Is anyone else astonished and befuddled by the news that we have a $20 million surplus in the state Education Fund?

Everywhere, we are being hit by the impact of a growing recession.

We are facing $60 million or more in general fund deficits that will extend well beyond next year, resulting in layoffs that will further endanger a fragile economy as the ripple effect drives down commerce and tax revenues. We stare at closed bridges and crumbling pavement, with the Transportation Fund also sputtering from the drop in anticipated revenues.

States are looking for a federal bailout (a.k.a., an “economic stimulus package”) but if it comes, it will be fictional money that comes with a payback via future inflation.

But Vermont has $20 million it doesn’t know what to do with?

Odder still, perhaps, is the source: it comes from higher than projected revenues from the “purchase and use tax,” which comes from the sale of cars. After all, our three biggest U.S. automakers are on the brink of collapse. We may be buying foreign cars...but enough to create a tax surplus?

And now, a public debate on whether it should go back to property taxpayers (because it is the Education Fund, which is mostly built on property taxes), or to the Transportation Fund (which is cash-starved, and is the fund “entitled” to motor vehicle purchase taxes)?

Time for a reality check.

First, it doesn’t come from everyone buying cars to stimulate the economy during a recession. It comes from cars that were bought last year before the news of economic collapse.

That means it is one-time money. It doesn’t reflect a new revenue trend we can expect to see repeated.

Second, be very careful about what you hear about whether it is “Education Fund” money or “Transportation Fund” money, because the bickering will be about which fund is raiding the other. (If Transportation was short-sheeted for years, is that alone a justification for payback from elsewhere?)

Streams of funding are channeled by statute from an array of revenue sources into specific pools of money that are intended, by public policy, to be spent a specific way. If one of those pools is running low, and siphons revenue that belongs in another pool, that is a “raid” created by the way the budget is passed that year. It violates the intent of the tax or fee source.

If a revenue source that is usually connected to a certain kind of spending – gas tax for transportation, property tax for education – has actually been directed by statute to somewhere else from the beginning, it isn’t necessarily a raid.

It is all money going from our pockets into funding needs in the state that the legislature has to prioritize, so does it matter which comes from where?

Yes. It matters because the way it is raised differs in how the cost is spread among the state’s citizens, and that is all about fairness, and how we define it.

Revenue from fines, for example, come only from those who have violated laws. Sales taxes hit everyone equally regardless of wealth, but may differ in impact based on whether they are charged on essentials, such as gas, or non-essentials, like alcohol. Income taxes can be structured so that those who earn more, pay a higher percent of what they earn. Property taxes affect those with ownership, regardless of what they earn.

That is a simplistic overview, but it is the reason that there is so much divisiveness over which funds pay for which state expenses.

In the case of the bonus $20 million, the specific source is a tax that was created under Act 68, the so-called reform of Act 60. That statute attempted to “clean up” some of the different funding streams that were divided into multiple brooks, and particularly to redirect some in ways closer to original intent – such as transportation-related revenues going to transportation-related spending needs.

It also attempted to ease the property tax burden through revising what funding streams contributed to the Education Fund. This was when our state sales tax went from five to six percent.

Another specific additional tax was the addition of one percent to the “sales and use” tax, directed into the Education Fund. That is what came in at a higher-than-projected level this year into the Ed Fund.

Would redirecting this extra (transportation-related) revenue this year to spending on transportation needs be a raid that violates the state’s commitment to property taxpayers about how much the sources for education money are balanced?

If it does violate it, if that is where the need is, should we redirect it there anyway?

Should we just say that the source doesn’t matter at all when it’s something “extra,” and simply use it where it is most needed in our desperately stressed budget?

Should we say that if it is Education Fund money, the excess must be returned to taxpayers? (In the anxiety over reduced revenues, we cannot forget that money in taxpayer pockets usually helps generate more revenue when it gets spent.)

One creative suggestion has been that it be used towards the $50 million in school construction money that we (the state) owe various towns, and can’t afford to pay off out of the current capital budget. This was money we already promised, for capital construction already completed. Those local taxpayers are paying interest every year on the loans that are covering the state’s lack of payment.

It certainly seems to be an oxymoron to be struggling with what to do with extra money in the midst of huge budget deficits, but here we are. I am very interested in public comment on how to balance the equities involved.

As we enter a new legislative session in January during a time of increasing financial crisis, I hope more than ever to hear your voices on what the state’s priorities should be. Your thoughts on this and other topics are welcome. You can always email at counterp@tds.net or leave a phone message at 485-6431. This and past updates are also now accessible on my blog, http://annedonahue.blogspot.com.