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COVID-19 Pandemic: 3. Federal Government Response. Families First Coronavirus Response Act (“FFCRA”)

Around the world, 127 countries require employers to provide paid sick leave for one week or more.  The United States is not one of these countries.   This is a big problem in a pandemic:  sick employees are likely to work as long as possible to feed their families, thereby spreading the disease further.

Around the world, some 120 countries also require some form of paid family leave for maternity and/or childcare.  The United States is not one of these countries. This becomes a big problem when all the schools are shut and someone has to care for children at home.

Many of the other key components of America’s “safety net” are tied to work and the need to search for work, all under the assumption that a job can be found in a reasonably short period of time.  In normal conditions, this works more or less OK.  These ties to work don’t function in a pandemic when everything is ordered shut or the out-of-work employee is sick.

The Families First Coronavirus Response Act (FFCRA), which began as a Democratic initiative in the US House of Representatives, was put in place to address the holes in the US safety net.  It basically addressed five key needs, as follows:

  1. Emergency paid sick leave and family medical leave
  2. Medicaid funding for states
  3. Food Stamp program shortfalls
  4. The cost of coronavirus testing, and
  5. Expanded unemployment insurance benefits

Emergency Paid Sick Leave and Family Leave

 The FFCRA requires employers of 500 or fewer employees to 1) provide two weeks of paid sick leave at the full pay rate for any employee legitimately in quarantine or experiencing COVID-19 symptoms awaiting final diagnosis, 2) provide two weeks paid family leave at two thirds the full pay rate to any employee legitimately caring for a family member in quarantine or a child shut out of school, and 3) provide up to 10 additional weeks of paid family leave at two thirds the full pay rate for any employee legitimately caring for a child shut out of school.

There are employee pay caps in this emergency program.  Paid sick leave is capped at $511/day or $5,110 in the aggregate.  In the first two weeks of paid family leave, pay is capped at $200/day and $2,000 in total and, if extended for the remaining 10 weeks, the aggregate cap is $12,000.

Employers are not being required to actually pay for this.  Instead, the taxpayers will pay.  The employers get a full, dollar-for-dollar refundable tax credit against their share of the Social Security payroll tax.

The cost of this program is expected to exceed $100 billion.  So, sometime in the future, either Social Security taxes will need to go up to make up the shortfall or the Social Security deficit will simply be permanently increased, thereby bringing forward the date when the program runs out of money.

Medicaid Funding

The cost of Medicaid is shared on a formula basis by the federal government and the states.  For most states, Medicaid represents the single largest annual outlay.

In Vermont, the total cost of Medicaid was $1.68 billion in fiscal year 2018 with the federal government paying 59% and the state 41%.

The FFCRA increases the federal government’s share of Medicaid expenditures by 6.2% from January 1, 2020 until the COVID-19 national emergency is declared over by the US Department of Health and Human Services.

This increase in federal funding is a very important component of the FFCRA.  First, it will greatly help to cushion the sharp decrease in state tax revenues that will surely be the result of the shutdown. In the case of Vermont, the annualized value of a 6.2% increase in federal funding, based on 2018 total Medicaid expense, is about $104 million.  Should the emergency remain in place through the end of June or September, the state could get something ranging from $50 million to $75 million in increased federal Medicaid funding.

The emergency funding program was also designed to preserve the Medicaid program in states where it is under political pressure by preventing 1) the imposition of any more restrictive standards, methodologies and procedures for Medicaid enrollment and access, 2) any increases in Medicaid premiums, 3) dis-enrolling anyone and 4) failure to pay 100% of testing costs.

SNAP Provisions (Food Stamp Program)

The FFCRA provided additional emergency funding to a variety of federal nutritional programs including the core Supplemental Nutrition Assistance Program, the Supplemental Nutrition Assistance Program for Women, Children and Infants and the Temporary Emergency Food Assistance Program.

The FFCRA also waived various restrictions related to the school and adult care food programs. It also allows states to waive or modify the 3-month over three- year limit for able-bodied adults with no dependents.

The Cost of Coronavirus Testing

 Absent any form of government intervention, it is likely that the US healthcare system would have attempted to make a bundle on coronavirus testing.  They probably still will, but not at individuals’ near term expense.

The FFCRA requires all employer group health plans, Medicare, Medicaid, CHIP, TRICARE, Veterans Affairs, Federal Workers Health Plans and Indian Health Services to cover 100% of the cost of COVID-19 testing with no co-payment of any kind.

The FFCRA does not require coverage for the actual treatment of COVID-19 illness.  While the vast bulk of the insurance programs operating in the USA cover COVID-19 medical costs, the amount charged is not addressed and co-pays and deductibles will likely apply.

Expansion of Unemployment Benefits

The FFCRA provided $1 billion of emergency funding to state unemployment trust funds.  These additional funds are intended to help states meet the cost of 1) reduced eligibility requirements, 2) increased access to unemployment benefits, 3) waiving the search of work requirements, and 4) waiving the one week wait period.

Other Provisions

 The Act provided a number of smaller COVID-19 related appropriations to various government entities, including the Department of Defense, Veterans Affairs and Health and Human Services.

Interestingly, the Act provided a full legal immunity from law suits to manufacturers of ventilators.

Cost

 The Congressional Budget Office estimates that FFCRA will increase the federal government budget deficit by $192 billion, with the vast bulk of expenditures coming in 2020 and 2021.  The Act provided for new and increased expenditures but did not address any offsetting revenue measures.  A summary of the expected expenditures is provided below.

