Gov. Jim Douglas does not deliver his annual budget address until Thursday afternoon, but behind the numbers ,his political strategy is already clear.

Call it the modified, limited Grover Norquist. Douglas is trying to “starve the beast.”

Norquist, one of Washington’s most influential (and contentious) conservative operatives, did not coin that phrase., or the policy it illustrates, which conservatives have followed since the Reagan Administration.  But Norquist, the head of Americans for Tax Reform, is the one who made it famous as short-hand for the strategy of cutting government spending by simply making sure the government has less money to spend.

In Norquist’s view, almost all of government is “the beast,” deserving starvation, or at least malnutrition, to the point where it can’t do much. Gov. Douglas, not nearly as far to the political right as Norquist, is being more selective. He’s just targeting one slice of government-elementary and secondary education. And he doesn’t really want to starve it; just put it on a strict diet.

That’s the strategy behind Douglas’s plan to spend $63 million less on schools in the next fiscal year. Or, to put it more precisely, to give the schools $63 million less in money that comes from statewide “broad-based” taxes-income and sales taxes and the like.

That’s the political-fiscal reality behind the government jargon of altering how much money is spent from which of the state’s various “funds,” as Douglas proposed the other day. Ignoring the official gobbledygook, the important distinction is that money in the “General Fund” comes mostly from the “broad-based” taxes while money in the “Education Fund” comes mostly from the statewide Education Property Tax.

But-and this is the important “but”-the Education Fund also gets an infusion every year from the General Fund-a projected $40 million next year specifically for the teachers retirement system, plus another $298 million. What Douglas wants to do is cut the second figure to $275 million and place the entire burden of contributing to the retirement plan onto the Education Fund.

The result: More school spending comes from the property tax, less from the more broadly based taxes. And more pressure on the schools to cut costs.

Schools would still be able to spend more, but they’d have to get all the extra money from local property taxes, with the approval of local property taxpayers.

Even without the current recession, that approval would be hard to get. Considering the unpopularity of property taxes, Douglas’s proposal almost makes it seem that he’s trying to instigate a taxpayers’ revolt against the public schools.

He is, as demonstrated by another of his suggestions-lowering the “income sensitivity” of the statewide education property tax from $90,000 a year back to the $75,000-a-year level of just a few years ago. Douglas and his Tax Commissioner Tom Pelham, have made no secret of their opinion that the higher limit shields too many taxpayers from the full effect of the statewide property tax. Protected from big tax hikes, these property owner/voters are less likely to pressure their local school boards to hold down spending.

The likelihood that the Legislature-or any legislative body in the English speaking world-would effectively raise the taxes on upper-middle income voters is tiny. Many of these people are adept at calling their legislators and finding (and contributing to) primary candidates to oppose them.

But with his new plan to reduce the amount transferred from the General Fund to the Education Fund, he may not need to change the income sensitivity provision to accomplish his goal of slimming down the public school establishment.

The connection between the Douglas strategy and the Norquist slogan is limited, but unmistakable. For decades before the 1980s, conservatives complained that government spent too much money. The response from liberals, moderates, and even some moderate conservatives was: “Ok, what do you want to cut, and how?”

Conservatives answered that question, but never very convincingly. Not until Ronald Reagan became President did they find an alternative: Just cut taxes, forcing government agencies to reduce spending.

Douglas is following the same path. He could offer suggestions on how schools could cut costs. He could put in place a process-a commission, say, or a series of meetings with school officials, legislators, outside experts and the like-to come up with a plan for saving money without lowering the quality of education.

But he does not seem interested in either course. Instead he is mounting a major effort simply to cut the amount of money the schools get from broad-based taxes, almost daring them to try to make up the difference from their local property taxpayers. This week, his office is sending letters to school boards urging them to spend no more per pupil next year than this year.

On the federal level, the Reagan-Norquist strategy didn’t work all that well. Government spending as a percentage of Gross Domestic Product is no lower than it was in 1981, as more borrowing offset lower taxes.

But that doesn’t mean Douglas won’t succeed. By law, Vermont can borrow, but states don’t have a Central Bank or control of their currency; their borrowing capacity is limited. Spending less or taxing more are the real alternatives.

Besides, he has at least one politically compelling argument, one that differentiates him from the Reagan-Norquist conservatives. Douglas says he wants to keep $63 million in the general fund so it will be available to spend on programs that help the sick and the poor. If that money continues to be funneled into the Education Fund, he claims social programs will have to be cut back, harming the most vulnerable Vermonters.

Among other advantages for him, this argument nicely divides his liberal opponents. Advocates of more (or at least not less) spending on social programs are gearing up to fight proposed cuts. The better job they do convincing voters these funds are necessary for health care, childrens programs and help for the destitute, the stronger becomes Douglas’s case for keeping some of the money out of the Education Fund.

Furthermore, on the face of it, there is a case to be made for financing teacher retirement from the Education Fund. It is, after all,  an education expense. And asking entities which collectively spend some $1.4 billion to make do with $63 million less may strike many Vermonters as reasonable.

