An Economy in the ICU

The Vermont economy is on life support and could slip into a coma without drastic changes in how our state government leaders approach their fiduciary responsibilities. This is the only conclusion a reasonable person can make after attending a presentation by Tom Licata, founder of Vermonters for Economic Health.

VEH is a grass-roots, citizen-led organization with a simple mission: to promote economic health and fiscal responsibility in Vermont. Its Web site can be found at http://www.vteh.org.

Licata's colorful graphs and pie charts juxtapose with his sobering fiscal facts to confirm what hardworking Vermont taxpayers already suspect -- that despite the incredibly high taxes we pay at every level of Vermont government, the coffers are empty. Well, maybe not quite empty -- they are actually full of IOUs.

In a nutshell, these are the facts we must face: Vermont has lived beyond its means for far too long. According to VEH's figures (derived from Vermont's Joint Fiscal Office), Vermont faces a $470 million shortfall in its general fund between 2011 and 2014. Astonishingly, between the years 2000 and 2007, state government payroll and employee benefit costs grew 70 percent, while inflation grew some 23 percent, a growth rate of roughly three times this inflation figure.

During this same time period, private-sector job growth was 0 percent. That's right, zilch!

This problem is also graphically illustrated in education finance policy. While Vermonters' incomes rose only 13 percent between 2005 and 2009, education property taxes rose 35 percent. Spending for K-12 education rose 23 percent, 200 percent over the rate of inflation. Even more frightening is this: over the next 20 years, Vermont faces billions of dollars in unfunded budget expenditures -- approximately $3.5 billion. The largest segments of these are made up of road and bridge repair, water system maintenance and upgrades, bonded debt and Medicaid shortfalls.

This $3.5 billion figure does not include $1.6 billion in unfunded teacher and state employee medical liabilities, nor does it include $466 million in unfunded pension liabilities.

"We have not saved and invested enough for road and bridge infrastructure or for retirees' pensions and health care," Licata said. "We've dug an enormous hole, and it's going to take a lot of work to get out of it." Especially since our fiscal rope is badly fraying. Most money for the general fund comes from income and sales taxes, Licata explained.

These revenues are shrinking as people lose jobs, investment income falls and a belt-tightening public consumes fewer goods and services. Also worrisome is the uneven distribution of tax liability -- about 5 percent of Vermont's tax filers pay about 50 percent of total income taxes. Redistributionists might applaud that figure, but remember this -- upper-income earners have the most resources and reasons to leave the state. If even a quarter decided to do so, Vermont's tax base would be devastated. Replacing these disappearing taxpayers from within seems unlikely.

Just prior to our recession, the state experienced no private sector job growth over this last decade. Since 2000, we have lost more than 10,000 manufacturing jobs while public sector jobs in health and education have increased by almost as much. Many of these jobs, of course, are sustained through tax revenue rather than privately generated wealth. Sadly, we are losing our young people at a rate of four times the national average.

Meanwhile, the number of retirees living within the state is expected to double over the next 25 years. The lack of revenue diversification is also illustrated in our reliance on federal government aid, which accounts for some 30 percent of our total budget. This kind of concentration of risk should keep those in Montpelier up at night, especially in light of our federal government's fiscal woes.

Next month Licata will be making his presentation to the Vermont Legislature in front of members of the House Ways and Means Committee and others.

Among other solutions, he will recommend spending limits and fiscal analysis of key legislation. He will also advocate for policy that creates a better atmosphere for creating jobs and thus expanding the tax base.

If you think your Vermont representatives need to hear this you might want to encourage them to be in Room 11 of the Statehouse on Jan. 6 at 2:30 p.m. for Licata's presentation. It's time our legislators get the facts and start using them in making decisions that affect us all.