Jim Reardon, Vermont’s commissioner of Finance and Management, sent a memo to agency and department heads in October urging them to cut 6 percent of their budgets – in addition to reductions they’ve already made in three previous years of belt-tightening.
That earlier austerity under the Republican administration of Gov. Jim Douglas included a 3 percent cut in employee wages, Challenges for Change government restructuring savings, and the elimination of roughly 660 positions resulting from state efforts to make permanent cuts in spending.
As for future increases in agency caseloads? Reardon has asked departments to absorb any additional costs the state may face because more Vermonters are seeking assistance through Reach Up, Catamount Health, Dr. Dynasaur, the Vermont Health Access Plan and a host of other services.
Departments that might see an increase of say 6 percent in costs for programs will have to find 12 percent in total savings under Reardon’s budget exercise recommendation.
Reardon, 52, who will stay on in his role as commissioner of Finance and Management, is working with the Democratic transition team to craft Gov.-elect Peter Shumlin’s recommended budget, which will be presented to the Legislature on Jan. 25.
The new governor and lawmakers face an 8 percent budget gap in January, or about $112 million out of the $1.4 billion General Fund budget.
As lawmakers and Statehouse observers well know, devising a fiscal year 2012 budget that doesn’t create deeper cuts in services and further reductions in staff is going to be no small task. The federal stimulus funds have been spent, the “easy” cuts have been made and the current year’s budget gap looks something like a sheer cliff.
Click here to see the Vermont Joint Fiscal Office’s budget gap analysis chart.
Shumlin has said he won’t eliminate jobs, raise taxes or dip into the state’s exigency or stabilization fund (a.k.a. the rainy day fund). During the campaign, he declined to give concrete examples of how he would address the current year’s fiscal difficulties except to say that his signature programs – health care and corrections reforms – would create long-term budget savings. His proposals, which didn’t provide detailed information regarding fiscal year 2012, were criticized for their lack of specificity. In the intervening month since his election, Shumlin has not yet indicated how he will resolve the gap, though several Democratic members of his newly appointed administrative staff – state Treasurer Jeb Spaulding and Senate Appropriations Chair Susan Bartlett – are regarded as budget hawks.
Reardon’s recommendation that state officials find 6 percent savings in operations drew a collective gasp, but, as the reality of situation sinks in, such drastic cuts aren’t outside the realm of possibility.
What those program and service changes might look like within the context of the governor’s budget recommendation is anyone’s guess at this point, but responses from soldiers on the ground are in. The department commissioners submitted their written submissions to Finance and Management in October, and since then Reardon has met with them to discuss their options. The information he has gathered has been made available to the players in the ingoing and outgoing administrations, but has not been announced publicly because, Reardon says, it is protected under administrative privilege.
So where does the process go from here?
Reardon said he’ll go through the responses and determine what departments need to “pretty much achieve current service levels.” Then he’ll go through the program and service budget numbers and compare them with available revenues to identify the latest iteration of the budget gap. At that point, Reardon and Shumlin’s team will have to decide how to resolve the discrepancy. (Any budget adjustment recommendations from the department will be rolled into the 2012 budget. Reardon declined to cite a figure.)
The transition, so far, is going extremely well, Reardon said: “Our instructions from (Gov. Jim Douglas) is to make it the best transition and to be of every possible assistance.”
He said Gov.-elect Shumlin’s two key transition team members – Spaulding and Bartlett – have longstanding relationships with the Douglas administration and that will aid the budgeting process immensely.
“It’s not like you’re bringing in people who are completely in the dark about state government as it relates to finance and policy,” Reardon said.
Inside Finance and Management
How will Shumlin’s budget be created? As it turns out, not so differently from that of his predecessors’, according to Reardon and his right-hand man, Otto Trautz.
Though priorities might shift somewhat from year to year, depending on which political party is in charge of the executive branch and the two bodies of the Legislature, the budget, in Trautz’s view, is first and foremost a historical document.
Trautz: “The budget didn’t just fall off the turnip truck, there’s a history and reason for expenditures over time.”
