Sizing Up Vermont

Desperate times call for desperate measures, and experts on both sides of the political spectrum agree that Vermont is at that point. Lawmakers are charged with excising $150 million from the budget, at a time when revenue projections are anemic and the economy is “recovering” more slowly than expected.

What tack will lawmakers take? Will they eliminate state jobs, slash public services and gut government programs? Or will they challenge long-standing assumptions about what state government does and how it’s paid for?

Last week, Vermonters received not one but two such prescriptions for change: One was Governor Jim Douglas’ eighth and final State of the State address [1], in which, among other things, he called for reforming the way public education and human services are delivered and funded in Vermont.

The other was a report, entitled “Challenges for Change: Results for Vermonters,” that was commissioned by the legislature in 2008 and written by a Minnesota consulting firm [2]. Unveiled last week by a bipartisan steering committee, it recommends a number of efficiency measures to save $38 million from the general fund and relieve $12 million in property-tax pressure in fiscal 2011.

Seven Days asked two public-policy experts — each with his own “think tank” — to critique those prescriptions. Although they come from opposite ends of the political spectrum, John McClaughry [3] and Paul Cillo [4] are offering some of the sharpest analyses in the state. Plus, neither has to worry about getting reelected.

McClaughry, a former state senator, gubernatorial candidate, Harvard fellow and senior policy analyst for Ronald Reagan, is a free-market advocate whose political analysis regularly appears in newspapers throughout the state. He is founder and current vice president of the conservative, 16-year-old Ethan Allen Institute [5].

Cillo, a former state representative of 10 years and House majority leader, founded the progressive-leaning Public Assets Institute [6] in 2003 in order to “promote public policies that improve the well-being of all citizens, especially the most vulnerable.”

McClaughry and Cillo are both highly regarded in Montpelier and, despite their political differences, they respect each other: McClaughry credits Cillo in the commentary he sent out to Vermont newspapers this week. The two are currently working together on the Vermont Transparency Project [7], a nonpartisan effort to make state economic data more accessible and understandable to lawmakers and average Vermonters.

How do we get out of this mess? Where these great minds think alike might be a good place to start.

SEVEN DAYS: Given the severity of the economic crisis, do you think Vermont politicians will finally be forced out of their comfort zones?
JOHN MCCLAUGHRY: Certainly, they’re all saying that. But when they come face to face with some hard choices that are politically distasteful, that’s when we’ll find out how seriously they take it.

PAUL CILLO: Well, it clearly gets them out of their comfort zone, because they’ve actually got what I would call a $225 million problem this year. They started the year by carrying over $75 million in cuts they’ve already made. They’ve got a $150 million gap left to fill, so, no matter how they fill it, it’s going to get them out of their comfort zone. But the real question is whether they use this opportunity to do some things that are actually beneficial to government and beneficial to the people of the state, and don’t just muddle through another year.

SD: Is the “Challenges for Change” report a radical rethinking of state government, or more business as usual?
JM: I hesitate to criticize efforts made in good faith by people who are as concerned about the state as I am. But while there is some limited improvement possible in agency and department operations, I don’t see anything in here that promises any kind of radical structural change. I also believe that the savings are more hypothetical than likely.

PC: I don’t think this is something that’s never been seen in Vermont before, either … You could cynically look at this document and say it’s a fig leaf covering up the effort to take $38 million more out of expenditures after we’ve had a number of [job] rescissions. The thing I like about it is, it appears to be an attempt to think about the operations of government, instead of rescissions, which are just emergency measures. That’s what we’ve had the last few years … John, maybe you remember this, but in 1995, there was a report by the House and Senate Republicans called “Challenge for Change” … It was about changing the education system to save $100 million by increasing the pupil/teacher ratio from 13:1 to 18:1, which was the national average, and improving the quality of education. The words were very similar.

JM: This report seems to be based on the idea that the reason Vermont has a large budget shortfall is because its agencies and departments are not spending money efficiently. There’s always the old Republican litany of attacking “waste, fraud and abuse” that will yield some savings … But, my problem with the report is that it seems to think that by challenging the departments of state government to find efficiencies within themselves, that will produce savings in the near term that will significantly cancel out the projected deficit. I think it’s just fatuous.

SD: So, it’s predicated on the idea that state government can keep providing all the services it does today.
JM: Yes. There’s no attempt to identify the real core functions of government, which is a highly political decision. Or, to say that we need to privatize, eliminate, reform, retain or modify … This group steered clear of that kind of analysis, which I think would have been a bit dicey for a majority of the members of the legislature. So, you’re not getting anything that is a structural change.

