In the matter of this “Challenges for Change” business, let’s first of all deal with the obvious question:

Is it an innovative, visionary concept that can truly “reinvent government,” enabling it to perform its necessary services at a lower price?

Or is it a fraud, a boondoggle in which almost $300,000 (yours) was spent to produce a document full of hackneyed prose designed to paper over an Executive Branch power-grab and the demolition of state services to the needy and helpless?

And here is the answer: Yes.

If that answer suggests that this is a complex subject, it suggests correctly. So complex that it will be examined here in two parts, today and Friday (for now; quite possibly there will be more next week).

The bi-polar quality of the “Challenges” dispute was summed up yesterday by a veteran statehouse operative who said, “the Democrats hate it because they think it gives the (Douglas) Administration too much power. The Republicans hate it because they think it doesn’t give the Administration enough power. If everybody hates it, maybe it’s a pretty good plan.”

Maybe. And maybe, like so many topics of partisan and ideological contention, it will end up neither doing as much good as its advocates claim nor as much harm as its opponents fear.

A little context: Though Democrats (and their non-governmental liberal constituencies) seem more opposed to the “Challenges” approach than the Republicans, the whole thing was mostly a Democratic idea. It was Democratic leaders of the Legislature who hired Public Strategies Group, the Minnesota-based consulting firm whose mission, according to its web site is to “transform government.”

PSG didn’t come on board until this year, but the idea, according to several lawmakers in both parties, was hatched last year, not long after the Democrats defeated Republican Gov. Jim Douglas in the Great Budget Battle of 2009. Last spring, ending weeks of rancorous partisan confrontation, the Legislature over-rode Douglas’s veto of the budget bill – something that had never before happened in Vermont – and imposed their own budget, which combined spending cuts with the tax increases Douglas bitterly opposed.

Even though they won, the Democratic leaders didn’t want a repeat performance this year. First, few people take pleasure in confrontation. Second, the Democrats couldn’t be certain they’d win again. Finally, they didn’t want to raise taxes again because (a) politicians rarely want to raise taxes; and (b) this is an election year, and one of the Legislative leaders, Sen. Peter Shumlin, is running for governor, portraying himself as a “fiscal conservative” who believes “Vermonters are taxed to the max.”

(Not all Democrats agree. Hold this thought for a few paragraphs).

Facing a $150 million deficit, the Legislature had to look into almost any plan to save money. This one, promising to allow the state to “do more with less”, seemed ideal to the Democrats. They could cut the budget without gutting state services. It seemed too good to be true.

As usual when anything seems too good to be true, it was.

The report says it will allow the Legislature to “deliver desired outcomes for $38 million less in general funds,” but it doesn’t really say how.

Or, to be both fairer and more precise, it sort of says how. At one point, for instance, it asserts that the Department of Liquor Control will produce “additional revenue for the general fund through increased sales” (partly through, “a gift card program generating $50,000 in new revenue the first year.”

Oh it will, will it?

As if it were a deity issuing  cosmic edicts, the “Challenges for Change” report declares that certain outcomes will be reached, asserting, for instance, that because of its recommendations, “Phosphorus in Lake Champlain is decreased.”

By magic? For the past decade or so the state has spent tens of millions of dollars to decrease phosphorous in Lake Champlain, which keeps increasing.

Or take the Administration’s  explanation of how it plans to save $1.3 million from the Reach Up (what used to be called welfare) program. At a meeting yesterday of the Senate Health and Welfare Committee, an Administration official said the money would be saved by removing recipients from the welfare rolls because they’d get jobs. “because they’re entering employment.”

Sen. Doug Racine, the committee chairman, was not convinced. There is, he noted, a recession, and assuming that hundreds of Reach Up recipients would find jobs “seems counter-intuitive to me.”

Racine (refer here to the italicized sentence above) is one Democrat who is not enthusiastic about the “Challenges for Change” plans. He is also another Democrat who is running for governor, and it will be interesting to see how this plays out when the Senate takes up the Legislation, possibly next week. Racine might try to lead a fight against adopting the plan, hoping to paint Shumlin as too willing to compromise with Douglas.

Whatever else it ends up doing, the “Challenge” policy is all but certain to  reduce school spending, weaken– maybe a little, maybe not such a little – the social safety net, and tinker with environmental regulation. Opposing such outcomes is likely to appeal to Democratic primary voters.