On the other hand, all these “Funds,” state and federal, are artificial constructs designed for political expediency, and often “raided” for political convenience. And many school districts are already cutting their budgets in response to the governor’s campaign.

Cutting budgets, of course, while not easy, is simple. Eliminate a class here, a teacher there. It’s cutting budgets without degrading quality that is complicated. There is a danger in starving the beast. Unless done carefully, it could malnourish the brood stock.

All of which will be examined tomorrow.

The Douglas Administration just blinked.

Not that that it gave up much. It surrendered but one point, and did it as belligerently as possible. Expect it to return to the fray wide-eyed and armed with fact (or at least its version thereof) and rhetoric for what looms as Vermont’s biggest battle of 2009-Gov. Jim Douglas’s fight to reduce spending on public schools.

Yes, the word was ‘reduce.’ Not just ‘hold down the increase,’ or ‘restrain growth,’ but ‘spend less,’ as in, spend less next school year than this one.

Douglas himself hasn’t yet put it quite that bluntly, though it’s hard to see what else he meant when he contrasted  the spending cuts being forced on most state agencies with the projected increases in school spending.

But one of his senior administration officials, Tax Commissioner Tom Pelham, said in an interview that he thought there should be an actual cut in school spending, and that he was trying to make that case in one of the two letters he sent to the leaders of the Legislature.

The other letter was the blink. Monday afternoon, a day before a Washington County Superior Court judge was going to hear arguments on a lawsuit trying to force Pelham to recommend a two-cent tax decrease in next year’s statewide education property tax rate, the tax commissioner did just that.

“I hereby recommend a two-cent reduction,” he wrote.

That’s what he refused to recommend on December 1, in defiance of a law. The law is something of a technicality-Pelham doesn’t set the tax rate; the Legislature and the governor do-but the State School Boards Association and four school districts went to court over it.

Pelham called the suit groundless and another administration official called it “frivolous,” but on further review, as they say in the National Football League, Pelham decided, “it’s not worth fighting over,” perhaps because he might well have lost.

So the lawsuit is off. But the battle is on, and it’s a little confusing. The administration, which wants to cut school spending, resisted making the recommendation to cut the tax. The School Boards Association,  which usually wants more revenue for schools, insisted on it, painting itself as the taxpayer’s friend. What’s going on?

Part of the explanation lies in the simple fact that there’s a difference between a property tax rate and the amount of revenue collected. If the total value of taxable property goes up, even a lower rate can bring in more revenue.

That’s what’s happening, Pelham said, arguing that the rate should go down even more.

“The value of the equalized grand list (that’s the value of taxable property) is going to grow 6.9 percent,” Pelham said.” That’s not conjecture. That’s fact. With the grand list value growing almost seven percent and tax rates only going down by two cents , that leaves the School Boards Association and their constituencies in the position of having millions more to spend.”

Pelham said he thinks the schools have been spending too much for years. Decrying a “spending expansion,” he pointed out that even as “Vermont’s school enrollment has dropped by almost 10,000 students since 1977, school staffs have increased by 3,500 positions, or 22 percent.”

In his letter to outgoing House Speaker Gaye Symington and Senate President Peter Shumlin, Pelham specified that “a two percent reduction…”results in a $31.2 million property tax increase,” a result “Vermonters will not welcome.”

“I don’t know what he’s talking about,” said School Boards Association Executive Director John Nelson. “It’s just baloney. He’s trying to say it in a way that makes the reader think this two-cent reduction will be responsible for a $31 million  increase. It doesn’t give (schools) more to spend. It gives them $20 million less.”

Can they both be right? Sure. Cutting the residential property  tax rate from 87 cents to 85 cents per hundred dollars of assessed value, and the non-residential rate from $1.36 to $1.34, would bring in some $20 million less than not cutting them. But even the lower rate would bring in more money when applied to a higher base.

Calling that a “tax increase,” as Pelham did, is technically accurate, but misleading if people interpret it to mean their taxes will go up. The grand list rises largely because of development; houses and stores built on empty lots, rooms or garages attached to existing homes. Most home-owners would probably end up paying less if the rate is cut by two cents, even as the total take goes up.

Making the argument politically more difficult for Douglas, Pelham et al. It’s harder to get taxpayers upset if their own taxes aren’t actually going up. The argument that  keeping the rate at 85 cents is the functional equivalent of a tax increase because a steeper cut might mean that many a  homeowner’s property tax would actually go down, is not frivolous. But it lacks the punch of screaming against an actual tax hike.

Politicians who put pressure on schools to cut costs have another difficult challenge: figuring out how to do it.  Nelson said that neither Douglas nor any of his associates have  “indicated in any respect where they think reduced spending ought to happen. They have not had one idea.”

About a year ago, Nelson said, he and his board of directors asked to meet with Douglas  to talk about ideas for reducing school costs.

“We said if you can’t come to us we’ll come see you. His office called and said, ‘we have your invitation and we’re going to decline.’”

