State economist: Douglas’ AHS budget cuts would cause 1,000 to 1,400 layoffs

Layoff image

Proposed budget cuts to the Agency of Human Services could result in the permanent loss of 1,000 to 1,400 Vermont jobs, according to a memorandum from Tom Kavet, an economist for the Vermont Legislature.

The one-page memo, which sums up the impact the budget reductions would have on the state’s economy, is posted on the Joint Fiscal Office Web site.

Memo – Proposed AHS Budget Reductions

Kavet writes that the total impacts on the state’s economy could “approach losses of $50 million per year” in gross state product and “exceed $40 million per year in personal income.”

“There’s all this talk about creating jobs,” Kavet said in an interview. “What’s happening in state government will offset all of that.”

Kavet pointed out for the purposes of comparison that the Douglas administration has expressed great concern about saving the 635 jobs that may be lost if the Vermont Yankee nuclear power plant in Vernon closes. Two hundred of those jobs are held by Vermonters; the remaining employees come from New Hampshire and Massachusetts, according to testimony from David O’Brien, commissioner of the Department of Public Service. The indirect job losses from the plant’s shut down would be similar to the AHS job losses — 1,200 to 1,500 workers, Kavet said. Most of those income losses, however, would affect the other states of residence.

Layoffs will come from state-funded agencies

Douglas administration officials have repeatedly stated that the budget they presented in January, which includes four “challenges” for restructuring human services, will not result in cuts to the state’s workforce. Since 2008, about 660 positions in state government already have been eliminated.

Kavet concurs that very few of the layoffs will come from state government, but he says the impact of cuts in state funding for human services programs will result in additional losses in federal matching funds that will ultimately lead to significant job losses in the human services sector.

“To the Vermont economy viewed from 25,000 feet, there is very little difference between a spending reduction that eliminates a grant that supports a social assistance worker and a spending reduction that eliminates a state worker at the same income level,” Kavet said.

In the fiscal year 2011 budget, the administration has called for reductions to, or the elimination of, 48 grants for service programs outside state government. Programs for AIDS services, food stamp outreach and the Girl Scouts, for example, would receive significantly less grant funding in the governor’s budget. In addition, grants for adult day services, foster grandparents and the Vermont Kidney Association would be eliminated.

Under the reorganization plan, “Challenges for Change,” adopted by the legislative leadership and the Douglas administration, the state-funded “designated agencies” — the community based nonprofit programs for developmentally disabled and mentally ill Vermonters — will lose $13.1 million in funding.

‘It’s happening everywhere’

The budget gap for fiscal year 2011 between state expenditures and state revenues, which have dropped because of the recession, is $151 million.

“This shouldn’t be a great surprise to people,” Kavet explained. “State governments across the country are going through this, too.”

More than 43 states have enacted significant spending cuts over the past two years, according to Kavet’s memo. He wrote that 151,000 jobs have been eliminated since August 2008.

“It’s happening everywhere,” Kavet said. “You either cut spending or raise taxes, or both.”

The menu of unpleasant options for lawmakers and the administration also includes reorganizing government and/or dipping into the rainy day funds, also known as the General Fund Stabilization Reserve.

According to Kavet’s calculations for the Joint Fiscal Office, the cuts total $30 million in state spending. He writes that these cuts would trigger losses of $24 million in federal matching funds.

In its budget, the Douglas administration has also proposed rolling back tax increases imposed by lawmakers last year. Administration officials have steadfastly maintained that the state should not raise taxes, nor should it tap into the state’s $60 million reserve.

Kavet said the rainy day funds aren’t big enough to carry the state through a recession, and “there’s a tendency not to want to spend it because it can affect your credit rating.”

Douglas administration officials warn that the state must significantly cut its “base spending” (the expenditures it books year after year) in order to prepare for a slow revenue recovery period. Economists have predicted annual state budget gaps of $200 million through 2014.

Kavet analyzed more than 90 budget reductions in services to children, needy families, the elderly, and physically and mentally disabled Vermonters. According to his calculations for the Joint Fiscal Office, the cuts total $30 million in state spending. He writes that these cuts would trigger losses of $24 million in federal matching funds.

“When you cut programs with outside money, they are particularly impactful,” Kavet said.

He estimates the job cuts due to federal matching fund losses will total approximately 400 to 650 jobs per year; in addition, state budget reductions will lead to 400 to 650 job losses per year. These impacts, Kavet said, include not just direct job losses, but also a multiplier effect — secondary job losses caused by the loss of income spent in-state.

“You have to have your eyes open about what you’re doing,” Kavet said. “It’s not a plus for the economy.”

The reason why Kavet uses the phrase “per year,” he explains is because the impacts are estimated relative to an annual baseline. If the $50 million spending reduction is permanent, he said, there will be a total of 1,000 to 1,400 fewer jobs in Vermont each successive year.

“If the cuts were temporary, and the funding was restored after a year or two, then the job losses would only be for a year or two,” Kavet said.

He said “maintaining direct state expenditures at a time of extreme economic stress is an important way any state can minimize net economic loss during a recession.”