Around this time last year, the Democratic leaders of the Legislature outfoxed Gov. Jim Douglas. Using their big majorities, they passed a budget that cut spending (but not as much as Douglas wanted) and raised taxes (by more than he wanted, which was not at all).

He vetoed the budget. The Legislature overrode his veto, by a big margin in the Senate, by just enough in the House. Big win for House Speaker Shap Smith of Morrisville and Senate President Peter Shumlin of Putney.

Fade out. Fade back in to now. Douglas is outfoxing the Ds.

Maybe not for long. This is a play with several acts, and before it’s over, Shumlin and Smith could be singing a happy finale while the Gov, a la Tosca, leaps to his (political) demise off the top of the Golden Dome.

For the moment, though, Douglas is playing the part of the leading man (if not exactly a matinee idol) while the Democrats make like a slapstick comedy troupe. Friday morning, Shumlin and Smith said they were confident about ending the session by Saturday as they and their committee chairs neared agreement on taxes, school consolidation, and the “Challenges for Change” process. They were striding toward both adjournment and success.

Then Douglas pulled the rug out from under them.

He didn’t like what they had agreed on, he said, even though they had stripped out one small tax increase he opposed. While he didn’t exactly threaten another budget veto, he…well, he sort of threatened another budget veto.

The timing was interesting. Douglas didn’t express a single policy position he had not expressed before. From the beginning of the year, for instance,  he had called on the lawmakers to repeal the increases in the capital gains and estate taxes they passed over his veto last year. But until Friday, he had not hinted that he might veto the budget over this issue.

Now he did, using a more confrontational tone, perhaps because he no longer  had to be as accommodating. Earlier in the week, he and the Democratic leaders had agreed on a plan to shore up the state’s Unemployment Insurance fund. It was a compromise, but a compromise notably closer to what the Governor and the business community wanted than to what the Democrats and organized labor wanted.

So now it was no more Mr. Nice Guy?

No, that would be going farther than the evidence supports. So far, both sides are playing Mr. Nice Guy because it is in their interest. If Douglas seems to be strutting and bullying, he risks uniting the Democrats against him. To keep the support of some of their wavering members, the Democratic leaders have to appear to be willing to negotiate and compromise. That makes it easier for them to paint Douglas and the Republicans as the obstinate side in this dispute.

Still, while nobody was making predictions, Douglas seemed to be operating on the assumption that this time the Demos don’t have the 100 House votes they’d need to override a budget veto. (The Senate, with its 23-to-7 Democratic majority, would almost certainly override).

And for the moment at least, the Governor seemed to be right. Otherwise, the Democrats might not have agreed to drop the full implementation of the state’s share of a federal deduction for manufacturers, and then also give up on ending the sales-tax free status of dietary supplements. Democratic leaders of the House were walking around with sheets of paper listing the names of the Democratic members who might not support overriding the veto. These members, it can be assumed, were being pleased, prodded, placated, and pled with by those leaders.

But also by Douglas and his associates.

To override, the Democrats would have to get the votes of all 93 members of their caucus, all six Progressives, and at least one of the three independents. They can probably count on one of the independents, Rep. Paul Poirier of Barre, but at this point they are not sure about all the Progressives.

On straight policy grounds, the Progressives would be considered certain to vote with the Democrats. But Democratic leaders are wondering these days whether some of the Progs have political or personal agendas that might impel them to vote with Douglas, as much as they disagree with almost everything he does.

The Dems could give up on the depreciation and dietary supplement taxes because they wouldn’t produce that much revenue. But the bigger tax cuts the Governor wants in the estate and capital gains levies would be harder for the Democratic leaders to accept. Those taxes bring in some $21 million a year, and cutting that revenue would require more budget cuts than the ones already made under both the regular budget process and the “Challenges for Change” enterprise, which is supposed to make government more efficient, but which also requires some straight-out spending reductions.

So if you hear hints that Legislative leaders are thinking about even scaling back those taxes, you can assume they’re having trouble getting enough commitments to override.

