The state’s major funds are staying close to revenue forecasts, legislative fiscal officer Steve Klein reported Wednesday morning. Perhaps too close.
“I’ve never seen them this close,” Klein told the Joint Fiscal Committee at the start of a day-long meeting.
Only two months into the fiscal year, it’s hard to get a true sense of what’s to come, Klein said. But the close proximity so far between forecasts and actual revenues will not leave much buffer to absorb new budget pressures. Klein presented an overview to six of the committee’s 10 members. The committee will meet again in the fall before the Legislature reconvenes.
A detailed report on expected budget shortfalls for the next fiscal year will be available in November. In the meantime, Klein sketched out an expectation of what’s coming. It looks a lot like the $55 million gap in the current fiscal year, he predicted.
“The roughly $55 million in one-time funds that were used to build the FY 2014 budget still remains a good proxy for the shortfall that we will have to address with revenue growth absorbing other pressures,” Klein’s memo says.
The pending decommissioning of Vermont Yankee is expected to put an additional dent in fiscal year 2015 revenues, however. Just how big of an impact that may be will depend on the timing of its closure. A more complete report on the contingencies is underway, but preliminary estimates total $3 million in fiscal year 2015 and $11.7 million the following year. The loss will hit the General Fund, not the Education Fund, due to a change in appropriation structuring last year.
While the extent of other budget pressures remains nebulous, their sources appear fairly certain: Federal funding for Brattleboro Retreat is as-yet uncertain, as are the outlook for the Vermont Veterans’ Home and looming fallout from the federal sequester. Corrections also is showing “some upward pressure.”
Additionally, Project LIHEAP likely will exceed the $6 million set aside for the upcoming heating season, and Developmental Services may not be able to meet $2.5 million in savings built into its $170 million budget. And still one more hit will come from Vermont’s contract with state police and troopers, which has run into an un-budgeted cost for the current fiscal year of $810,000.
On average, on target
The general, transportation and education funds so far are less than one-half of 1 percent below projection. Some larger discrepancies surface in closer analysis, however.
“Corporate tax is the outlier,” Klein wrote in his memorandum to the committee. It’s $2.4 million lower than expected for the first two months. Slightly higher than anticipated collections from income and sales taxes, and a 4 percent increase in meals & rooms taxes through August help compensate for the corporate sector’s performance starting out this fiscal year.
Klein noted that September tends to bring in more tax revenues than the summer months, so he hopes to have a better sense of the big picture once the first quarter closes.
While the budget counts on a certain amount of revenue growth from year to year, many expenditures grow, too. The Joint Fiscal Office predicts that Medicaid costs, in particular, will outpace revenue growth by $104.4 million between now and the end of fiscal year 2018.
That calculation does not include the cost of pending health care reform, nor does it account for potential issues with current waiver renewals, FMAP changes or cost growth due to policy changes, the JFO reports.
The shortfall does take into account certain offsets, however — without which the discrepancy would be closer to $162 million. Revenue growth from claims assessment, employer assessment and tobacco and provider taxes cut the shortfall by an estimated $10.3 million. “An additional $47.3 million is offset by applying 22 percent of the projected growth of the General Fund in the same period,” according to the report.
Committee members clarified that the expected gap can be filled partially every year. The state will not have to come up with an extra $104.4 million all at once.
To inform their revenue projections, the Joint Fiscal Office is hoping to access anonymous tax return data — a prospect the Vermont Department of Taxes has approached cautiously, due to its obligation to maintain taxpayer confidentiality. The offices entered into a Memorandum of Understanding on Aug. 5, agreeing to work together to find a way “to provide JFO with independent analytical capacity.”
The solution may reside in a third-party vendor, Klein reported. Chainbridge Associates develops tax models based on sample data. The firm currently services Maine, Rhode Island, Connecticut and Alabama. Payment to Chainbridge would be predicated on the accuracy of its models. Klein said he would hope to have a viable approach in place by the start of fiscal year 2015.
The JFO’s full memorandum to the Joint Fiscal Committee can be found below. It includes additional details on Transportation Fund Rescissions, summer study committee updates, and personnel notes.