Expenditure Amount ($ billions)
Paid Sick Leave/Family Leave 105.0
Increase Federal Medicaid Funding by 6.2% 50.0
SNAP (Food Stamp) Provisions 21.2
Free COVID-19 Testing Under Medicare/Medicaid 8.6
Expanded Unemployment Benefits 4.7
Other 3.4
TOTAL 192.9

Source: Congressional Budget Office

Summary

There was strong bipartisan support for the Act, although negotiations on the final provisions were quite intense.  In the House, the vote was 363-40-1, with all 40 Nay votes coming from Republicans.  In the Senate, the vote was 90-8, with all 8 Nay votes also from Republican Senators.

By the time this Act was signed into law on March 18, 2020, the scale of the economic calamity unfolding was becoming clear.  Puerto Rico was in lock-down and within a week some 20 states would join. Passage of the Act did nothing to slow the crash occurring in the stock markets.

Before the ink was dry on FFCRA, work on the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was already underway.  The Phase 1 CPRS was $8.7 billion and the Phase 2 FFCRA grew to $192 billion.  The Coronavirus Aid, Relief and Economic Security Act would be coming with a much bigger price tag:  over $2 trillion.

The next article will cover the CARES Act.  Here, the good, the bad and the ugly of Washington are on clear display.

 

 

 

 

COVID-19 Pandemic: 2. Federal Government Response. The Coronavirus Preparedness and Response Supplemental Appropriations Act (“CPRA”)

 

 

On February 24, 2020, the White House sent congress a request for $2.5 billion to combat the COVID-19 pandemic. In a few short weeks, this would grow to trillions!

Members from both political parties in the House and the Senate viewed this request as entirely inadequate.  After successful bipartisan negotiations, the final CPRA emerged with an estimated cost of $8.3 billion.  As indicated above, subsequent COVID-19 legislation would have much higher price tags.

The CPRA was largely directed at funding research and development for COVID-19 vaccines and therapeutics, with about $6.7 billion to be used domestically and about $1.5 billion internationally.  A detailed account of these appropriations is provided below.

CPRA Appropriations

Department Amount ($) Expenditure Period Purpose
Health & Human Services 3.4 billion Through 2024 COVID-19 R&D for Vaccines and Therapeutics
300 million Through 2024 Purchase of vaccines, therapeutics and diagnostics
100 million 2020 Grants under the Health Centers Program
1.9 billion Through 2022 Center for Disease Control for COVID-19 containment.  Includes $950 million state and local health organizations, $300 million for the Infectious Disease Rapid Response reserve Fund and $40 million tribal health organizations
836 million Through 2024 To National Institute of Health and National Institute of Allergy and Infectious Diseases for COVID-19 R&D
61 million Until expended Food and Drug Administration COVID-19 preparedness and response
500 million Not specified Waiver to greatly expand the availability of Telehealth Services under Medicare
300 million 2022 Center for Disease Control global COVID-19 detection and response
Small Business Administration 20 million Until Expended Economic Injury Disaster Loan Program
USAID 435 million 2022 Global Health Programs
300 million Until expended International Disaster Assistance
250 million 2022 Economic Support Fund
State Department 264 million 2022 Consular operations, evacuation expenses and emergency preparedness
TOTAL 8.3 billion

Source: Kaiser Family Foundation, The U.S. Response to Coronavirus: Summary of the Coronavirus Response and Preparedness Supplemental Appropriations Act, March 11, 2020

This Looks Bad and We Better Do Something About It

By the time this legislation became law on March 6, 2020, there were over 100,000 COVID-19 cases worldwide with 233 cases in the USA and 14 deaths.  This initial legislative response was aimed squarely at the health crisis itself with the vast bulk of the new appropriations going to the Department of Health and Human Services for the development of vaccines, cures and emergency preparedness.

To the extent this legislation represents a knee jerk reaction by our elected representatives, it seems to be the right knee jerk reaction.

As outlined above, this money was spread around a large number of divisions and organizations, including almost $1 billion for state and local health organizations and $1.5 billion internationally.  With several billion allocated to multiple federal entities for the development of vaccines and cures, one hopes there is effective coordination and planning among the groups.

The CPRA passed the House with a bipartisan 451-2 vote, with the Nay votes coming from Republicans in Colorado and Arizona.  In the Senate, the vote was 96-1, with Rand Paul of Kentucky the sole Nay vote.  Bernie Sanders (and Elizabeth Warren) both missed the vote on the presidential campaign trail.

With the exception of the $20 million appropriation to the Small Business Administration, nothing in the CPRA addressed the potential economic impact of the COVID-19 crisis.  By March 6, when CPRA became law, the Standard & Poor’s 500 Index had dropped 12% from its February 18 high.  The stock market continued to drop for the next 17 days, falling a total of 33.6% by March 23, 2020.

The next major legislative response, called the Families First Coronavirus Response Act, was put together during the stock market crash.  Unlike the first Act, it is very much focused on the economy. It was also a lot bigger in term of cost: £192 billion.  As the month of March progressed, the scale, impact and cost of COVID-19 was becoming more and more apparent to our elected representatives.

The next article in The Informed Vermonter will cover the Families First Coronavirus Response Act.

 

COVID-19 Pandemic: 1.Our Governments’ Response

 

The COVID-19 Pandemic is the greatest public health challenge faced by the United States since the Spanish Flu ravaged the country in multiple waves beginning in 1918.  

Given the historic scale of this crisis, The Informed Vermonter thought it would be insightful to take a detailed look at our government’s response as the pandemic spread throughout the world and the country.  Many of the actions being taken now are likely to have consequences well into the future.

In the next series of articles, the actions of both the federal government and State of   Vermont to address the COVID-19 pandemic will be reviewed in detail. Both legislative actions and executive orders will be covered.  Federal Reserve Bank actions will also be discussed. As always, The Informed Vermonter will try to identify and classify all the related costs and examine the resulting financial impact of the crisis on the economy and government budgets.

