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Vermont's Shadow Budget: State Tax Breaks Get Little Scrutiny

Legislation introduced in both the House and Senate would increase the proportion of education resources going to districts with economically disadvantaged students.
Angela Evancie
/
VPR File
Many states are giving increased scrutiny to tax expenditures, a process recommended by a 2011 report by the legislature-appointed Blue Ribbon Commission. Vermont lawmakers acted on some of the commission's recommendations, but not all of them.

The state of Vermont gives up around $1 billion in potential tax revenues every year. Some of the tax breaks are vitally important in the lives of hundreds or thousands of Vermonters, while others have had their value questioned in recent years. Regardless of their merits, none of these tax breaks is required to be reviewed or approved by policymakers on a regular basis.

This story is part of VPR's ongoing coverage of tax expenditures in Vermont. For more on this topic, see Vermont's Shadow Budget: How The State Forgoes $1 Billion In Taxes Each Year.

This is a known issue. In 2011, a report by the legislature-appointed Blue Ribbon Commission on Tax Reform called attention to this lack of scrutiny. “Tax expenditures, policy choices made within the tax system, are costly and complex decisions that lack sufficient transparency," the report said.

Robert Zahradnik, the director of state fiscal health for the Pew Charitable Trust, said many states are giving increased scrutiny to tax expenditures, a process recommended by the commission's report. Improved budget processes in recent decades along with the 2008 recession got states paying more attention to every dollar they were giving up.

Across the nation, Zahradnik said, “[t]ax expenditures and tax incentive policies were put into place and in a lot of cases there weren’t necessarily any fiscal controls placed on them, meaning that there wasn’t necessarily a cap or there wasn’t a sunset provision that said ‘We’re going to do this for five years and then take another look at it.’ A lot of cases, they were just put on the books without any time constraints or fiscal constraints and then that was the end of it.”

"The reason we wanted them to have an explicit, public, printed, as-a-matter-of-record purpose, is so they could be reviewed in the construct of the public good." - Bill Schubart, a member of the Blue Ribbon commission that recommended greater scrutiny of tax expenditures

Vermont’s Blue Ribbon Commission’s urged stronger data collection about tax expenditures and called on lawmakers to come up with a statement of “statutory purpose” defining the intent of each tax break. The commission also advised the legislature to give every tax break in the state an end date, or “sunset.” That way each of these policy choices would have to be reviewed and voted back into existence on a regular basis.

“The reason we wanted them to have an explicit, public, printed, as-a-matter-of-record purpose, is so they could be reviewed in the construct of the public good,” said Bill Schubart, a member of the commission who worked on the report. “Because there are tax expenditures which are driven by lobbying, and it’s a fine line between lobbying for a public good and lobbying that arguably – I don’t want to call it corruption – but it’s people getting favors.”

Regular scrutiny, Schubart argues, would force lawmakers to consider the value of each tax break on the books and reconsider its public good.

For a tax break like the one that allows fraternities and sororities not to pay any property taxes on their houses, Schubart and the Blue Ribbon Commission said that reconsideration might raise serious questions.

"For the longest time, just because this was done in a way that was separate from the budget process, they weren't getting the kind of scrutiny and attention that other types of programs do, and now we're starting to see that change." - Robert Zahradnik, Pew Charitable Trust

“I mean the key issue here for me is: Is there really a public good or is this an elite sector trying to carve out its own benefit?” Schubart said. “Our purpose in making this transparent was so there could be a public dialog on why, again, are we having elite fraternities be free of property tax when a poor person isn’t – a person who can’t even afford to send their kid to college isn’t. This is the kind of discussion that has to surround these things.”  

After the report, lawmakers acted on some of the commission’s recommendations. The legislature took up the effort of giving each tax break a clear “statutory purpose,” but did not implement the sunset provision that would require regular discussions of each expenditure. And not all of the statutory purposes address the issue of social good directly. The purpose of the fraternity and sorority exemption, for example, is “to provide a tax benefit to college fraternities and societies.”

But while Schubart acknowledges he has opinions about many of the tax expenditures, the commission wasn’t calling on lawmakers to act on any set of opinions.

“The intent of the commission, and I think you will find all three of us [commissioners] would say this, was that nothing becomes permanent,” Schubart says.

Zahradnik of Pew Charitable Trusts says that this “nothing is permanent” strategy has been rare in the past, but more and more states are catching on.

“It does in some ways seem like common sense,” he said. “But for the longest time, just because this was done in a way that was separate from the budget process, they weren’t getting the kind of scrutiny and attention that other types of programs do, and now we’re starting to see that change.”

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