But then it would also be a mistake to underestimate the extent to which all the statement pro and con are theatrical. This end-of-session positioning – not just in Montpelier, but also in Albany, Austin, Sacramento, Cheyenne, or the big one down in D.C. – is also posturing. It is, to use the term of Notre Dame political scientist Robert Schmuhl, stagecraft as well as statecraft, an artificial production in which the script calls for all performers to talk tough until they arrive at a harmonious compromise.

Or don’t.

Because no one should be surprised that Douglas and his associates are pushing their agenda as hard as they can. This is Douglas’s last budget, and therefore his last chance to advance his basic policy outlook: less government spending in general, less education spending in particular, lower taxes on business and upper-income earners.

Nor should anyone be surprised if, as many Democrats suppose, some of the Governor’s associates are pushing that agenda even harder than he is. They can’t be confident that Lt. Gov. Brian Dubie will hold the governor’s office for the Republicans.

For instance, in a detailed, 13-page letter to the Legislature on May 3, Finance and Management Commissioner James Reardon (pirated here from the valuable VT Digger web site; it seems not to be on the state government’s site)) claimed that the Legislature’s budget was based on “an unstable foundation of higher taxes and deferred spending decisions which threaten the long- term viability of the State’s economic engine.”

Referring to the tax increases adopted last year, Reardon wrote that “businesses have been clear that these taxes are hindering growth and the necessary reinvestment in our economy essential for its growth. Rolling back these taxes is a critical first step to getting Vermont on the path back to fiscal health.”

The reality that there is at this point no evidence that Vermont’s growth has been hindered by anything at all except for the nationwide Recession is irrelevant here. Reardon’s letter was a political document, part of the end-of-session theatrics, not a dispassionate fiscal report.

What seems not to have been part of the discussion is the possible broader political impact of this squabble, and here the Republicans might face worse consequences than the Democrats. In addition to insisting on repeal of those taxes, Douglas also wants the Legislature to require school districts to consolidate, as opposed to merely suggesting and providing financial incentives for consolidation, as the Democrats propose. There may be broad agreement that Vermont’s 280 school districts are too many. But imposing consolidation by state law violates the “local control” so central to the state’s self-image (even if it may not really exist any more, a subject for another day). And spending less on schools or on the mentally handicapped in order to cut taxes on wealthy individuals is always risky politics.

Media Note: This web site occasionally critiques Vermont’s major news organizations such as the Free Press or Channel 3 because they’re important and because they’re big boys; they can take it. It has not bothered with St. Johnsbury’s Caledonian-Record because it is neither and because critiquing it could be a full-time job.

But some entries are too ridiculous to ignore. Such was the Cal-Rec’s lead story on Saturday: “Angels Say Clyde River Hotel Houses Spirits.”

No, reporter Robin Smith did not claim to be quoting literal angels, just the owners of East Coast Angels Paranormal Investigations, a Connecticut-based outfit to whom the owners of Island Pond’s Clyde River Hotel seem to have paid American money (though only expenses) after hearing strange noises in the 144-year-old building.

There’s a good story in there somewhere, and the reporter did note that perhaps the owners are talking openly about their haunted hotel because they could use the publicity. But the minimum requirement here is at least a smidgen of skepticism that  anything ever really haunts houses (or hotels), or that the kind of “spirits” the East Coast Angels folks said they discovered actually exist. There was no such smidgen in the story.

Note to the Cal-Rec: Next time you quote a fellow bragging about his degree in “demonology,” you might point out that demonology is not a recognized academic discipline.

Some time today, the Douglas Administration and the leaders of the Legislature either will or will not reach agreement on how to restore Vermont’s depleted Unemployment Insurance Trust Fund.

If they do agree, the Legislature will pass a bill that Gov. Jim Douglas will presumably sign.

If they don’t, the Legislature will pass a bill anyway, effectively daring Douglas to veto it.

According to sources privy to the negotiations that went on most of Thursday, Douglas is holding out for a compromise that cuts unemployment benefits more than the Democrats are willing to cut them.

But even without an agreement, it might be politically difficult for Douglas to veto whatever the Legislature passes. It’s the Governor, after all, who has been insisting for months that the UI Fund has to be made solvent immediately, if not sooner, to avoid fiscal catastrophe.