State governments and the federal government have very different powers and resources within our political system.  Broadly speaking, healthcare is largely managed by state governments, with the federal government providing substantial funding via Medicare and Medicaid.  Also, crisis management is largely a state government responsibility, with the federal government providing emergency funding, coordination and assistance through agencies such as FEMA.  Adding to the complexity are local governments, which tend to have control of much of the front line emergency response infrastructure in the country, including police, ambulance service, fire departments and community hospitals.

It is rare for the USA to face an emergency that goes beyond only a handful of states.  A very bad hurricane, for example, may affect four to five states.  COVID-19 is a true national emergency affecting all 50 states at exactly the same time.

Given our highly fragmented government structure, the response to the pandemic has varied widely from one state to the next and one major city to the next.  The COVID-19 virus knows nothing about our state and local boundaries and is happy to go anywhere a human carrier chooses to take it.

When it comes to crisis management, the strong local knowledge held by state and local entities is clearly critical.  It seems intuitive that much of the response to CoviD-19 should be managed better at the state and local level than by any national centralized power.  However, this is a true national crisis and there is clearly a role for strong direction and coordination from Washington.

With that thought in mind, this series of articles will begin with a review of the federal government’s response.

Coronavirus Timeline

To help readers assess for themselves the timing of the federal government’s response, a brief summary of the COVID-19 timeline is provided below.

On December 31, 2019, Wuhan, China reported a cluster of pneumonia cases to the World Health Organization.  On January 12, the Government of China published the genetic sequence of COVID-19 for the global community.  The next day, the first case outside of China was reported in Thailand.  On January 30, the World Health Organization declared COVID-19 a Public Health Emergency of International Concern.  There were cases in 18 countries at this time.  On February 1, there were 8 COVID-19 cases in the USA.  On March 12, COVID-19 was officially classified as a global pandemic.  As of May 1, over 65,000 thousand people had died from COVID-19 in the USA.

A Crisis Characterized By Uncertainty

COVID-19 is a new virus.  There is no vaccine and no effective drug treatment now available.  In the short time we have been exposed to this new virus, we have learned that it’s highly contagious, but we still don’t know all the means of spreading the infection.  Person-to-person airborne transmission is certainly the biggest problem.  We have also learned that it is highly lethal, particularly for elderly people with other health issues.  However, people of all ages, sexes and races are dying from COVID-19.  There also appears to be a risk of long term health consequences for those that survive.

While there is a major US and global effort underway to understand the virus, develop a vaccine and effective therapeutics, nothing is certain.  It is important to recognize that it is within this knowledge vacuum that our elected representatives are now operating.

Federal Legislative Actions

Thus far, there have been four major legislative acts passed to address the COVID-19 pandemic. A fifth is now in process. The first, on March 6, 2020, was the Coronavirus Preparedness and Response Supplemental Appropriations Act.  The Second, passed into law on March 18, 2020, was the Families First Coronavirus Response Act.  The most important legislation, both in terms of scope and cost, is the Coronavirus Aid, Relief and Economic Security Act, which become law on March 27, 2020. The last, which become law on April 24,2020, was the Paycheck Protection Program and Healthcare Enhancement Act.  This last Act basically added more money to programs developed in the prior legislation.

The amount of money being authorised, the intended use of the money and the impact on the federal budget deficit by these COVID-19 actions is unprecedented in US history. 

Each of these major legislative acts will be reviewed in subsequent articles, beginning with the Coronavirus Preparedness and Response Supplemental Appropriations Act.

Education: 13: Act 46 Update

It looks like Act 46 is beginning to have a measurable impact on Vermont’s public education infrastructure.  It’s all beginning to shrink.

Each year, the Vermont Agency of Education publishes an Annual Report and Budget Book which contains a summary of key statistics for Vermont’s K-12 education system. The most recent report was prepared in May 2018 for the fiscal- year 2019 budget period. Here is a short summary:

                                     Vermont K-12 Education Infrastructure

Category 2017/2018 School Year Change from Prior Year
Total Public schools 298 (1)
Technical Centers 15
Historical Academies, Independent Schools and Approved Programs 140 (2)
School Districts 276 (2)
Technical Center School Districts 3
Supervisory Unions 39 (4)
Joint Contract Schools 5
Gores & Unorganized Towns 9
Total Public Education Governing & Administrative Entities 332 (6)
School Boards 224 (42)
School Board Members 1,386 (104)
2016/2017 School Year Change from Prior Year
Total Public School Administrators 534 (18)
Teachers (Full Time Equivalents) 8,179 (79)

Source: Agency of Education Annual Report and Budget Book Fiscal Year 2019 and 2018

The changes outlined above are set to accelerate as the Act 46 process is implemented.  As of January 2018, towns across the state had voted to merge 149 school districts into 36 new unified school districts.  Four supervisory unions have been eliminated via redrawn boundaries and a further 8 are to be merged into the new supervisory districts.

When all this is completed, it looks there will be 129 remaining school districts, 36 new unified supervisory districts and only 31 old supervisory unions.  The total number of Public Education Governing and Administrative Entities will have been reduced from 332 to 213, a reduction of 35%.

This all makes sense to The Informed Vermonter.  The expenditure category where Vermont is most out of line is School Administrative Costs.  According to the US Census Bureau’s Annual Survey of School System Finance, Vermont’s School Administration Costs were $1,296/pupil in fiscal year 2016.  The average for the country was $651/pupil and the average of the five other New England states was $852/pupil.  Vermont’s School Administration Costs are double the national average and 52% higher than the average in New England.

If a 35% reduction in Public Education Governing and Administrative Entities results in 35% reduction in School Administrative Costs, Vermont’s cost would decrease to $842/pupil, which is pretty much in line with the New England average.  The savings would be about $40 million per year.

