Gap or no gap? Shumlin administration, Joint Fiscal Office see 2013 budget through different lenses

Commissioner of the Department of Finance and & Management Jim Reardon. VTD/Josh Larkin

When Gov. Peter Shumlin told reporters at a recent press conference that he wants to level fund the budget for fiscal year 2013, he wasn’t kidding.

The Shumlin administration, in setting the stage for its Budget Adjustment Act and 2013 budget proposals, has decided not to issue a consensus budget gap analysis with the Vermont Joint Fiscal Office, the nonpartisan financial research and policy arm of the Vermont Legislature.

As per usual, the two arms of state government have worked together on Joint Fiscal’s analysis. (The gap analysis is preliminary and subject to upward pressures.) In recent years, it has been typical for the two entities to come to a consensus on the gap analysis. This year, so far, total agreement on the size of the gap has eluded the budget writers.

It’s not a numbers problem per se – both the administration and Joint Fiscal agree on the fundamental analysis of the budget – it’s a policy or philosophical discrepancy that divides the two arms of state government.

Joint Fiscal has issued a projection that shows a $45.6 million gap between projected revenues and the actual cost to run state government in 2013.

The Shumlin administration, on the other hand, doesn’t necessarily believe there will be a gap if state agency secretaries are asked to hold the line on budgets.

Officials don’t characterize their divergent views as a disagreement – they prefer to portray their different approaches to the revenue and appropriation sides of the equation as a technical problem.

The Joint Fiscal Office’s budget gap projection includes 3.5 percent increase in base growth for the 2013 budget, or about $44 million in additional spending that reflects inflationary budget growth and “upward” pressures from changes in federal funding and increases in labor costs. (This year the state is negotiating a new contract with the Vermont State Employees Association, and the federal government has lowered its Medicaid match rate for Vermont by 0.8 percent, which works out to a $10 million loss in 2013.)

Year to year, the state has incorporated a 3.5 percent increase in the budget in order to better anticipate such spending needs, according to Stacey Barrett with Joint Fiscal.

In addition, Joint Fiscal gap analysis uses $15 million of the Agency of Human Services caseload reserve as a carry forward that would be applied to base spending in 2013. The fund was $60 million at the end of the last legislative session; of that amount about $30 million was used to lower the 2012 budget gap. Barrett said using carryforwards in this manner has been standard operating procedure in recent years.

Jim Reardon, commissioner of the Department of Finance and Management, says there is potentially no need to project a budget gap for the General Fund in 2013 — if the state’s slightly better revenues hold and agencies across state government take a hard look at expenditures.

“If in the overall state budget we’re not going to grow spending, then we can get rid of the gap,” Reardon said. “That doesn’t mean it won’t be challenging, but it’s certainly better than it’s been for the last few years.”

The $15 million carryforward should not be used to cover the ongoing cost of running state government, Reardon said. Instead, it should be set aside for “one-time” or single-year expenses.

“We didn’t want to agree to a consensus forecast and leave the impression we would rely on a carryforward,” Reardon said. “We’re inclined to use additional funds in 2012 to meet one-time needs instead of base spending for 2013. We (also) didn’t want to leave the impression among members of the cabinet or the public that the budget would necessarily grow by 3.5 percent.”

Reardon will send out a “budget instruction” letter to agencies in a few weeks and secretaries will analyze their spending projections for fiscal year 2013 through the fall. He anticipates spending will be up in some areas, down in others and level in certain places. When it all sugars off, though, he thinks they can come up with a level-funded budget.

Barrett called this the “show us your underpants” approach to analysis (as opposed to JFO’s estimates, which are based on historic data), in which departments and agencies provide the Department of Finance and Management with more detailed justifications for annual expenditures.

What is indisputable, after a long trough in tax revenue generation since the onset of the recession in 2008, is an upward tick in state revenues. The original forecast was $1.267 million; by August the state had brought in $1.288. In addition, the Shumlin administration has salted away $30 million in the Agency of Human Services caseload reserve and about $60 million in the budget stabilization fund (a.k.a. rainy day fund).

There will be a budget adjustment at the end of 2012, but the changes aren’t dramatic. The General Fund budget was set at $1.235 billion; by August, that number was reset at $1.251 billion.

The $16 million list of adjustments includes $3.3 million for the recertification of the Vermont State Hospital (unlikely at this point); Medicaid losses of $7 million; new required payments for unemployment ; and 0.6 million for the new Vermont Troopers Association contract.

None of the estimates in play at the moment, however, include the cuts from the federal government.

Barrett and Reardon are holding their collective breath on possible federal reductions in funding for the Low Income Heating Assistance Program and other crucial human services programs.

Reardon called it the “wild card.”

“We’ve made no provisions for future federal reductions,” Reardon said.

Editor’s note: A write-thru of this story with additional quotes and information was posted at 7:50 a.m. Aug. 25, 2011.