Actually, the state and its unemployment compensation system would survive if the Legislature went home without doing anything about the UI Fund. No matter what the lawmakers and the Governor do, the Fund will still be broke next year, and the year after that, and the year after that.

But Douglas is right when he argues that it would be better to put the Fund back on the road to solvency sooner rather than later. To pay unemployment benefits, the State is borrowing from the Federal Government. Without paying interest this year. Next year, the interest payments start. The longer the Fund is in arrears, the longer the borrowing will go on, and the more the interest payments will add up.

State officials have known this problem was pending for at least a year. As is common in the political world, they got serious about solving the problem about a month ago.

Well, what was the hurry? After all, the actual numbers involved aren’t that huge, so this seemed the kind of dilemma that could easily by worked out. It would require tiny tax increases on businesses. Or maybe, according to one proposal, even tinier – and temporary – tax increases on all workers. And perhaps some modest reductions in the benefits paid to the unemployed.

That would indeed sound like an impasse almost begging to be solved by reasonable compromise. But only for those who do not know the history of this issue, and the explanation for how Vermont got into this pickle in the first place.

Happily, the explanation can be brief: Vermonters were dumb, dumb, dumb, dumb. They were boneheaded. Or perhaps fatheaded. They erred.

And this was all of them.  Not just the Republicans or the Democrats, or business or labor, or the Administration or the Legislature. Everyone.

The financing of the Unemployment Insurance Trust Fund is very complicated, but the dumbness was very simple. The fund is financed by a small tax on employers, a percentage of only the first several thousand dollars of each workers’ pay. It’s called the Taxable Wage Base.

Last year the Legislature and Douglas agreed to raise that base from $8,000 to $10,000. That was actually not dumb. What was dumb is that until last year the Taxable Wage Base had not gone up for 25 years.

Twenty-five years of economic growth, including higher wages and higher prices. Considering that unemployment benefits are supposed to comprise a respectable percentage (roughly 40 percent) of the unemployed person’s pre-layoff wages, any fool would know that the Fund that pays those benefits would have to keep growing, too, or else it would run dry the next time unemployment rose.

Any fool but these Vermont fools.

In 1983, according to figures compiled by the National Employment Law Project (a liberal group, but its numbers are reliable) almost half of all wages were subject t UI taxes. By 2008, “the ratio of total wages to taxable wages had fallen to roughly 25 percent,” the Project found.

For this foolishness there are two explanations, one at least as old as the Tulip Panic (circa 1637), the other more recent.

The first is humankind’s incurable delusion that good times will last forever, so why plan for bad times? Businesses didn’t want to pay any more, politicians didn’t want to raise anybody’s taxes, and Organized Labor was happy enough because the jobless benefits kept rising. We could all afford it; hardly anybody was unemployed, anyway, so they could get generous benefits.

The second – more contemporary – delusion is that all tax increases, no matter how tiny, are always a mistake that will suppress economic growth. In this case, the tax amounts of 0.89 percent of total wages in 2009, according to George Wentworth, the project’s Unemployment Insurance Modernization Coordinator.

To their credit, Vermont business leaders (and the Governor who is usually allied with them) now realize that they should have agreed to small UI tax increases several years ago, and are willing to pay them now. Ironically, there is a better argument that even these tiny tax hikes will suppress economic growth during a recession, though they would have been an unnoticeable blip earlier.

Well, if the business community and Douglas are willing to accept higher UI taxes, what’s the problem?

The problem is that they also want lower unemployment insurance benefits. And they want these lower benefits to be permanent, so that unemployed workers in Vermont will continue to get less money per week forever.

Not necessarily less than they get now, but less than they would get under current law.

To labor advocates, such as Christopher Curtis of the Vermont Legal Aid Society, these proposals mean the Douglas Administration is “using the present (Trust Fund) crisis to reduce benefits far beyond the level needed to restore (the Fund).”

That’s true, not because Douglas, Labor Commissioner Patricia Moulton Powden and other officials are heartless beasts intent on starving the working class. It’s because they are convinced that some workers are gaming the Unemployment Insurance system, preferring to stay home and live off their benefits rather than trying to get another job.