PC: One of my worries about this report is that, in the name of efficiency, there’s also some stuff in here … that is not really efficiency. Efficiency is delivering the same service for less money … I’d rather have the honest conversation that John is talking about, which is, What is the proper role of government? than to say that we’re doing an efficiency effort, but buried in there are reductions in services.

SD: So, what is the proper role of state government?
JM: When the Democratic governor of Washington, Gary Locke, [was] facing a fiscal crunch in 2003, he went through exactly the right process and asked: What are the core functions that the constitution and the great majority of our people believe must be directed, if not performed, by their state government? For example, a free education for every child has been our policy since 1864. It doesn’t mean that government has to provide it, but it has to make it possible for children to receive whatever is a good education. Also, we’re not going to turn our backs on the indigent who are unable to provide for themselves. How we do that is another debate, but we can’t just say “tough luck” and move on.

Now, we can say “tough luck” to middle-income people who are being subsidized. This, of course, is a highly charged issue, but my concern is that more and more people have been included in the core function of protecting the indigent — Catamount Health comes to mind, and lots of other programs — to the point where we have too many people absorbing services, which has a couple of effects. One, obviously, is fiscal, and the other is that the available money is spread over people who could easily take care of their own problems, some of whose problems aren’t that serious anyway, at the expense of the people who can’t take care of their own problems and have very serious problems.

SD: When you say “middle-income people,” who are you talking about?
JM: The median family income [in Vermont] is about $63,000, give or take a little. When you start subsidizing family incomes up to $50,000, you need to pay more and more attention to exactly what is their problem and what responsibility the public has to solve that problem.

SD: Paul?
PC: I would come at it a little differently. It seems to me that the responsibility of government is to provide for a state that works for all Vermonters. So then the question is, what does that mean? … There’s a quote from the Rural Policy Committee from the 1940s in Vermont. John, do you remember that committee?

JM: No, that’s slightly before my time.

PC: I think this sums it up really well: “The citizen of a democracy should be guaranteed as a right enough food to maintain him in health. He should be assured of a minimum standard of shelter, clothing and fuel. He should be given full and equal opportunities of education. He should have leisure and facilities for enjoying it. He should be secured against the risks of unemployment, ill health and old age. Above all, the presence of children should not be allowed to bring with it misery for the parents, deprivation for the children, and poverty for all. All these things are inherent to the citizen as his rights.”

JM: And, he can force his neighbors to pay for it!

SD: What about John’s assertion that the state shouldn’t give subsidies to middle-income families?
PC: I think “subsidy” is a loaded word. For example, is a tiered income-tax system a subsidy of the people in the middle income? I would say no. We’ve decided that’s a fair system. So, if you have a system where insurance premiums are tiered, is that also a subsidy? John sees that as a subsidy. I would say that is a fair system.

SD: John, can lawmakers cut $150 million out of this year’s budget without cutting essential services to Vermonters?
JM: That all hinges on the definition of “essential.” I can conceive of a state government that by the creative use of the institutions of civil society — by privatization, restructuring and efficiencies — produces an overall quality of life for all Vermonters that is equal to our present quality of life with $150 million less spending. But I’m not sure you can do it by going through the budget with a blue pencil and knocking off numbers until you get to minus $150 million.

SD: Paul?
PC: No, I don’t think so … You can’t make cuts based on inefficiencies that evolved over time without reductions in services. I’ve got to believe that there are improvements they can make in delivering services. Whether they can do that in this budget year is another question.

JM: One thing that Paul and I probably agree on is … opposition to the practice of leaving state positions unfilled as a budget-savings mechanism. If we continue the mission of the agency and refuse to fill positions as they become vacant, obviously people within the agency will have to do the work of their disappeared colleagues. At some point — and I think we reached that point in the last year — you have a serious morale problem and an overwork problem.

PC: Right.

JM: I am not a partisan for the Vermont State Employees Association, but I think they have a very valid point, that you can’t leave the mission unchanged, subtract the people who are doing it and expect new efficiencies to preserve the level of service.

PC: When the administration cut 600 positions, the way it was being discussed was as if these people were just sitting around doing nothing. What actually happens … is that you have fewer people to do the same work because you haven’t changed the mission of the department, and then you have morale problems, you have senior people who want to get out because they’ve had enough, and so you lose institutional memory.

SD: What do you think of the agenda Douglas laid out for his last year in office?
PC: My immediate thought when I read the speech was that … the governor was proposing making the problem about $38 million worse by wanting to roll back [last year’s] tax increases. So, essentially, we’ve already got a $150 million problem. Let’s make it a $188 million problem. That seems to be moving us in the wrong direction. The other thing is, when you look at the state budget, the two big areas that stand out are education and health care. They’re each about 25 percent of the budget. Health care is a much tougher issue to deal with. So, that leaves education as the area to attack when you’re looking to move money into the general fund. So, the governor has done this over the last several years, to take on the education system as if it’s a problem, and wanting to shake it up.

