Shumlin: Businesses Should Contribute To Payroll Tax

Jan 16, 2015

Focusing on health care costs, property taxes, higher education and economic development, Gov. Peter Shumlin delivered his annual budget address yesterday.

VPR's Mitch Wertlieb spoke with the governor about his proposal.

Wertlieb: The big news in your speech was a proposal for a 0.7 percent payroll tax. This would raise $90 million dollars annually, and it will allow the state to get $100 million in additional federal money. That's a lot of money, and health care providers are responding positively, like the idea because Medicaid reimbursement rates they've been saying for years are too low to pay for the Medicaid services people use. But what I'm wondering about is the criticism you've probably already heard. House Minority Leader Don Turner has criticized the payroll tax to pay for this as being too burdensome on business, especially businesses that don't contribute to employee health costs. What would you say to those businesses to convince them they should support that cost?  
 

"I know that's hard to believe but the fact is that right now, businesses that pay for insurance get the cost of the underpayment, the 40 cents, the 50 cents and the dollar, shifted to them in premium increases because it's got to be picked up somewhere." - Gov. Peter Shumlin

Shumlin: This will be hugely helpful in doing three things: expanding access to Vermonters who are struggling to get health care right now, which is really important; keeping our primary doctors in business in Vermont, because they can't survive under the current system where they get 40 cents from one person who walks through the door, 50 from another and occasionally someone gives them a dollar for a dollar's work; and finally it's going to lower rates for businesses. I know that's hard to believe but the fact is that right now, businesses that pay for insurance get the cost of the underpayment, the 40 cents, the 50 cents and the dollar, shifted to them in premium increases because it's got to be picked up somewhere. So Mr. Turner has a point, the folks who are not paying anything now will make a bigger contribution to health care in Vermont, but my belief is that they should and that this is a very modest payment for them. It's .7 of 1 percent of a payroll tax. So everyone should be paying, and frankly what happens now is when they don't pay, all of the other businesses that do pay and all the individuals pay for them. Is that fair? You've got to ask that question.

Wertlieb: Let's shift gears and talk about property taxes. This is such a big issue here in Vermont. You laid it out in your speech that small schools are not meeting the needs of Vermont kids. They can't offer things like foreign languages, arts, sports. You've proposed eliminating contradictory incentives, such as the small schools grant and have proposed construction aid for school districts that go through with mergers. That question of local control is likely to be a sticking point. Do you think the incentives you laid out will be enough to break down what's been a long-standing resistance to school consolidation?  

Shumlin: I hope it will. Listen, this is where we are: property taxes are going up faster than Vermonters can pay, student enrollment keeps going down faster than we wish it would. We lost 30,000 students and all projections are that we're going to lose more. The numbers on this are frightening. Some of our schools in the last 15 years have lost half of their students. We now have the lowest staff-student ratio in the nation, and it's just not sustainable. I think my proposal, why it's so sensible is, what won't work is for Montpelier to say, 'hey we know how to consolidate all of the schools in Vermont, it's a cookie-cutter approach, what applies to Barton will apply also to Burlington.' Instead, my approach says let's work, partner with local school boards, local communities to give them the data they deserve to know what happens in the future because in many communities, if you think your property taxes are high now, the bad news is, they're going to go way up as student count keeps dropping over the next five to ten years if we don't all collectively act together. So I'm saying partnership, give folks the data, partner with them, give them the incentives they need to make the changes we need to make, and then ultimately, I believe that will work.

"If you think your property taxes are high now, the bad news is, they're going to go way up as student count keeps dropping over the next five to ten years if we don't all collectively act together."

Now, on the question of local control, you have to ask what local control really means today. In the smaller schools where our students are suffering because they're in a class with one or two or three kids, local control now means for many small, rural school board, 'do I cut technology class, do I cut foreign languages, do I cut sports?'  instead of I have local control to really build a positive and quality educational experience for my kid. So I would argue the way to keep local control strong is to partner with local communities to make local decisions that reduce costs, improve quality.

Wertlieb: Is there anything the state can do if these schools don't take action and consolidate?

Shumlin: What I've said is let's partner with them, let's work very closely with them, let's help them make the tough decisions, and give them incentives and money to make the tough decisions. Ultimately if they don't there has to be a hammer. Either the state board of education, or someone has to have the authority in very rare instances to say 'listen, those kids are suffering, you're destroying their educational quality. You're running down the taxpayers' ability to pay, you've got to close that school or you've got to consolidate in this way.' But that would be the exception to the rule. I really believe when you give Vermonters, the data, the information to partnership and the resources, every time we make the right decision. But what I don't want is the sort of naive view that you can somehow formulate the right decision for every community because every community is unique and different. Every school district is unique and different, and every solution will be unique and different.

Wertlieb: We're looking at a $94 million dollar budget gap. Obviously, tough decisions have to be made, Part of what you're proposing is closing an income tax loophole in Vermont, one of the few states that hasn't closed it. But there are also cuts that you laid out in the address, cuts to the Working Lands Program, low-income heating assistance, Vermont Interactive Technologies, the state libraries and the Community High School of Vermont. How are you going to get those passed?  

"Right now, here's our challenge: we have a spending rate that's growing at 5 percent and a growth rate at 3 percent. What's changed is that the economists now tell us that growth rate will continue for many years going forward."

Shumlin: Well, we've just got to do it. Right now, here's our challenge: we have a spending rate that's growing at 5 percent and a growth rate at 3 percent. What's changed is that the economists now tell us that growth rate will continue for many years going forward. So a governor's got to balance budgets to keep this state strong, healthy fiscally. I think the cuts and the revenue that I've put together is a very balanced approach that can be implemented without significantly hurting our most vulnerable Vermonters. In other words, we kept in place the programs that are helping our most vulnerable. None of the choices are nice or particularly happy. There's no such things as happy choices when you cut budgets, all I'm saying is my budget works it's balance, it will put us on a fiscally sustainable path going forward. And if you don't like the choices I've made, I'm just asking the legislature to come up with their own for an equal amount. I'm not saying our plan is perfect, we think it's pretty darn good. But we've got to get the fiscal house of Montpelier, the state, in order so that we're not growing spending at 5 percent and growing at 3 percent. It won't work for Vermont going forward.

Wertlieb: In past years you've been vocal in your support of at least exploring a bill that would legalize marijuana in Vermont. This would bring in revenue, marijuana would be taxed. I'm wondering why that bill seems to have fallen out of favor in Montpelier. Would you support one going forward, and perhaps not have to make some of those tough cuts you've talked about, bringing in revenue from a legalization bill?

"Now on the marijuana legalization bill, my view is that my bias is towards legalization. I'm glad that Colorado and Washington state have gone first. It's complicated. They're working out the bugs, and figuring out what works and what doesn't. I think that we've got to give those states the time to wade their way through this one, let them be the pioneers."

Shumlin: Well, here's the challenge Mitch, you could not possibly pass a marijuana legalization bill in Vermont fast enough and put it in place and bring in revenue fast enough to effect the 2016 budget that I presented yesterday so we're really mixing apples and oranges here. Now on the marijuana legalization bill, my view is that my bias is towards legalization. I'm glad that Colorado and Washington state have gone first. It's complicated. They're working out the bugs, and figuring out what works and what doesn't. I think that we've got to give those states the time to wade their way through this one, let them be the pioneers, I keep telling Govs. Hickenlooper and Inslee, thank you for leading the way for us. You figure out what works and what doesn't, what has a positive effect and what doesn't and we'll take it from there.