The combatants here seem far from a meeting, much less a meeting of the minds. The fight goes on.–Jon Margolis

SCANDAL SWEEPS VERMONT

TOP OFFICIAL DEFIES THE LAW

SNEAKY POLITICS SUSPECTED

OK, so it’s hardly Blagojevichian in scope or power. But we do have, right here in squeaky-clean Vermont, a senior state official who has…well, broken the law

With malice aforethought? Well, with forethought,  meaning he knew what he was doing. The malice part is debatable.

So rare is such behavior here that our major metropolitan dailies seemed not to recognize it. They handled it as if it were a policy dispute.

It is, and one in which the alleged perpetrator could have the stronger argument. But it’s more than that. It’s a political ploy, and so far, it’s working.

The “crime” is part of an intertwined legal-political-fiscal muddle too convoluted to explain-or absorb-in one sitting. Today, let’s just deal with the basics and the politics. The policy and the money parts can wait.

The alleged perp is Tax Commissioner Tom Pelham, who has no known priors. As required by law, on December 1, pelham wrote to the leaders of the Legislature reporting on how much money public schools are likely to spend next year, and how much the statewide school property tax is expected to raise for the Education Fund. What he concluded was that “the Education Fund in fiscal 2010 at current tax rates will generate an operating surplus of $20.5 million.”

Translating into the English, this means the statewide property tax (along with money from other sources that goes into the Education Fund) is going to raise more than the schools are planning to spend.

In that case, according to law (Title 32, Chapter 135, Section 5402b), the Tax Commissioner “shall recommend…a reduction… in the statewide education tax rates.”

He didn’t.

“Given the extraordinary fiscal choices before us, a recommendation from me regarding 2010 tax rates may be extraneous or even harmful to the flexibility you and the Governor need to craft an overall fiscal course for the state,” Pelham explained in his letter.

And in an interview, he said, “it’s worth leaving the issue of the tax rate ambiguous because there is no certainty in these tumultuous fiscal waters.”

Could be. But put this in context. Pelham is the appointee and  ally of Gov. Jim Douglas, especially when it comes to cutting property taxes. And here he is refusing to recommend a cut in property taxes even where the law requires him to recommend a cut in property taxes.

Granted it’s only a recommendation. Pelham has no power to set the tax rate. But just imagine what Republicans would say if a Democrat passed up the chance to propose lower property taxes.

No, don’t bother. No need to imagine. Go back almost four years, to February, 2005. Then as now the Education Fund was projected to be in surplus for the coming year. Douglas wanted to cut the tax rate by more than enough to bring it into balance. The Democrats said no, inspiring then Republican State Chairman Jim Barnett to issue a statement accusing the Democrats of trying to “increase property taxes.”

So are Democrats now taking similar advantage of this inconsistency on the part of the Douglas Administration?

Apparently not.

“Because these are such difficult financial times, (Pelham) doesn’t want to make promises to the schools that he may not be able to keep,” said Senate Finance Committee Chairman Ann E. Cummings of Montpelier. Agreeing with Pelham that this is a “different year,” she declined to take political advantage of Pelham’s letter.

“We’re going to make an effort to do this in a bipartisan manner, which we can’t do if we start out throwing partisan darts at the governor,” she said.

We have here three possibilities: (1) Vermont Democrats (at least as compared to Vermont Republicans) are too responsible about governing to take cheap shots; (2) Vermont Democrats  (at least as compared to Vermont Republicans) are wimps with no taste for combat; (3) Both.

Just because the Democrats aren’t complaining doesn’t mean nobody is. In a joint statement, Vermont League of Cities and Towns and the School Boards Association called on Pelham to propose a tax rate based on the new numbers, a move they say could save taxpayers $18 million next year.

Without such a recommendation, said John Nelson of the School Boards Association, local school districts won’t be able to present their proposed tax rates to voters at least 30 days before town meeting day, as the law requires.

More strangeness. Just as Pelham could be expected to propose a low property tax rate, the school boards might like the increased revenue from the higher rate. So-you’d think-would the teachers union, the Vermont National education Association. But it attacked Pelham, too.

Less strange when we add a little more context, specifically that the Douglas Administration has some thoughts of filching from the Education Fund surplus to repair roads and bridges. Transportation Secretary David Dill came right out and said so.

That way the governor and his minions-with, quite possibly, the cooperation of the Democratic-controlled Legislature-can effectively raise taxes (certainly by Jim Bartlett’s definition), and still say to the voters, ‘What? Raise taxes? We din’t raise no stinkin’ taxes.’

If you think this is convoluted, you ain’t seen nothin’ yet. Because neither Douglas nor Pelham tried very hard last week to hide the rest of their political agenda here. They might not want to cut the school property tax rate just yet.  But they want to persuade, cajole, or embarrass the schools into spending less.

After all, they say, if just about every other government agency has to cut back, why shouldn’t the schools?

A valid question, though as with all comparisons, the appropriateness  of this one is open to debate.

To be explored on another occasion, “maybe not tomorrow,” in the immortal words of Richard Blaine, “but soon.”—Jon Margolis