Timing

When the chart above was prepared, only four of the new unified school districts had experienced a full fiscal year of operations.  The schedule for full implementation was originally as follows:

Date Number of New Unified School Districts
Before 2016 1
July 1, 2016 4
July 1, 2017 8
July 1, 2018 19
July 1, 2019 4
Total 36

Source: Agency of Education Annual Report and Budget Book Fiscal Year 2019

If the above schedule is adhered to, the full impact of Act 46 will become clear in fiscal years 2020 and 2021.  More recently, there have been a number of legal challenges and legislative efforts to delay implementation, so the exact timing and final scope of Act 46 consolidations remains uncertain.

Concluding Remarks

The Informed Vermonter has been unable to find a state government estimate of the total cost savings expected from Act 46.  The Agency of Education Annual Report and Budget Book for Fiscal Year 2019 outlined a number of anecdotal cost savings achieved in certain of the new unified school districts, but admitted there was no centralized cost savings information available.

Having gone through the Act 46 process, it would appear that there is now substantial scope to realize cost savings for Vermont taxpayers.  Hopefully, someone in government has a plan to make sure the savings happen.

Related Articles

  1. Education: Vermont’s Education Infrastructure: https://theinformedvermonter.com/education-vermonts-education-infrastructure/
  2. Education: Fiscal Year 2017 Infrastructure Update: https://theinformedvermonter.com/503-2-edu-infrastructure/

 

 

 

 

 

 

 

 

 

 

 

 

Education: 12: Vermont’s Comparative Cost of Education Update

Each year, The Informed Vermonter provides an update with respect to Vermont’s comparative cost of K-12 education based on information collected by the US Census Bureau in it’s Annual Survey of School System Finance.  This Survey allows a direct comparison of Vermont’s education expenditures to all  other states and the country as a whole based on data provided directly by the various state education departments.

Outcomes vs. Costs

The central issue in any debate regarding the proper level of education spending is the effect a change in spending has on education outcomes.  Therefore, before addressing comparative costs, a look at comparative outcomes will help readers make more sense of the information.

Throughout this article, Vermont will be compared to the five other New England States. All six New England states have costs materially higher than the national average and all six have K-12 education outcomes rated at the high end of the range. However, even within this small group of states, the cost to achieve strong outcomes differs widely.

There are a variety of surveys that rank K-12 education outcomes on a state-by-state basis and each use different criteria.  To keep things simple, this article relied on three such surveys:  US News and World Report, WalletHub and Education Weekly.  The results are fairly consistent across these three surveys, as outlined below.

                      K-12 Education Outcomes of New England States

State US News (National Rank) WalletHub (National Rank) Education Weekly: K-12 Achievement Score
Massachusetts 1 1 88.0
New Hampshire 2 4 77.2
Connecticut 5 2 74.6
Vermont 4 5 73.0
Maine 6 16 71.2
Rhode Island 9 19 70.5

 

Vermont’s public education system has a very good reputation.  Vermont ranks within the top five-ten states in the country, which everyone in the state should be proud of. However, Vermont is in a good neighborhood when it comes to education.  Indeed, Massachusetts, New Hampshire and Connecticut rank ahead of Vermont in all or most of surveys outlined above.

Comparative Costs

Basically, the K-12 education outcomes in all the New England states range from good to very good.  In this section, the costs incurred to achieve these outcomes are reviewed.  As it turns out, the correlation between costs incurred and results achieved is not particularly strong.

      K-12 Per Pupil Education Expenditures, Fiscal Year Ended Jun 2016 ($)

State Total Cost/Pupil Total Instructional Cost/Pupil Total Support Cost/Pupil
USA 11,762 7,160 4,107
Connecticut 18,958 11,656 6,621
Maine 13,278 7,587 5,216
Massachusetts 15,593 9,713 5,396
New Hampshire 15,340 9,610 5,341
Rhode Island 15,532 9,035 6,065
New England Average (excluding Vermont) 15,740 9,520 5,728
Vermont 17,873 10,720 6,629

Source: US Census Bureau, 2016 Annual Survey of School System Finance

Massachusetts and New Hampshire, which have the highest rated education outcomes in New England (and the country), have similar spending profiles. In both states, the Total Cost/Pupil is a bit below the New England average, the Instructional Cost/Pupil is a bit above and the Support Cost/Pupil is below the New England average.  These states seem to be controlling their overall costs and running a tight ship with respect to support/administrative costs, which allows them to invest more in teachers.  This looks like a successful formula.

Vermont’s education costs are simply high across the board.  Only Connecticut has higher Total Costs and Instructional Costs. With respect to Support Costs, Vermont is the highest.

Vermont’s high cost structure appears not to be the result of higher than average salaries and benefits.  According to the National Education Association, the average teacher salary in Vermont was $57,349 in 2017.  This compares to $57,522 and $78,100 in New Hampshire and Massachusetts, respectively. The Bureau of Labor statistics tracks K-12 Education Administrator salaries. In 2017, the average administrator salary in Vermont was $88,840 vs. $85,600 in New Hampshire and $107,670 in Massachusetts.

With Vermont’s salary and wage levels at or below other New England states, the only thing that can account for the high level of Vermont expenditures has to be a high number of teachers, teacher assistants and school administrators per pupil.

Concluding Remarks

Vermont recognizes that it has a cost issue and has enacted Act 46 to try and address the situation.  First and foremost, Act 46 seeks to reduce the number of school administrative entities by consolidating school districts.  Secondly, Act 46 also seeks to reduce the number of schools. Presumably, this consolidation process will ultimately result in a reduction in the number of school administrators and teachers, thereby reducing costs.

The stakes in all this are quite high. Vermont now has one of the most expensive pubic school systems in the country and, as a result, some of the highest property tax rates as well.

If Vermont could reduce it cost/pupil to the level of Massachusetts or New Hampshire, two states with superior K-12 outcomes, the savings would be in excess of $200 million per year. If these savings were then applied to property taxes, rates could be reduced by 20%.