But the “Challenges report also offered some realistic money-saving suggestions. In a way, hiring a consultant is like hiring an editor; it’s ‘another pair of eyes’ to look over your work. An outsider can more easily take a look at a process or procedure and point out another way to do it, perhaps a way to achieve the same ends for less money. “Doing more with less.”

It’s true that some of the suggestions are just plain common sense, raising the question of why they had not been thought of before. It needed a $286,000 consulting fee to figure out about booze gift certificates? But the whole idea of judging state services by their outcomes instead of by their inputs (time and people-hours) has some potential to save money without degrading the quality of the lives of those who need help.

Besides here’s the other part of the context: This is a done deal, or at least it is as done a deal as legislative bodies get. At a House Democratic caucus yesterday, there were plenty of complaints that the lawmakers “delegated our authority” on budget cuts to an Administration that “doesn’t share our values.”

But in February, both houses passed the bill adopting the general outlines – and the projected $38 million in savings –by huge margins, with only three House Republicans and one Senate Democrat in opposition.

In doing so, the lawmakers “booked” that $38 million. The “savings” (such as they are) are in the Fiscal Year 2011 budget. If the Legislature doesn’t adopt the “Challenges” bill, it will have to find the $38 million some other way because there’s still that $150 million deficit.

Except that actually it’s more like a $160 million deficit. Oh, and the “Challenges” bill won’t save $38 million this coming Fiscal Year. It will save more like $20 million.  The rest will be saved by…well, that’s not certain, but here’s a good bet. It will be saved by doing less with less.

Which is just fine with some folks.  On the January day when the “Challenges” plan was unveiled, the consultants from Minnesota came visiting, and Douglas and the Democrats presented a united front of collegiality and good cheer, that “do more with less” phrase was mouthed over and over.

But toward the end of the afternoon, after a small ceremony in the Governor’s ceremonial office, one man responded by saying, “I don’t want to do more with less. I want to do less with less.”

He said it quietly, and he was standing along one side of the room, with no one right next to him, so it’s possible no one paid him any mind.

A bit strange, when you think about it, because the person who said that was, as it happens, none other than James H. Douglas. He had plans.

In his last State of the State address, Gov,. Jim Douglas demonstrated once again that he is tenacious, determined, single-minded, and bold.

And maybe a little clueless?

It was a fairly long (5,917-word, 50-minute) speech to the Legislature, clear if not eloquent in composition, crisply delivered, politely received.

And familiar.

In fact, if some in the audience thought they had heard similar sentiments similarly expressed not all that long ago, they were right. Similar statements had been similarly expressed a year and a day ago in the same place by the same speaker, in his fourth inaugural address.

Leading some to wonder why, early in the speech, Douglas warned his listeners not to “choose to recycle old ideas and hope for a different outcome.”

In this case, the governor recycled some of his old ideas, including several that he’d proposed last year. He didn’t get them then. If he’s hoping for a different outcome this time, he would seem to be ignoring his own advice.

After all, little has changed. It’s the same Legislature that ignored most of his proposals last year and over-rode his veto twice. If anything, the lawmakers are more confident than they were a year ago, especially because one thing that has changed is that Douglas decided not to run for re-election.

In other words, he’s a lame duck. He keeps insisting that he isn’t, though he is, or at least that it has not weakened him politically, which would be a first in the history of the country, if not the world.

So why did he make the same controversial (and probably doomed) proposals again?

Because he really believes in them. Because he’s tenacious and bold. Because he thinks this time he might prevail.

Or because he’s clueless.

As he did last year, Douglas urged the Legislature to set a cap on local school spending. It didn’t. As he did last year (though in slightly less blunt language) he called the school finance system “broken,” implying that the lawmakers should replace it. As was true last year, he didn’t specify what the replacement would look like, leaving that to the lawmakers. Perhaps because most legislators don’t agree that the system (Acts 60 and 68) is “broken,” they came up with no replacement last year. They won’t this year, either.

