There are two indisputable consequences of Tropical Storm Irene. First, the roads and bridges destroyed by Irene are vital to Vermont's economy and must be restored. Secondly, someone's going to pay the bill. As we recover from Irene's havoc, we must act to best enhance the future prosperity of Vermonters.
Cost estimates for restoring our transportation system are still coming in, but last week the Shumlin Administration put the price tag in the vicinity of $500 million while sounding the alarm that Vermont faces an "absolute" financial calamity if Vermont doesn't receive a congressional waiver for additional federal aid. Currently, federal aid is capped at $100 million. If Congress fails to act, rather than raise taxes, the Shumlin administration suggests other transportation projects important to Vermonters be delayed.
We can hope Congress provides Vermont the needed waiver; but it's not a guaranteed outcome. The federal budget crisis is real and severe and the highly partisan and dysfunctional relationship between Democrats and Republicans strain even modest hope. To succeed with less federal aid, we must step back and re-evaluate our spending priorities at the state level, while relentlessly pursuing a vibrant economy. Raising taxes or delaying important transportation projects are not the only way forward, and certainly not the best choices for promoting prosperity and a strong economy.
The better choice is to return Motor Vehicle Purchase and Use tax revenues, derived from a tax on vehicle sales, to the Transportation Fund and dedicate these revenues to financing the costs of Irene. Prior to Act 60, all Motor Vehicle Purchase and Use taxes went into the Transportation Fund. With Act 60, these tax revenues were split, with two-thirds going to the Transportation Fund and one-third to the Education Fund. For fiscal year 2013, the Education Fund's share is estimated at $29.3 million.
At current interest rates, $29.3 million a year can finance $360 million if dedicated to the repayment of 20 year bonds. Restoring Vermont's highway and bridge system is a perfect match for such bonds. Vermont can pay for this necessary work without raising taxes and without deferring other important transportation projects. Should a federal waiver be granted, Vermont then has two good options to address the costs of Irene.
Such bonds can be issued both by the State of Vermont as well as the Vermont Municipal Bond Bank, thus spreading the credit risk over both the "full faith and credit" of the state and participating municipalities. By firmly dedicating these already existing Purchase and Use revenues to bond repayment, Vermont's solid credit rating is supported. Further, raising Vermont's "Rainy Day" fund from 5% to 8% of the budget, as the Governor already suggests, will help mollify Wall St. concerns. In any case, defending our bond rating in discussions with Wall St. is a better choice than raising taxes or delaying important transportation projects.
This sensible approach will require the Shumlin administration engage the powerful NEA and the education lobby, who might oppose this idea. Last year the Governor, with legislative approval, successfully raided the Education Fund of $23.2 million, pushing property taxes up. Property taxes need not be raised again. Given that Vermont's ratio of pupils to teachers is the very best in the nation at 9.8 to 1 (the national average is 15.3), if the Legislature set the acceptable minimum ratio at 11.7 to 1, which would rank Vermont at second best with Virginia, over $70 million in education spending can be saved. Such savings can in turn support the return of the $29.3 million Purchase and Use revenues to the Transportation Fund as well as free up $40 million in property taxes, which municipalities can use to address their local costs of Irene clean-up or to lower property taxes.
Given the incredible fiscal pressures left by Irene, moving one notch down from the best to second best pupil-teacher ratio in the nation is a better choice than raising taxes, delaying important transportation projects, and undermining the future prosperity of Vermonters. With the current debate unfolding regarding tax increases to support Vermont's health care reform, proposals for tax increases in other areas should be kept on the shelf.
Tom Pelham, of Berlin, was Vermont's Finance Commissioner for 6 years in the Dean Administration and Tax Commissioner for 6 years in the Douglas Administration and elected State Representative for Calais, Marshfield and Plainfield as an Independent, serving on the Approriations Committee. Bruce Lisman, of Shelburne, a retired financial manager with JP Morgan Global Equities Divisions, is a native of Burlington, a business man, an environmentalist, an advocate for our social contracts and a staunch supporter of the arts. He has served on the UVM and CVPS boards and currently is on the board of Merchants Bank.