$200 million of savings is purely hypothetical and probably a bit aggressive in the real world.  However, the data presented above suggests that there may be scope for meaningful savings in Vermont without any impairment to education outcomes.

The next article will provide a brief update on the Act 46 process.

Related Articles and Additional Reading

  1. Education: How Does Vermont’s Cost of Education Compare to Other States?: https://theinformedvermonter.com/education-vermonts-cost-education-compare-states/
  2. Education: Update on Vermont’s Comparative Cost of Education: https://theinformedvermonter.com/501-2-comparative-edu-costs/
  3. US Census Bureau, 2016 Public Elementary-Secondary Education Finance Data: https://www.census.gov/data/tables/2016/econ/school-finances/secondary-education-finance.html

 

 

Education: 11: Expenditures Keep Increasing

Vermont had 78,733 K-12 students in the 2017/2018 academic year, down from approximately 103,000 in 1997. Total publicly funded students (including approved independent, state placed etc…) numbered 89,025 in 2017, down 138 students from 2016 and 232 from 2015.

While student numbers have continued to decline, Vermont’s education expenditures have continued to increase.  In 2018, Vermont spent $18,778 per pupil, ranking it firmly among the top five states in the country.

Historic Education Expenditures

 Vermont’s K-12 education expenditures over the three-year period ended June 30, 2018 are summarized below.

                  Vermont K-12 Education Appropriations ($ millions)

Category 2016 2017 2018 Change Since 2016
Core K-12 1,290 1,308 1,344 54
Special Ed: Formula Grants 172 178 183 11
Education Services 130 135 134 4
Other Education Programs 89 88 94 5
Sub-Total 1,681 1,709 1,755 74
State Teachers Retirement System 96 108 118 22
Total 1,777 1,817 1,873 96

Source: Governor’s Executive Budget Recommendation Fiscal Years 2017, 2018 & 2019

By way of clarification, Core K-12 expenditures are basically the aggregate costs of Vermont’s schools and school districts.  Special Education Formula Grants refer to the state’s share of the cost. Education Services is the cost of a wide variety of education programs largely designed to improve the quality of education.

As indicated in the table, total expenditures were up $96 million in two years, or 5.4%.  The largest percentage increases were in State Teachers Retirement System (22.9%) and Special Education (6.4%).  Note that all five categories experienced cost increases.

Budgeted Education Expenditures

Budgeted education expenditures are increasing at an even faster rate, as follows:

              Vermont Budgeted K-12 Education Expenditures ($ millions)

Category Actual 2018 Final 2019 Budget Recommended 2020 Budget 2020 Budget Compared to 2018 Actual
Core K-12 1,344 1,371 1,422 78
Special Ed: Formula Grants 183 198 213 30
Education Services 134 146 139 5
Other Education Programs 94 101 103 9
Sub-Total 1,755 1,816 1,877 122
State Teachers Retirement System 118 139 158 40
Total 1,873 1,955 2,035 162

Source: Governor’s Executive Budget Recommendation Fiscal Years 2019 and 2020

Just to summarize, actual K-12 education expenditures increased by $96 million between fiscal year 2016 and 2018 and are budgeted to increase a further $162 million by fiscal year 2020.

Cost Containment Strategy

According to the Agency of Education, Vermont had 276 school districts and 332 “Public Education Governing and Administrative Entities” in the 2017/2018 school year.  Pursuant to Act 46 and related legislation, Vermont is in the process of consolidating and reducing the number of administrative entities in the public school system.  This is the core cost containment strategy adopted by Vermont.

In the next two articles, The Informed Vermonter will provide it’s annual update of Vermont’s comparative K-12 education costs and a status report on Act 46.

Related Articles and Additional Reading

1.Education: Vermont’s 2016 Total Education Expenditureshttps://theinformedvermonter.com/education-vermonts-2016-total-expenditures/

  1. Education: Fiscal Year 2017 Update: https://theinformedvermonter.com/499-2-edu-2017-update/
  2. Agency of Education: FY2019 Budget Recommendation and Annual Report: https://education.vermont.gov/sites/aoe/files/documents/edu-data-finance-budget-book-fy2019.pdf

 

 

 

Human Services: 6. Social Services and Financial Assistance

In addition to managing Vermont’s healthcare programs, the Agency of Human Services provides most of Vermont’s social services and financial assistance programs via the Department of Children and Family Services.

This Department provides a wide array of key services and financial assistance, including but not limited to the administration of Vermont’s food stamp program (3 SquareVT), child protective services, development and care, Temporary Assistance for Needy Families (Reach-Up), aid for the aged, blind and disabled and financial assistance for both weatherization and home heating.

State vs. Federal Funding

The actual appropriations for Children and Family Services increased from $391.2 million in fiscal year 2016 to $393.3 million in fiscal year 2018, representing a very modest 0.3% annual increase.

During this same period, federal funding declined from $201.3 million to $ 197.7 million.  These funds come from a wide variety of federal grant programs as well as the federal government’s share of the Medicaid programs managed in this department.

Given the decline in federal funding, the state’s share grew from $189.9 million to $195.6 million, representing a 1.5% annual growth rate.  Given the current environment in Washington, Vermont’s share of these expenditures is trending higher.

Economic Sensitivity

Many of these financial assistance programs have income-based eligibility requirements. Vermont’s economic performance is now quite strong, with unemployment below 3% and wages growing at their fastest pace in a decade.  In these circumstances, it might be reasonable to anticipate stable to declining financial assistance expenditures.

Indeed, that is the experience in Vermont over the last few years. Appropriations for Reach-Up, which is Vermont’s brand name for Temporary Assistance for Needy Families, were down over 10% from fiscal year 2016 to 2018.  Most of the other divisions within Children and Family Services had stable appropriations during the 2016-2018 period.  The only department recording materially higher expenditures was Family Services, Vermont’s front line for child protective services.  Here, expenditures increased from $107 million to $116.4.

