Story and video: Shumlin administration looks for savings to offset $31M downgrade in state revenue

The state’s economists say Vermont revenues will fall $31 million short of projections in fiscal year 2015.

The revenue downgrade represents a 1.8 percentage point drop in anticipated state revenue. Overall growth in fiscal year 2015 will be 3 percent instead of the 4.8 percent gain projected in January.

The revised estimate followed a nearly $9 million budget gap in fiscal year 2014. Revenues came in close to target, but from a different mix of sources than expected. Personal income taxes, along with sales and use revenues, were down; receipts from the Department of Financial Regulation, which collects on insurance, banking and securities transactions, came in a bit high.

Ultimately the fiscal year ending June 30 was closed with a zero balance with help from the Rainy Day Fund and an unexpected windfall from the estate tax. The estate tax revenue was so high, in fact, there was enough left over to build the Rainy Day Fund back up, ending at $5 million.

Looking back on FY14, state economists lowered their expectations for the future.

Gov. Peter Shumlin emphasized in a briefing with the media Thursday morning that the reduction in predicted receipts in FY15 is a “minor adjustment” to the $1.4 billion General Fund.

Shumlin said he would reduce state spending by $31 million in response to the downgrade. The governor has asked state agencies to reduce their budgets by 4 percent.

There will be no layoffs as a result of the rescissions, Shumlin said. The administration will not touch the state’s retirement or debt reduction obligations. The Education Fund reserve will be reduced.

“We’re going to make this small adjustment to the $1.4 billion General Fund budget by insisting that we not raise broad-based taxes — income taxes, sales taxes or rooms and meals taxes,” Shumlin said. “In other words, we are not going to ask working Vermonters to make this relatively small adjustment by raising tax revenues. Vermonters’ taxes are high enough. We will not shift any of this to hardworking property taxpayers who already find that property taxes are high enough.”

Shumlin said the good news is that “it’s July, not January.” “It gives us almost the entire fiscal year to make this adjustment.”

The governor met with lawmakers later Thursday, and asked the Joint Fiscal Committee to agree to rescissions in the fiscal year 2015 budget.

The governor and Jeb Spaulding, the secretary of the Agency of Administration, said the decline in state tax receipts is caused by national economic trends. Spaulding said the biggest blow was a significant drop in personal income tax collections in the month of April, which is typically the state’s biggest month for tax receipts.

Collections were down by nearly $20 million. If the state hadn’t collected $20 million from an estate tax windfall, lawmakers and the Shumlin administration would have faced the prospect of backfilling a very large hole in the budget at the end of the legislative session.

Tax changes in 2012 had an unanticipated impact on personal income tax receipts nationwide, Spaulding said.

“It was clear back in April that economists across the country had underestimated the effect of the tax strategy changes that taxpayers employed at the end of calendar 2012 that led to by far and away the largest ever April revenue collections in 2013 by far and away much higher than anticipated,” Spaulding said. “They knew that would play out as a wild card in 2014. It turned out that across the country Congress underestimated the impact on 2014. What economists are largely saying now is what we’re looking at is a recalibration of what the take should be from personal income taxes.”

The governor touted the state’s bond triple A bond rating and low unemployment as evidence that Vermont’s fiscal situation is very positive. The state has $65 million in budget stabilization funds and $5 million in Rainy Day Funds that Spaulding said would not be tapped.

“One of the reasons we have one of the best bond ratings in the country is because we balance budgets the old-fashioned way, by making real cuts,” Spaulding said.

The governor emphasized that the state’s revenues are growing, just not at the level anticipated. In a national context, Shumlin said the state’s slow economic growth is not out of kilter.

During the Great Recession, the state saw a drops of 7 percent in fiscal year 2009 and 12 percent in fiscal year 2010 in tax receipts. Since then, the state’s economy has grown, but has not kept pace with state spending. The Vermont Legislature and the Shumlin administration have been dogged by ongoing budget gaps of roughly $50 million to $70 million per year.

Still, in fiscal year 2013, tax receipts were up by $90 million; in 2014, by $46 million; and in 2015 by $35 million.

“We continue to recover, but this has been a slow crawl back from the worst recession in American history and Vermont’s not immune to that,” Shumlin said. “It’s great, 3 percent revenue growth. We’d rather have 4.8 percent but with 3 percent, we’re still going to have the biggest revenue year in Vermont’s history.”

looking back on FY14

Officials and lawmakers saw problems with the 2014 budget even before the fiscal year ended.

Personal income tax receipts fell short by about $20 million in April, normally a month of high collections. Coincidentally, that was the same month estate tax revenues delivered a record high amount.

