Federal budget cuts will have $5 million impact on General Fund in 2011

Rep. Philip Winters, left, Sen. Robert Starr, center, and Sen. M. Jane Kitchel look over information about federal budget cuts on Tuesday morning. Photo by Josh Larkin.

The $38.6 billion in congressional budget cuts for fiscal year 2011 have dealt a glancing blow to Vermont so far. On Tuesday, officials warned, however, that round two of the federal 2012 budget cuts could still knock out the state’s ability to sidestep another sizable budget gap — the fifth in a row.

The total impacts on state, local and nonprofit programs will be about $17.6 million.

As a result of federal cuts for fiscal year 2011, the total direct and indirect General Fund reductions are estimated to be $4.8 million. In addition, the state faces $12.8 million in cuts to transportation funding and $7.2 million in impacts to non-state and local programs.

Based on projected revenues and possible federal cuts, Vermont faces an overall projected budget gap of $60 million in 2013. That figure could go up or down depending on shifts in revenue, changes in caseload pressures and other budgetary factors, according to Jim Reardon, the commissioner of the Department of Finance and Management.

Reardon gave a presentation with Steve Klein, the director of the Vermont Joint Fiscal Office, on Tuesday to the House and Senate appropriations committees about how the congressional cuts would impact the state’s fiscal year 2011 and 2012 budgets.

Reardon’s message was: So far, so good. While certain programs will see cuts that could impact services, overall, the state came away virtually unscathed in the first round of Tea Party budget-cutting in Washington. The Low Income Heating Assistance Program wasn’t cut by Congress even though it was on President Barack Obama has recommended cutting the program in half for fiscal year 2012.

On the other hand, Reardon was less sanguine about the federal government’s long-term financial relationship with the states. The current budget-cutting exercise will become the new normal, he said. In October of 2011, the feds are supposed to pass a new budget for fiscal year 2012, and he anticipates much deeper reductions.

He anticipates a continued difficult fiscal planning environment.

“A few days ago I felt like we were driving down the road at midnight without headlights,” Reardon said. “Now it’s just a dimmer light.”

Congressional budget cuts could compromise Vermont’s fragile recovery from the Great Recession, sources say.

Here is a list of key points Reardon and Klein made:

1. Programs with unspent federal funds, including stimulus money, “may be more vulnerable to reductions.”
2. The question is not if the state will see federal budget cuts but how much those future reductions will be.
3. The federal government will make more extensive cuts in 2012.
4. The reductions will affect municipalities, businesses and individuals.

Most notably, the new federal budget eliminates congressional earmarks. Vermont has, in the past, been a major winner in the earmark game with several hundred million dollars a year going toward construction projects and a wide array of programs. Sens. Patrick Leahy, D-Vt., Rep. Peter Welch, D-Vt., and Sen. Bernie Sanders, I-Vt., will be prevented from issuing “pork-barrel” budget carveouts for dozens of Vermont organizations and projects.

So far, the Low Income Heating Assistance Program has not been reduced despite the fact that LIHEAP is on the president’s hit list.

The $38.6 billion in cuts come on the heels of the extension of the Bush tax breaks to the wealthiest 3 percent of Americans.

Here’s a list of some of the most crucial reductions to state programs, many of which don’t directly affect the General Fund.

• $46,000. Planned Parenthood
• $66,000. Community Services Block Grant
• $300,000. Education funding for the Supplemental Nutrition Assistance program
• $1,448,000. Medicare Part D clawback. This money is a direct expense to the General Fund budget that must be deducted from the total.
• $800,000. Workforce training funds. The state will shift to reimbursement under the Unemployment Insurance Trust Fund program.
• $1.3 million. Community Development Block Grant. This money for affordable housing and community projects will dry up under the budget proposed by the tea partiers.
• $52,000. Cut to the Vermont Humanities Council.
• $70,000. Reduction to the Vermont Council for the Arts and Vermont Symphony.
• $458,000. Housing and Urban Development HOME program.

Reardon said it would be difficult for the state to make up the difference in these areas.