Other Assistance Programs

There are some important financial assistance and social programs provided by other parts of the state government.

First and foremost is the Earned Income Tax Credit.  Next to food stamps, this is largest financial assistance program in Vermont.  Some 45,000 Vermonters receive Earned Income Tax Credits each year.  Federal credits are in the $85 million range and Vermont state credits are an additional circa $27 million. For 2019, Vermont has increased the state Earned Income Tax Credit from 32% to 36% of the federal amount.

Low-income housing and housing assistance is another large category, mostly managed out of the Agency of Commerce and Community Development.  Vermont Homeowner Rebates and Rent Rebates were $16.1 million and $9.0 million in fiscal year 2018, respectively.  The Vermont State Housing Authority has over 3,000 tenants on Housing Choice Vouchers and over 3,000 units of subsidized housing all funded under HUD Section 8.  Section 8 federal grants are in excess of $55 million annually.

School nutrition programs are managed out of the Education Department.  Federal grants for the School Lunch Program, Child and Adult Care Food Program and Summer Food Service Program are in the $35 million/year range.

The Labor Department manages a number of employment services, including job search and training. Federal funding includes both Workforce Investment Act and Employment Service grants totaling about $6 million annually.

Last, the Vermont Student Assistance Corp provided $24.6 million in grants and scholarships to Vermont students in fiscal year 2018, all funded by state of Vermont appropriations.

Key Observations

 Embedded Poverty: With Vermont’s unemployment rate below 3% and wages now growing at about 4%, one could argue that the Vermont economy is about as good as it is ever going to get. If that is the case, the costs outlined above for social services and financial assistance are probably at some baseline level reflecting embedded poverty in Vermont.

Cost to Vermont: The expenditures funded by the state government for all of the programs outlined above look to be a bit less than $300mm in the aggregate.  In fiscal year 2018, total Vermont state tax revenues were $3.2 billion. Excluding Medicaid, social service and financial assistance programs absorbed approximately 9% of state tax revenues. Including Medicaid, the cost represented about 35% of total state tax revenues.

Related Articles

  1. Human Services: Vermont’s Welfare: https://theinformedvermonter.com/human-services-vermonts-welfare/
  2. Welfare: Vermont’s Total Cost of Welfare:https://theinformedvermonter.com/welfare-vermonts-total-cost-welfare/

 

 

Human Services: 5. Vermont’s Healthcare Spending Trends

Healthcare spending, principally Medicaid, is the single largest annual expense of the Vermont state government.  In fiscal year 2018, total Medicaid spending was $1.68 billion, which was funded 59% by the federal government and 41% by the state.  Medicaid is the second largest state-funded expenditure, exceeded only by K-12 education.

Given the scale of expenditures and their impact on overall fiscal policies, the management of healthcare expenditures is one of the most important functions of the state government.  This article will take a look at how Vermont has performed over the last several years and review some major new initiatives.

Historical Spending

Most of Vermont’s healthcare spending takes place in three departments.  The largest is Vermont Health Access, which manages the core Medicaid/Affordable Care Act programs. Next is the Department for Disabilities, Aging and Independent Living.  The third is Mental Health.  Actual appropriations for these three departments since 2016 are provided below.

               Vermont Historical Healthcare Expenditures ($ millions)

Department 2016 2017 2018 Change Since 2016
Vermont Health Access 1,209 1,155 1,124 (85)
Disabilities, Aging & Independent Living 247 264 271 24
Mental Health 217 226 240 23
Total 1,673 1,645 1,635 (38)

Source: Vermont Governor’s Executive Budget Recommendation, Fiscal Years 2017, 2018, 2019 and 2020.

Looking at the numbers in isolation, it would appear Vermont is doing a decent job of controlling costs. Core Medicaid costs have been reduced, more than offsetting increases in Disabilities, Aging & Independent Living and Mental Health.

These spending trends seem to be consistent with Vermont’s demographic profile.  The number of people over 65 is growing and the number under 65 is stable to declining. This results a migration away from Medicaid to Medicare, which is 100% funded by the federal government and an increase in long term care expenditures for the aging.

While the downward trend is encouraging for fiscally minded Vermonters, it doesn’t paint the entire picture.  Vermont’s Medicaid expenditures, on a per enrollee basis, remain high relative to the rest of the country. The chart below shows Medicaid Expenditures/Enrollee as of fiscal year 2014, the most recent data available:

                                     Medicaid Expenditures Per Enrollee

Area Medicaid Cost Per Full Benefit Enrollee ($)
USA 6,396
Vermont 8,787
Mass. 8,620
Conn. 8,446
Rhode Island 8,315
Maine 7,507
New Hampshire 7,472

Source: J. Henry Kaiser Family Foundation

As illustrated above, as of FY 2014, Vermont’s Medicaid cost/enrollee was higher than the national average and the highest among the six New England states. The Medicaid program has a set of mandatory healthcare services that all states must provide and a much longer list of optional services.  Vermont’s Medicaid program provides a more expansive group of services than the average state, which is one reason for the higher cost/enrollee.

In 2014, Vermont was one of only 12 states that did not contract with Managed Care Organizations for some portion of its Medicaid program.  Until very recently, Vermont’s Medicaid program was 100% fee-for-service. Fee-for-service payment schemes tend to incentivize healthcare providers to maximize the number of services they provide to a patient, thereby maximizing fees.

Managed Care Organizations can and do operate on a fixed cost per patient basis and assume some risk for providing full patient care within that framework.  Many healthcare policy makers, including those in the Vermont Agency of Human Services, believe that migrating from a fee-for-service model to a managed care model is the most effective way to control costs.