“The Governor says some people work six months a year and then go to Florida,” said someone familiar with the negotiations going on between the Administration and the Legislative leaders.

Obviously, there are such people. There do not, however, appear to be very many of them, and the belief that large numbers of people would rather lie around and collect unemployment benefits than work for a living, while widespread, seems rare in, if not absent from the peer-reviewed economic literature.

In fact, a recent study by economists at the Federal Reserve Bank of San Francisco concluded that recent extension of unemployment benefits had only a “modest effect” on total unemployment. Extending benefits, to be sure, is not identical to the generosity of benefits. But Vermont’s aren’t all that generous. The average weekly benefit of $304 is 25^th in the nation, and the $425 maximum ranks seventeenth.

Besides, concluding that many people would rather earn less money than more money is something of a refutation of a basic tenet of capitalism, which rests on the premise that individuals rationally pursue their economic self-interest. Deliberately deciding to cut one’s income by more than 50 percent does not seem a rational economic pursuit.

If anything, Vermonters stay on unemployment less workers in other states. The average length of stay in the system has been 14 weeks, though Powden said it had recently ticked up to at least 15 weeks. Very few unemployed Vermonters stay on the unemployment rolls for the 26 week maximum. Most unemployed Vermonters, it seems, want to go back to work.

From one perspective, then, the Administration might be trying to solve a problem that does not exist. But Powden said that because Vermont has a high proportion of seasonal workers (ski resorts, and all that) some people are “utilizing the system to their advantage,” and “may choose unemployment” for part of the year thanks to Vermont’s “fairly generous benefits.”

She acknowledged that she was describing less than 10 percent of those who receive benefits, but said perhaps some of the seasonally unemployed “who know their job is coming back maybe should be getting a lower amount” to create “an incentive to get back to work.”

The problem seems to be that most of the formulas that will lower those benefits would also lower the benefits of many workers who don’t know their job is coming back, and are already trying as hard as they can to find work. The negotiators were seeking what one of them called “creative ways” to threat that needle.

But first, some correction and amplification:

Until about 1:15 PM Friday, readers of Friday’s post may have understood that the State Senate was toying with the idea of diverting $6.89, otherwise known as six dollars and eighty-nine cents, from one fund to another.

Presumably most readers of this web site are alert, more alert in this case than is, at least sometimes, the writer of this web site, and understood that what the meant was $6.89 million.

But what’s few zeros among friends? And thanks to the readers who noted the omission.

Also, Sen. Ann Cummings is chair of the Senate Finance committee, not, as Friday’s post said (again, until corrected), the Appropriations Committee. Susan Bartlett is Appropes chair.

Something else was absent from Friday’s post because it was not clear on Thursday, at least not to the News Guy, and apparently not to many legislators. That $10 million to be raised by considering some capital assets – expensive houses, stocks and bonds, etc. – when applying the “income sensitivity” provision on the statewide school property tax is not slated to go into the Education Fund.

Instead, for the first time, money from the school property tax would go into the General Fund.

Like any policy change, this one might be defensible, or even wise. But it does stretch if not violate the understanding that the school property tax would be used to support the schools, not the rest of state government. It’s only $10 million, but when it comes to taxes, experience shows that the first exception is rarely the last.

Now, to today’s main order of business, also inspired by readers who have communicated by email, old-fashioned phone calls, and even older-fashioned personal conversations (you may remember them; the kind where the conversers are actually in the same place at the same time).

The question: why, right after the entire United State Government adopts a comprehensive change in the health care financing system, is the Vermont Legislature passing a bill to study comprehensive change in the state’s health care system?

Good question, because it can be answered with one word: politics.

That’s a description, not a condemnation. Politics, the method by which free people govern themselves, is not a pejorative. It’s a reality.

The political reality against which lawmakers have based their political decision to pass S.88 http://www.leg.state.vt.us/docs/2010/bills/Senate/S-088.pdf (in separate House and Senate versions that have yet to be resolved) is that Vermont is home to a politically significant  minority of voters who are convinced of the superiority of a ‘single-payer’ health care financing system—basically Medicare for everyone.