But Douglas did not stop at recycling his old ideas that were not adopted. No, bulling right ahead with little hope of success, he came up with some new ideas that are almost certainly not to be adopted, as follows:

–Repeal – or at least pledge to repeal in the near future — the capital gains and estate tax increases adopted last year;

–Require teachers to pay 20 percent of their health insurance premiums;

–Trim the “income sensitivity” provision of the statewide education property tax so that middle-income homeowners pay more and the wealthy pay less. (of course, he didn’t word it quite that bluntly, but that’s the gist of his proposal);

–And while this was more a suggestion than a specific proposition, Douglas made clear he thought it would be a good idea if all the teachers emulated state workers and took an immediate three percent pay cut.

(Not an outlandish idea, but unrealistic. The state employees agreed to the cut in their new, statewide, contract. Teachers contracts are district-by-district, and they do not all expire at once).

It was hardly necessary to wait until the speech was over to figure out that Douglas was not convincing the legislators. Six times the audience in the House Chamber interrupted the speech with applause. But except for the early support for his tribute to Vermonters fighting (or soon to be) overseas, almost all the clapping came from the balcony, full of old friends and administration officials.

Down on the floor, where the lawmakers sat, few applauded except for the stalwart but decidedly outnumbered Republican contingent—50 of 150 House members, seven of 30 senators, and not all of them firm Douglas allies.

Perhaps because they know they have the votes and Douglas doesn’t, the Democratic Legislative leaders were relatively restrained in their post-speech comments. Snate President (and Democratic governor hopeful) Peter Shumlin and House Speaker Shap Smith both said they were willing to discuss the governor’s ideas. Sen. Susan Bartlett of Morrisville, another candidate for governor, called the speech a “pragmatic first step” in this year’s legislative process. Sen. Doug Racine of Richmond, yet another gubernatorial hopeful, said he agreed with Douglas that the state is in a “tough” fiscal bind.

Then, bit by bit, they began to say what they really thought. Douglas’s proposed tax cuts would “reduce Vermont revenue by roughly $28 million,” Shumlin said. Bartlett said that Douglas “wants to have his cake and eat it, too,” because he didn’t call for repealing the income tax cuts adopted last year, only the capital gains and estate tax increases.

Racine said the speech sounded like “a list of the things he promised to do seven years ago and failed to do,” such as extending broadband Internet service statewide and cleaning up Lake Champlain. And Sen. Mark MacDonald, a Williamstown Democrat, said Douglas’s proposed changes in the income sensitivity mechanism would “raise the property taxes of working Vermonters and cut them for out-of-staters,” some of whom own large tracts of land. Income sensitivity used to hold down the tax bills of 80 percent of Vermonters, MacDonald said. It is now down to 70 percent, and Douglas wants to reduce it further.

Despite these dismissals, a few of Douglas’s proposals might actually get adopted, though probably with some alterations. Regardless of party, almost everybody in state government agrees that public education in Vermont is expensive, in large part because there are, as Shap Smith put it, “legitimate questions about the pupil-teacher ratios.”

They are very low, 11-to-1 statewide, Douglas said, and he proposed “a mechanism to fill only one vacancy for every two retirements.”

A politically sophisticated plan, because it doesn’t require firing anyone, and because raising the ratio to 13 to 1, as he suggested, hardly degrades the quality of education. Perhaps not a realistic plan, though. It’s based on statewide numbers, but teachers neither teach their classes nor retire statewide. They do it school by school, where the numbers may not always add up (or subtract down) precisely the right way to allow reducing faculty without letting some classes get too big.

Still, here’s one area – quite possibly one of the few– where the legislators might build on (or off) one of Douglas’s proposals.

Pay attention because today’s post is going to provide exclusive answers to one of the great unresolved questions bedeviling the people of this fair state: Why Is Vermont’s State Government Facing a Budget Shortfall?

Ready for the answer? Brace yourself for shock. Make sure you’re seated and have not just partaken of a large meal (though recent imbibement of a cocktail or two might not hurt).

OK, here it is: Because Vermont is Part of the United States of America.

Almost all of which is in deep recession, even if it has been declared officially over. The unemployed and under-employed don’t pay much in the way of taxes. The newly foreclosed don’t buy much. The businesses who used to sell to them aren’t expanding.

Not here in Vermont. But hardly anywhere else, either. Most state economies are in worse shape, and most of their governments are facing worse budget shortfalls.