Cost Containment

In 2016, Vermont announced that it had agreed with the federal government to adopt an “All Payer Accountable Care Organization Model”.  The underlying concept is to move from a fee-for-service model to global budgets that reward value over volume. Maryland already has this program underway, and Vermont is the second state to do so. The key features of this program are as follows:

  1. Patients will retain existing coverage, services and choice.
  2. All payers, Medicare, Medicaid and commercial insurers, will adopt the same alternative payment structure.
  3. Vermont’s health care providers are to organize into Accountable Care Organizations (“ACO”) to participate in the alternative payment plan. One Care, led by UVM and Dartmouth Medical, has already done so.
  4. Wide participation is planned. Vermont and the federal government’s intend to have at least 70% of all Vermont residents and 90% of all Vermont Medicare participants attributable to an ACO.
  5. Vermont will limit annualized per capita healthcare expenditure growth for all payers to 3.5%.
  6. Vermont has undertaken to improve healthcare outcomes in three key areas: addiction and substance abuse, suicide and chronic disease.
  7. The implementation period agreed with the federal government runs from January 1, 2017 to December 31, 2022.

There are a number of Managed Care or Accountable Care experiments going on in the country, both in the government and private sector, in an effort to control healthcare costs.  While The Informed Vermonter is not remotely an expert in this complex field, the evidence to date appears to be mixed.  Nonetheless, doing nothing doesn’t look like a very good option.  The small size of Vermont may be an advantage in implementing a program like this.  Lets hope they succeed.

Budgeted Costs

So, we have a recent history of declining healthcare costs and a major new cost containment strategy.  With this as background, you might think Vermont’s budget would reflect continued positive trends. Well, think again.  The table below shows the approved fiscal year 2019 budget and the Governors Recommended fiscal year 2020 budget for the three key healthcare units.

                                 Selected Healthcare Budgets ($ millions)

2018 Actual 2019 Approved Budget 2020 Recommended Budget 2020 Budget over 2018 Actual
Vermont Health Access 1,124 1,177 1,200 76
Disabilities, Aging and Independent Living 271 293 302 31
Mental Health 240 245 267 27
Total 1,635 1,715 1,769 134

Source: Vermont Governor’s Executive budget Recommendation Fiscal Year 2020

Perhaps actual expenditures will come in less than those being budgeted by our elected representatives.

Related Articles and Additional Reading

  1. Human Services: Vermont’s Health Care  https://theinformedvermonter.com/human-services-vermonts-health-care/
  2. Vermont’s Health Care Overview, Joint Fiscal Office https://ljfo.vermont.gov/assets/Subjects/Issues-Briefs-and-Other-Health-Care-Related-Information/7731f39d65/Vermonts-Health-Care-System-2019-FINAL.pdf

 

 

Vermont Employee Retirement Benefits: 4. Vermont’s Pension and Other Post-Employment Benefit Liabilities 2018

The Vermont state government’s largest set of liabilities relate to pensions and other post-employment benefits.  Over the last two years, these liabilities and their annual costs have increased sharply. This article will outline the extent of these liabilities and the reason they continue to grow.

There are four major state sponsored programs that will be discussed below, as follows:

  1. Vermont State Retirement System
  2. State Teachers Retirement System
  3. Vermont State Post-Employment Benefits Trust Fund (“VTOPEB”)
  4. Retired Teachers Post-Employment Benefits Trust Fund (“RTOPEB”)

The Vermont State government is fully responsible as the “employer” for all of the above programs.  The state government also manages the Municipal Employees Retirement System, but the underlying financial obligations lie with the various participating municipalities.

Growing Liabilities

The Vermont State Retirement system and the State Teachers Retirement System are both defined benefit pension plans with very large dedicated investment funds.  The two Other Post Employment Benefit programs have only small investment funds and are basically pay-as-you-go schemes providing retiree health insurance.  The chart below shows the net liability of these programs: the amount by which total estimated liabilities exceed any investment funds.

Net Retirement and Post-Employment Benefit Liabilities ($ millions)

Plan Fiscal Year 2016 Fiscal Year 2018 Change
Vermont State Employees Retirement System 661.9 767.1 105.2
State Teachers Retirement System 1309.5 1510.7 201.2
VTOPEB 1,144.5 1,218.5 74.0
RTOPEB 677.9 954.3 276.4
TOTAL 3,793.8 4,450.6 656.8

Source: Vermont Comprehensive Annual Financial Report Fiscal Year 2016 and 2018

As outlined above, the total liabilities of these four programs have increased by $656.8 million in just two years. The increase alone almost equals Vermont’s total direct state debt.

The annual cost to Vermont is also increasing, as follows:

Annual State Government Contributions to Retirement and Post-Employment Benefits ($millions)

Plan Fiscal Year 2016 Fiscal Year 2018 Change
Vermont State Employees Retirement System 54.3 64.6 10.3
State Teachers Retirement System 73.2 110.4 37.2
VTOBEB 32.5 33.0 0.5
RTOBEB 16.4 29.8 13.4
TOTAL 176.4 237.8 61.4

Source: Vermont Comprehensive Annual Financial Report Fiscal Year 2016 and 2018

Why Are the Liabilities Increasing?

Over the last two fiscal years, the actual cash inflows into the two pension funds were positive.  The sum of employer contributions, employee contributions and investment returns exceeded the total benefits paid out.  All things being equal, this would have the effect of reducing the pension liability.

With respect to the two OPEB programs, these are largely pay-as-you-go schemes and the state government simply pays out the exact annual costs. Benefit payments over the last few years have been quite stable.  Again, there would appear to be no reason to increase the underlying OPEB liabilities.

In fact, the pension and OPEB liabilities are determined by actuaries using a wide variety of assumptions to make 25-30 year forecasts (mortality rates, inflation rates, discount rates, cost of living index rates, health care costs, pay increases….).  Every new forecast comes with a new set of assumptions and these changes in assumptions are causing the increase in estimated liabilities.

