairness of current law and the sustainability of these commitments. Because several programs ~ long held sacred cows ~ are not readily transparent at the local level, including the residential rebate program, education fund, and state employees’ retirement fund, Coates suggested that the state conduct stress testing to illustrate the urgent need for action. And because Vermonters don’t fully understand the complexity or implications of all these funds in the aggregate, there is no informed and objective debate that includes more than the vested interests.

The Roundtable will begin a series of presentations of this information to a variety of audiences throughout the state. Coates’ slides will be posted to the Roundtable’s website at www.vtroundtable.org.

As the Governor concluded his seventh budget address, he admitted that “there is no joy” in making cuts of such magnitude at such a challenging time in our state’ history. Clearly, many of those programs targeted for his axe have been priorities of his administration over the previous three terms.  And he knows full well the consequences of such proposals, if acted upon by the legislature. Vermonters are justified in worrying.

However, we have inflicted some of this pain upon ourselves. Our ever- expanding view of the state as beneficent provider has now met head-on with the incontrovertible evidence of Vermont’s fiscal instability and structural deficiencies associated with mandated expenditures and unfunded liabilities. So, now the budget process begins and we must keep our eyes on the ultimate goal to get through this storm intact and positioned for the future.

You know, somewhere between the cranky beginning of the ninth month of pregnancy and the exhausted smile when it’s over, the mother-to-be moves beyond denial and realizes with exquisite clarity that there’s only one, messy, and very painful way out. Members of the administration and legislature involved with the budget process have reached that point of clarity as well, and we need to support their efforts to find common ground around uncomfortable decisions. 

When there’s no money - no alternative - priorities become clear. Businesses and families deal within that framework every day. State government is now in that same space, and there is no joy at all. For a copy of the Governor’s budget address click on the Roundtable’s homepage (www.vtroundtable.org) .

When I read the headline in the Burlington Free Press recently that nine new consortia are applying for 19 new nuclear reactors, I thought that Vermont was again positioned to snatch defeat from the mouth of victory with the current anti-nuclear campaign. Yes, we have legitimate issues related to safety and waste storage. We can and must deal with these. What we cannot deal with is eliminating one-third of our base load energy supply and thinking that wind, solar and other renewables can backfill. Those are intermittent and unpredictable sources, which cannot backfill. Nuclear is neither intermittent nor unpredictable.

When Patrick Moore, co-founder of Greenpeace, articulated a cogent argument in 2006 in support of nuclear power, people sat up and took notice. When he spoke to the Vermont legislature last session, he caused a stir. According to this preeminent environmentalist, the more than 600 coal-fired electric plants in the U.S. produce a full one-third (36%) of the globe’s CO2 emissions, the primary gas responsible for climate change. Nuclear energy is the only large-scale, cost-effective energy alternative that can reduce these emissions while continuing to satisfy a growing demand for power.  That should resonate strongly with Vermont’s espoused values around clean air and clean energy supply.

“CASE”, the Clean and Safe Energy Coalition, which is co-chaired by Moore and Christine Todd Whitman, former NJ Governor and Bush EPA Administrator, has 740 organizations and 915 individuals among its members, and has developed a campaign to provide factual information about nuclear energy.  Vermonters who are interested to learn the Top 10 Facts or The Basics of nuclear energy or to read Moore’s arguments to go “clean, green & nuclear” are encouraged to visit www.cleansafeenergy.org.

She was hunkered in the weeds at the intersection of I189 and Route 7 with a cardboard sign that read “traveling, broke, hungry”. A light rain had begun to fall on her and the cars that were queued up beside her at the red light. She looked pretty ratty and wore the tanned face of someone who was always outside; whatever possessions she owned were in a well-worn knapsack. I reached in my wallet and pulled out a $5 bill, rolled down my window, and handed it to her, saying “Take care of yourself.” She smiled, met my eyes and said, “Thank you very much.” She couldn’t have been more than 20 years old.

Now I’ve been at that intersection numerous times when other needy people have been holding up signs, yet I’ve managed to drive by without handing them any money, muttering, “Don’t these people know about United Way agencies and their programs that provide food, clothing and shelter? Geez, Louise!” But in this young woman’s sweet yet dirty face I saw every mother’s child, and she made me cry. But for a simple twist of fate, she could be my son or your daughter. But for another economic downturn, it could be your neighbor’s entire family figuratively standing at that intersection.

Very, very hard spending choices are going to be made by low-, working-, and middle -class families this fall and winter. In addition to gasoline prices, many other necessities have risen dramatically and are projected to increase further. The problem is that, among other things, our income has not kept pace. According to the May 2008 Issue Brief by the Public Assets Institute (www.publicassets.org), between 1996-2006 Vermonters’ median household income grew 44%. During that same period, food prices increased 23%, rental housing outside Chittenden County 29%, inside the county 47%, average municipal tax on a home 63%, the median value home price 104%, fuel oil 126%, health insurance 130%, and basic cable TV 138%.

Let’s make certain that Vermonters help each other bridge these challenging times. At a minimum, make sure that the emergency food shelf in your town is fully stocked all year long. The people who use it may be people you know.

I had the pleasure of participating in a brainstorming session hosted by Vermont Public Television (www.vpt.org) this week, in which a number of us were asked to identify urgent issues on the Vermont landscape and, with the aid of a knowledge-based tool out of the quality management system, determine what were the drivers of those issues; where were the strong causal relationships? Our results were quite interesting.

The initial list of issues and sub-issues was familiar: the economy; aging population; cost of living; health care; energy; federal/state dynamics; environment; education; leadership; housing; substance abuse; childcare; community/identity; the “Two Vermonts”; Vermont farms; youth; public safety; and communications. The systems analysis exercise sought to identify the direction of the relationship between issues, so that eventually we ended up with a relatively short list of issues that – if resolved - could conceivably remedy all our other problems. Or, so the exercise led us to believe.

The messy diagram eventually showed that the strongest systems drivers were: #1 – leadership; #2 – aging population; #3 – federal/state relations; #4 – education; and #5 – transportation. Hmmm, not health care? Not energy? Not the economy, stupid?! Not according to our analysis.

This was but one of numerous visioning exercises underway on the Vermont landscape. Over the past couple years Vermonters have been mobilized around energy, health care, economic development, community development, transportation, and the future of Vermont. All are important topics and valuable information has flowed from those efforts, however, without that most important driver ~ strong leadership ~  to actually set priorities, communicate the vision, allocate resources, implement plans and monitor progress, meaningful change will continue to be handicapped or delayed.