This does not mean Vermont has no budget problem. It does seem to mean that though state policy-makers may have made some mistakes in the past that rendered the state more vulnerable to the ravages of recession, they didn’t make any more – and possible not as many – as their counterparts elsewhere.

In a report titled, Beyond California: States in Fiscal Peril, The Pew Center on the States counts nine other states facing deep budget crises in addition that big one on the left coast.

Vermont is not among them. In fact, Vermont was rated among the fiscally less troubled states.

Even more pessimistically, a report from the Kaiser Family Foundation finds that only two states – Montana and North Dakota – are not “facing budget shortfalls.”

From the statistics alone, it was impossible to determine the source of the good fortune of these two states, though it’s reasonable to suspect that it has some connection with the coal, oil, and natural gas underneath them. Under the circumstances, all the rest of us help pay their taxes every time we start our cars or turn on a light. If only maple syrup were a necessity instead of a mere delight, Vermont’s budget might be easily balanced.

(Objection One: Isn’t there a lot of oil under California? Yes, but California is so huge, its economy so diverse, that the petroleum revenue adds up to a paltry percentage).

(Objection Two: Isn’t it sad to deride a delight, which in a sane world would be treasured more than a “mere” necessity? Yes).

Both the Pew and the Kaiser studies show why Vermont is not as hard-pressed as some other states. The root cause of the problem in all states is the Recession, which stemmed from what the Pew study called “the bursting of the housing bubble.” That’s why, the study noted, three of the nine states in almost as much trouble as California are its neighbors – Arizona, Nevada, and Oregon – into which some of the California housing boom (and unsustainable lending practices) spilled.

For several reasons, the bubble in Vermont never expanded as recklessly as it did in some states, so the “burst” was less damaging. Vermont’s foreclosure rate is the lowest in the country.

Why? Well, tighter regulations may be one factor; mortgage prepayment penalties are illegal here, for instance. But the figures indicate that the state’s economy generally sat on a relatively strong foundation. The report by the Kaiser Family Foundation shows that since the Recession began, Vermont’s unemployment rate has gone up less than the nation’s as a whole (1.6 percentage points compared to 3.6).

It even seems possible, reluctant though we may all be to find anything good to say about political office-holders, that Vermont’s leaders were more responsible – or at least less irresponsible – than their counterparts elsewhere.

“Virtually every state had to make tough decisions this year about where to cut and how to raise additional revenues,” the Pew report said. “But in some states, lawmakers punted the responsibility,” refusing to cut spending or raise taxes. Vermont did both. It may not have been pretty to watch or pleasing to any political faction, but as a result the state has a smaller budget shortfall than most others.

The Pew report gives Vermont a “score” of 13 (lower is better), tied with Virginia, and better than all but nine other states. The Kaiser Family Foundation report also finds that only ten states have less serious budget problems than Vermont.

(Most, though, not all, ten are the same in the two studies, which were taken at different times and used somewhat different criteria. Their basic conclusions, though, seem consistent).

Still, Vermont has a rather substantial looming budget deficit which is likely to dominate the Legislative session beginning next month. The exact size of the extent to which likely revenues for Fiscal Year 2011 (starting next July 1) will fall short of projected expenses is unclear, but should add up to roughly $100 million.

That’s a lot of money, and the early indications are that the Legislature is going to “find” it by cutting spending. Both legislative leaders, Senate President Peter Shumlin of Putney and House Speaker Shap Smith of Morristown, have come out against any new or higher taxes. Considering that they’re both Democrats, the party less resistant to raising taxes, it’s unlikely that taxes will go up.

Unlikely but not certain. There is at least one dissenter, State Sen. Doug Racine of Richmond (check the December 7 post here), who favors a temporary tax increase to avoid deep cuts in social programs. And wait until the advocates of those social programs get television news footage showing the impoverished, disabled children whose lives would be further impoverished by some of the cuts that would no doubt be proposed.

People don’t want to pay taxes. Neither do they want to abandon needy children. That Vermont may have to abandon fewer of them than most other states is not likely to make the decision much easier.

(Note: This is obviously the first of several examinations of the state’s budget situation; Wednesday’s post will be on a different topic, but we’ll return to this one next Monday

What happened to Friday? As indicated earlier, on the assumption that almost no one will be reading this kind of stuff on Christmas and New Years Days, there will be no new postings the next two Fridays.)