The financial reports actually keep tabs on the impact of i) changed assumptions, and ii) the difference between expected results and actual results (i.e., wrong assumptions). In the Vermont State Employees Retirement System, changes in assumptions since 2016 added $42.7 million to the liability and the difference between expected and actual results added a further $102.6 million. There are similar outcomes in all the other programs.

Impact on State Payments

In all of these retirement programs, a Board of Trustees is granted the authority, based on the actuaries’ estimated annual state government contribution, to make a recommendation to the Governor that “preserves the financial integrity of the program”.  Guess what? As the actuaries’ estimated total liability increases, the amount of the recommended annual state government contribution increases as well.

Key Observations

The Assumptions Are Wrong: The only certain thing about pension and OPEB liabilities is that the assumptions used to calculate them are wrong.  Therefore, the actual liabilities are either too high or too low. Only time will tell.

The Annual State Payments are Also Wrong: Just like the underlying liabilities, the amount of money the state pays into these programs each year is either too high or too low.  Given the size of the current net liability, historic state payments appear to have been too low.

The Retirees Will Get Their Money: As a retired employee of Vermont, you have nothing to worry about.  You are contractually entitled to your benefits.  No matter how accurate the estimates of the state’s total liability, you will get paid.

Related Articles

  1. Vermont Employee Retirement Benefits: Pensions https://theinformedvermonter.com/debt-liabilities-vermonts-pension-post-employment-benefit-liabilities/
  2. Vermont Employee Retirement Benefits: Health Insurance and Vermont’sTotal Benefit Cost: https://theinformedvermonter.com/vermont-employee-retirement-benefits-health-insurance-vermonts-total-retirement-benefit-cost/

 

 

 

 

 

 

 

 

 

Taxes: 7. Vermont’s 2019 Tax Code Changes

The State government made a number of changes to Vermont’s tax code in 2018, some of which related to the federal Tax Cut and Jobs Act and some of which were politics as usual.  The key changes are discussed below.

Property Taxes

In fiscal year 2018, Vermont had a budget surplus of $55 million as a result of much higher than expected tax revenues.  Through the first nine months of fiscal year 2019, Vermont’s tax revenues are well ahead of last year.  What do you do with greater than planned financial resources?  The obvious options include increasing expenditures, cutting taxes and/or repaying debt.

Well, after an extended legislative session and threats to shut down the state government, Vermont actually increased taxes, mostly on businesses.  The non-residential education property tax rate was increased 2.9%% to $1.58 per $100.

Some other changes were also made to Vermont’s education property tax, designed to increase collections.  First, the upper limits of home values eligible for property tax income adjustments were lowered.  The maximum property tax income adjustments available were also changed.

Income Tax: Social Security Benefits

Vermont did manage one clear tax reduction.  Having been one of only 13 states taxing Social Security benefits, Vermont now has large tax exemptions for Social Security.

Based on income thresholds, up to 85% of Social Security benefits are taxable at the federal level.  The federal taxable amount flows through as adjusted gross income to Vermont.  Under the new tax code, joint filers with income up to $60,000 will be fully exempt from state tax on Social Security.  There are reduced exemption rates above $60,000 and no exemption at all above $70,000.

Amendments Related to the Tax Cut and Jobs Act

As briefly discussed in the prior article, the Tax Cut and Jobs Act increased the Standard Deduction and eliminated Personal Exemptions.  The combined effect of these changes was estimated to be an increase of $30 million in Vermont personal income taxes.  In 2018, Vermont changed its tax code in an attempt to neutralize these federal tax code changes.  In particular, Vermont did the following:

  1. Vermont changed its jumping off point from the federal tax return from Taxable Income (income after all deductions and exemptions) to Adjusted Gross Income (income before any deductions or exemptions). This aligns Vermont with the majority of other state governments in the country and provides Vermont with much greater flexibility to manage its own tax base.
  2. For state tax purposes, Vermont now has a $4,140 personal exemption for all eligible family members.
  3. For state tax purposes, Vermont has its own Standard Deduction ($12,000 for joint filers).
  4. Charitable donations are only deductible to the extent taxpayers itemize deductions. By doubling the Standard Deduction, the Tax Cut and Jobs Act greatly reduced the number of taxpayers who would itemize deductions, thereby limiting the ability to deduct charitable contributions.  Vermont has offset this by creating a 5% non-refundable tax credit for charitable donations up to $20,000, available to all state taxpayers whether they itemize or not.
  5. The Tax Cut and Jobs Act changed the method for determining the annual limits for Earned Income Tax Credits (“EITC”), having the effect of slowing the growth rate in these tax credits. In reaction, Vermont increased the State Earned Income Tax Credit from 32% of the federal EITC to 36%.
  6. Last, there was a very modest reduction in Vermont’s personal income tax rates, about 0.20% across the various brackets and the number of brackets were reduced.

Vermont was one of many states that adjusted their tax codes in response to the Tax Cut and Jobs Act.  The key objective was to prevent an inadvertent tax increase by way of rule changes at the federal government level.  It looks like Vermont has largely accomplished this.

There could be some short-term problems for individuals, businesses and the State government as everyone comes to terms with the new tax codes.  Tax witholding rates and estimated tax payments could prove to be too high or too low.  Presumably, most of these issues will get resolved over the course of the 2019 tax cycle.

Key Observations

Winners:  There are some 158,000 Social Security beneficiaries in Vermont. Some meaningful portion of these Vermonters will see their tax bills go down in 2019 and have a bit more money to spend as they themselves see fit.

Losers:  There are over $41 billion of non-residential properties in Vermont. The owners of these properties, many of which will be Vermont businesses, will see their property taxes increase by 2.9%, or over $18 million in the aggregate.