JC: I have some sympathy for Governor Douglas, and I can appreciate his chagrin at concluding his eight-year governorship in a year of dark fiscal foreboding with a legislature that overrode his budget last year and enacted its own. I think his remarks about our tax burden and about the unwise tax increases imposed last year are pretty much for the record, to show that he was not in favor of them at the time. But I don’t take it all that seriously.

SD: The governor said nothing about prisons, higher education, the so-called “brain drain” or the Vermont State Hospital. Were you surprised?
JM: The governor has to pick what he wants to talk about and put a couple of things forward to command the lead of the newspaper stories. I was particularly taken aback that his lead item was the $38 million in alleged savings from the “Challenges for Change” process … Clearly, both sides of the political spectrum have bought into this. However, I think this is an extremely weak read. Paul used the phrase “fig leaf,” which I think is correct. They have to show that they’re doing something and there’s some savings out there that are essentially painless to the average citizen of Vermont that can be grabbed onto.

SD: Does Vermont have a third rail of electoral politics no one can touch?
PC: I think health care is one such problem … We’ve been doing some analysis recently about the cost of health care and the effect it’s had on the ability of government to fund services on an ongoing basis. The overall cost of health care in Vermont, which has been going up 8 to 10 percent a year, is essentially eating up the capacity of individuals, households, businesses, state government, schools, for normal inflation and pay raises and that sort of thing. That’s in the category of a huge problem we’re dancing around.

JM: One issue that ought to be touched is universal preschool. Now, it sounds like a good idea that every 3- and 4-year-old be offered an education or care through a publicly financed preschool … The amount of money available is now spread over all the kids who are 3 or 4 years old, and for most of them it doesn’t do the slightest bit of good other than babysitting. But for the kids with disabilities, [for whom] English is a foreign language, or [who] come from dysfunctional families [and] could use the advantages of a preschool, there’s not enough funding. I would say, set aside money to help those kids who are in serious need, and let the rest fend for themselves, as they’ve done for the last 200 years.

SD: The budget crisis will be debated against the backdrop of November’s gubernatorial race. How will that affect the debate?
JM: Clearly, the three candidates for governor in the Senate are going to be very careful about appearing to contribute to the problem. But it’s not clear to me exactly how they’ll do that. Will they make a pact where they all get on the same side of this and not try to … advance one of their fortunes? That’ll be an interesting game to observe. Of the other two Democratic candidates, one’s a former state senator, Matt Dunne, and the other, Secretary of State [Deb Markowitz], is mercifully aloof from this process, from her standpoint. So, I think the Democratic candidates will have to be very careful how they deal with this process. As for the likely Republican nominee, Brian Dubie … I don’t think he will have any startling proposals to offer and let the governor carry this debate for the next four months and steer clear of being an important force. When the smoke settles in May, we’ll have to see how far we got on all this and whether all of these people are pointing fingers at each other or whether they’re all agreed on some kind of fictional description of the situation that doesn’t hang the stone around anybody’s neck.

PC: I think there’s going to be a strong push to have a very short legislative session. The longer it goes on, the more dangerous it is to the November politics … Trying to cut $150 million out of the budget this year is a big deal. I’m still not clear what we’re going to see in the end. But my guess is that they’re going to get right down to it and not drag this out.

SD: The Public Assets Institute and the Ethan Allen Institute have very different philosophical leanings and public policy prescriptions. What do you agree upon?
JM: We very much agree that transparency in government and good information for decision makers and citizens is essential to the functioning of our democracy … As far as I know, we have the only left-right coalition for government transparency in the whole country. And that’s a tribute to Vermont perhaps more than the two of us, because we can work together to put the decisions out on the table. Different people will come down in different places on policy debates. But at least we can have a civil debate based on real information and try, in that way, to work for the best outcome for our people and our state.

PC: One of the areas where I think the government is wasting money is in business tax credits for job creation. Mainly because they don’t work and there’s very little that government can do to create jobs in that way. Job creation … really is something that comes out of creating a state that works for everybody and works for business, not out of giving a business a tax credit to create a job they would probably create anyway. I’ve suspected that maybe that’s something John and I would agree on. John?

JM: I agree with you that the tax credits that Howard Dean and the legislature initiated a decade ago were largely ineffective and I opposed them on the grounds that we are creating a crony capitalism empire where businesses come to the state, hat in hand, to receive a selective benefit, which gives them an advantage over the businesses that went out and invested their money and tried to offer a product that the public wanted in the hopes of making a profit … Our focus has always been on economic opportunity, entrepreneurship and creating wealth that will spill over into tax revenue for government that necessarily has to subsidize people who are not productive.