Broad-Based Vermont Stealth Tax to Increase 19% February 1

Governor Peter Shumlin defines a broad-based tax as "any tax that affects all Vermonters" according to Burlington Free Press reporter Nancy Remsen. For good reason, he has promised not to raise such taxes.

But the State of Vermont has other ways to take money from our pockets and transfer it to programs and organizations it favors. We all pay an "energy efficiency charge" as part of our electric bill. This energy efficiency charge is used to fund an organization called Efficiency Vermont (EV), whose mission is to help us reduce our energy usage. Currently the charge is .773 cents per kilowatt hour (kwh) for residential customers; if you pay the typical Vermont rate of .16 cents per kwh, you are actually paying .fifteen and a quarter cents to your utility and about three quarters of a cent to EV; this is equivalent to a 5% stealth tax on your electric bill.

On February 1, 2011 this fee will increase to .918 cents per kwh, almost a 19% boost in the amount each of us involuntarily pays to EV, which, of course, supports a higher rate of spending by the organization, while the rest of the state –public and private – are squeezing budgets down.

This is NOT a broken promise by Governor Shumlin, even if you agree that money diverted from our pockets to a government purpose is a tax whether it flows through the state coffers or not. This increase was programmed before he became governor. This stealth tax is not even set by the legislature; instead, there is a Vermont law which requires the Public Service Board to set a rate which funds the anticipated activities of EV.

This procedure means that the merits of spending taxpayer (OK, ratepayer) money to finance EV programs, such as buying down the cost of compact fluorescent lights and running cute TV ads showing the curly bulbs bellied up to a Western bar, don't get debated alongside the other tough decisions that have to made about taxpayer money. Maybe EV's programs would survive such a process; maybe they wouldn't. But it's very bad government to have spending off the books or to have a stealth tax which can increase without the benefit and public scrutiny of legislative process.

Is there any movement in the legislature to correct this? to get this part of the budget under control? to protect Vermonters from future increases in this broad-based fee? Not that I know of! Worse, since this is such a bad time for raising taxes, the legislature is reportedly considering adding some more stealth taxes to our electric bills to fund programs it doesn't dare put directly into the budget.

According to Art Woolf writing on vermonttiger.com and quoting an offline legislative roundup from Downs Rachlin and Martin, the House Natural Resources and Energy Committee is considering increasing our electric rates further in three different ways – perhaps all of them together:

1. Instructing the Public Service Board to require utilities to buy more renewable energy at above market prices through a mechanism called a feed-in tariff and recoup the costs through higher electric rates.
2. Funding the Clean Energy Development Fund (CEDF) with a $1.50/month surcharge on retail electric bills. CEDF has been funded by payments from Vermont Yankee and Stimulus Funds; the Yankee funding will disappear if the plant is not relicensed and the huge dollop of Stimulus money was a onetime thing and has mainly been allocated. Disclosure: I am on the Board of the CEDF; however, I think the case for more funding remains to be made and, even if there is to be more funding, it should come only through straightforward appropriation, not another stealth tax on electricity users.
3. Requiring utilities to purchase one-third of their peak load from instate renewable sources by 2022. Even if this were possible, it would be at an incredibly high cost (although at great benefit to the renewable-industrial complex). Ironically, we are on course to shut down the only practical instate source for a third of our energy.

The practical effect of larding up electric bills with stealth taxes is the same as any broad-based tax increase; it will damage the Vermont economy both by discouraging industry that needs power and making it more expensive to live here. This particular stealth tax is highly regressive and hardest on low and middle income Vermonters. Targeting electric bills ought to be anathema to environmentalists and everyone else since a high price for electricity means less use of clean electricity from sources like HydroQuebec to displace imported oil.

Most important, stealth taxes are bad government. Spending priorities and the money available to meet them need to be debated openly. Hopefully Governor Shumlin will interpret his promise to avoid increasing "any tax which affects all Vermonters" to include stealth taxes and convince his legislative colleagues not to pass new ones and to undo the old ones.

Related posts:

Stealth Taxes

The End of the Age of Incentives