No, that was an understatement. These folks are not merely convinced of the superiority of a single payer system; they are committed to such a system with a fervor approaching that of a religious zealot’s  devotion to his faith, with comparable intolerance toward dissent.

This too is description not (except for the intolerance part) condemnation. Clearly, there is a case to be made for a single-payer system. It is how most civilized (prosperous, democratic) countries finance health care. In those countries, everyone is covered, they live longer, healthier lives than Americans, and it’s all done for a lot less money per person.

The focus here today. Though, is not on the policy, but on the politics, the first requirement of which is, in the words of  Richard J. Daley to “know how to count,” raising the question of how big is this constituency of single-payer enthusiasts.

Not very. Nobody has polled on the matter, but we are almost surely talking about less than 10 percent of the adult Vermont population, though probably more than five percent. For purposes of discussion, then, let’s say seven percent, or about 20,000 voters.

Ah, but it’s a strategically positioned seven percent. Just about every one of them identifies with either the Democratic or the Progressive Parties. Furthermore, just about every man (and woman)-jack of them will vote. Unless the Progressive Party puts up its own candidate for governor, most of them will vote in the Democratic primary in August. In what is likely to be a low-turnout election, this faction will make far more than seven percent. It could come close to a majority.

Obviously, then, two outcomes Democrats – and especially Democratic candidates for governor — want to avoid are: (1) Displeasing these primary voters and (2) Annoying the Progressives so much that they decide to find a gubernatorial candidate of their own, who would siphon off more votes from the Democratic contender than from Republican, Lt. Gov. Brian Dubie. Months ago the Progs declared that Democratic support for a single-payer health care system was among their sina qua nons for staying out of the race.

So it should be no surprise that Sen. Doug Racine, one of the five Democrats running for governor, introduced the bill to engage a consultant to study health care reform, with specific directions to look into the single-payer option. No surprise either that few Democrats opposed it.

There is no suggestion here of insincerity or cynicism on the part of Racine or the other Democrats. Racine has long been a single-payer proponent. He no doubt thinks it would benefit Vermont, and he could be right.

(Or not. If there is a strong case for the entire nation to adopt a single-payer system, there is an equally strong case for a single state to avoid it, for reasons to be discussed in another post soon).

Nor is the earnestness of other Democrats and Progressives in the Legislature open to doubt. Judging from a couple of overheard conversations outside the second floor cafeteria in the Statehouse the other day, some of them are so solemn and intense about the subject that they may have lost touch with reality.

But sincerity and political self-interest are not mutually exclusive, and there seems little doubt that whatever else they may be doing, the Democrats are pandering to one of their core constituencies. Absent that intense minority of single-payer enthusiasts, this bill might never have come before the Legislature.

Again, this is observation, not condemnation. All political factions pander to constituencies. Gov. Jim Douglas, for instance,, has of late been pandering to the home builders and the all-terrain vehicle riders. Politicians not only have to pander, but up to a point they should. It’s part of democracy.

The point at which they should not pander, of course, is reached when the interest of the pandered-to constituency is actually contrary to the public interest. But that does not seem to be the case here. The worst that can be said about this consultant study is that it will spend $250,000 that may not have to be spent. As unnecessary expenditure, this is small potatoes, and for a function likely to be more productive than the comparable expenditure on the pointless pornography-detecting software the Douglas Administration is in the process of installing on state computer systems.

Besides, the process might do some good. The consulting firm is likely to look at the possibility of replacing the fee-for-service method of paying doctors. Many health care economists consider fee-for-service second only to the high price of prescription drugs as an explanation for why health care is so much more expensive in the U.S. than elsewhere.

But the consultant report will not pave the way for Vermont to adopt a single-payer health care system. That’s because Vermont, on its own, is not going to adopt such a system, not now, and possibly not ever. Federal law forbids it until at least 2017, and while Congress could theoretically grant the state a waiver from the prohibition, the prudent Vermonter would be advised neither to hold his/her breath nor to bet next month’s mortgage payment on that outcome.

The real – if not, it should be stressed, the intended — purpose of this legislation is not to change Vermont’s health care system. It is to send a signal to a small but potent constituency. It seems to have worked.