The timing afforded just enough time for state officials to still get what they wanted by changing state statutes before the fiscal year ended. Priorities included matching funds to secure a federal grant to help health care professionals repay education loans, and Shumlin’s signature Enterprise Fund, $500,000 in loan loss reserves for the Vermont Economic Development Authority, and $4.5 million in possible cash payments to lure businesses to stay in or move to Vermont.

Money for the Enterprise Fund originally was expected to come from surplus, but when a shortfall became more likely, a plan was hatched to redirect estate tax windfalls. Instead of going to the Higher Education Trust Fund, the money first would flow to the medical loan repayment grant, then to shore up the Rainy Day Fund, which at the time was around $8.5 million.

But in the same stroke, lawmakers agreed to appropriate $5 million from the Rainy Day Fund to create the Enterprise Fund, leaving $3.57 million in the reserve.

To close the fiscal year in balance, the Rainy Day Fund was depleted. Extra estate tax revenues then built it back up to $5 million.

The estate tax windfall also plugged the remaining $5.39 million gap in the General Fund budget, to avoid dipping into a different reserve fund that’s held with tighter purse strings.

In the end, $250,000 of estate taxes remained for the Higher Education Trust Fund.

This article was updated at 4:56 p.m. Thursday.

Gov. Peter Shumlin and Secretary of Administration Jeb Spaulding announced a reduction in revenue forecasts for fiscal year 2015 at a news conference Thursday, July 24. Photo by John Herrick/VTDigger

Gov. Peter Shumlin and Secretary of Administration Jeb Spaulding announced a reduction in revenue forecasts for fiscal year 2015 at a news conference Thursday, July 24. Photo by John Herrick/VTDigger

Anne Galloway

Comments

  1. Dave Bellini :

    ” The Education Fund reserve will be reduced.” “We will not shift any of this to hardworking property taxpayers…” So the Ed fund reserve doesn’t get funded with property taxes?
    .
    “…state agencies to reduce their budgets by 4 percent…” Here we go again. This is the same BS that Jim Douglas used to do. We won’t have layoffs but vacant positions will not be filled and short staffing will be the norm. This is how AHS got so screwed up in the first place. There doesn’t seem to be any slowdown in spending at Vermont Health Disconnect however. What’s their 4% cut going to be?

  2. Paul Lorenzini :

    Dave, certainly they can force the citizens to afford trash inspectors to find the food scrap wasters, they made the law, there must be a plan there right?

  3. Curtis Sinclair :

    Mental health voluntary programs should not be subjected to the 4% cut. The state just wasted $38 million on a new State Hospital Boondoggle that will only be used to force drug people and then the administration asks for a 4% cut to agency budgets to save $31 million. If that new hospital is not cut that will basically mean a shift of $ from humane voluntary mental health treatment to coercive dehumanizing involuntary “treatment”. That should NOT be allowed to happen. I suggest putting the new hospital up for sale with a $31 million price tag to raise the revenue.

  4. Darcie Johnston :

    This is why the Republicans should have had a roll call vote on the Governor’s budget. Now Democrat legislators can’t be held accountable for supporting Shumlin’s budget despite many warning about how flat economic growth real was and is in VT.

  5. Wendy wilton :

    If Vermont had joined the other 36 states that did not create their own exchange but rather relied on the federal exchange we wouldn’t have had to hire hundreds of new employees for VHC and we wouldn’t be talking about cuts to other state services, as Dave B. Points out.
    There are roll call votes on Act 48 which triggered this needless spending and now has put the state in this position.

  6. Wendy wilton :

    Thanks to VT Digger for the great reporting on the state’s reserves. Keep up the good work, as this bears watching very carefully.

  7. Renée Carpenter :

    “… the decline in state tax receipts is caused by national economic trends. Spaulding said the biggest blow was a significant drop in personal income tax collections in the month of April…”

    I’d like to know more about this latter statement: Exactly what about national income tax trends caused this problem, because this is where the “fix” is needed–in Vermont tax policy.

    “‘We’re going to make this small adjustment to the $1.4 billion General Fund budget by insisting that we not raise broad-based taxes — income taxes, sales taxes or rooms and meals taxes,’ Shumlin said. ‘In other words, we are not going to ask working Vermonters to make this relatively small adjustment by raising tax revenues. Vermonters’ taxes are high enough. We will not shift any of this to hardworking property taxpayers who already find that property taxes are high enough.'”

    Equitable broad-based taxes are exactly what would be called for if we had a D-emocratic governor who wasn’t a millionaire catering to his wealthy buddies. Rooms and meals taxes do not have a huge affect on the lower- and middle-income people who rely most on the government programs about to be slashed yet again.

    It’s fine for the Gov. to come out for more program support to combat social problems like drug and alcohol abuse, child abuse, etc…. but these programs need more funding, not less; and the root causes are directly linked to the poverty and hopelessness often caused for those at the lower economic rungs when programs are cut. It is a downward spiral, exacerbated under the Douglas administration, that could be leveled or reversed with a more just tax policy that raises income taxes on the wealthiest Vermont individuals and corporations doing business in this state, by financial transactions taxes, and similar policy that shifts resources even as the Estate tax seems to have done.

    Please, “connect the dots” to do what is right and fair. Let’s shift the concept of Vermont legislators as “politicians” back to acting like the public servants we once believed them to be.

  8. Randy Jorgensen :

    ““We’re going to make this small adjustment to the $1.4 billion General Fund budget by insisting that we not raise broad-based taxes — income taxes, sales taxes or rooms and meals taxes,” Shumlin said. “In other words, we are not going to ask working Vermonters to make this relatively small adjustment by raising tax revenues. Vermonters’ taxes are high enough. We will not shift any of this to hardworking property taxpayers who already find that property taxes are high enough.”

    Someone save this quote…. I swear I’ve heard this before from his lips. We all know how that panned out.

    I guess property taxes aren’t “broad-based”? Fair game, folks!

  9. Lance Hagen :

    Let see if I can net out the statement by Jeb Spaulding on 2012 tax changes

    1. Tax code was changed in 2012
    2. People liquidated their assets in 2012 to avoid higher taxes in 2013 and beyond
    3. With all the liquidation in the end of 2012, tax revenues in April of 2013 were higher than expected
    4. With the higher 2013 collected tax revenue, ‘sugar plums’ started dancing in the heads of the ‘spending’ government.
    5. So the ‘spending’ crowd decided to go on a spending spree (which they love to do)
    6. April of 2014 rolls around and personal income tax receipts fell short by about $20 million
    7. Now we hear the ‘Holy Crap’, we must have planned to spend too much and need to cut budgets

    I wonder if the entire 2012 tax change is really the blame for all this.

  10. Kathy Callaghan :

    Let’s not treat this is just another blip on the radar screen. It’s more like a large asteroid ready to crash into the earth.

    Look folks, it is and has been clear for many years that the state cannot effectively manage either budgets or programs.

    There are very few business executives manning the fort. And yet, state government is actually a huge service business. Agency secretaries, deputies and commissioners are mostly culled from the ranks of former legislators or cronies of the governor. These folks are neither subject matter experts in the areas they are asked to head up, nor financially trained executives who have had to meet a budget in the past.

    And it is showing up in the most vulnerable places, unfortunately.

    Vermont’s tax base (i.e., you and I) cannot afford the government it has. It is ludicrous for the state to be relieved when yet another wealthy Vermonter passes away and leaves a large estate tax to help balance the state budget. Yet that is what happens.

    For years the budget writers in Montpelier have relied on one-time funds which dry up the next year. When you build your house on enough sand, it will collapse. Add to that the failed health care exchange, and the $2,400,000,000 single payer fiasco that looms ahead, and you have a perfect storm.

    For the record, I am formerly a Democrat and now an Independent. However, this fall I will vote for as many Republicans as I can to balance the legislature. There are no checks and balances in the legislature at this point. The Governor gets his way 100% of the time. Democrats won’t say no when they should say no, and the few Republicans there are, are not listened to, particularly when they send up legitimate warning flags about single payer. The way to achieve universal health care is not by creating a government-run single payer featuring the same folks who cannot even run the Vermont Exchange.

    The legislature needs to start in January 2015 reviewing all viable means of providing universal health care in Vermont. Let’s get creative before it is too late. There is no legislative will in Montpelier to do anything other than follow the yellow brick road, even though many legislators know that the wizard is really the guy under the curtain.

    I urge Democratic readers to consider breaking with tradition and voting in as many Republicans as possible this fall. I know it may be anathema to some, but it is necessary to restore sanity and balance in Montpelier. Hold your breath and do what is necessary. Perhaps then we can have a balanced legislature and a balanced discussion about what is best for Vermont.

    • Tom Stevens :

      Kathy,
      I moved to Vt a left leaning democrat, but now I vote republican, period. But there seems to be a disconnect between peoples discontent and the way they vote. People were screaming to lower property taxes, but were reluctant to embrace consolidation. So unfortunately for us, regime change looks distant. I hope I’m wrong.

  11. Kim Fried Newark, Vermont :

    Hey with this administration a million here, a million there, 10 million here, ten million there and on and on and on. No accountability nor ethics, it’s just the citizens money so who cares? We need to show this administration that Vermonters do care even if they don’t.

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