The budget consists of “the competing demands of program needs and revenue deemed available,” Trautz said. “The program needs are in large part a product of history. The budget didn’t just fall off the turnip truck, there’s a history and reason for expenditures over time.”
Trautz, 68, the director of budget and management operations, has served in the office of Finance and Management since 1980 under five governors and 15 different legislatures. Trautz is now retired, after 39.5 years in state government (he worked in the Department of Corrections and for the court administrator in the 1970s), though he’s helping Reardon out with the fiscal year 2012 budget as a part-time temporary employee.
Reardon and Trautz have worked together so long (since 1994) that they finish each other’s sentences, and they seem to rarely differ on the finer points of budget-writing.
Reardon described how governors have shaped budgets over the years by making policy commitments that have had long-term impacts on spending patterns. He cited Democratic Gov. Howard Dean’s VHAP program and Republican Gov. Jim Douglas’ support for Catamount Health as two examples of programs that continue to affect the way state money is spent.
“Those are commitments you can’t turn aside every year…,” Trautz interjected.
“…Without changes in law,” Reardon said, finishing the thought.
Political winds can affect particular programs and services, but by and large the budget is something of an immutable object, they said.
“How much the budget changes or even is subject to change is sometimes overestimated,” Trautz said. “It’s not as if you start fresh. It’d be foolish to try to because of the context the budget really lives in. It’s a palimpsest.”
Even given the overall predictability of the budget, putting together the governor’s recommendations is far and away the most difficult task the finance duo faces.
Trautz says the first week of January haunts his thoughts all year. The budget office has to be able to deliver high quality work on a tight deadline. The results, he said, are tested and questioned by the Legislature, and the budget office has to “be able to defend them all the way through.”
“The budget waits for no man,” Trautz said. “When the Legislature shows up on Jan. 5, and the governor by statute has to give his budget address by the third Tuesday of the session … things have to be ready. It’s not as if you can say we’re not finished … There is this imperative as to when things have to be ready for action. And the committees in their own way have their own imperatives.”
Reardon said he anticipates a slow economic recovery over the next several years, and that makes resolving the gap in fiscal year 2012 more difficult. He said whatever recommendations his team makes to the governor, he wants to make sure “we fully understand those recommendations in terms of their impacts on programs and services.”
“The budget gap is the budget gap,” Reardon said. “It didn’t go away when Sen. Shumlin got elected, and it wouldn’t have gone away had Lt. Gov. Dubie gotten elected.
“The incoming governor, as opposed to his opponent or the current governor, may have different approaches to closing that gap, but nevertheless it’s got to be closed,” Reardon said. “2012 is an extremely important year as to how we close that gap and put the budget on a sustainable basis, so as we have this slow recovery, we’ll be in a better place. If we just patch fiscal year 2012 together, then it’ll be the dog wagging the tail for the next several years.”
The art of sustainable budgeting
In the past, Trautz and Reardon have tried zero-based budgeting, or scrapping the budget for a given department and starting from nothing, with little success.
Trautz said Democratic Gov. Madeleine Kunin tried zero-based budgeting in the 1980s to satisfy campaign promises, but it wasn’t effective.
“John Dooley (Kunin’s secretary of administration at the time, and now a Vermont Supreme Court justice) was carrying around satchels of budget papers, struggling under the weight of these budgets, but … nothing changed,” Trautz said.
The principle that took hold when Republican Gov. Richard Snelling was elected in 1990 was sustainable budgeting, Trautz said.
“That term became central to anything that goes on here,” Trautz said. “It refers to the difference between ongoing and one-time commitments. Whatever the revenue stream – and that’s really where the fluctuations are – we need to look at a longer-term spending track and not commit ourselves to ongoing programs with an unsustainable funding source. That’s really the tension between people who see an opportunity to spend on good things and those who are concerned with the longer term.”
When sustainability is the central concept, the spotlight is on revenues rather than program needs, Trautz said.
When Reardon first became commissioner in 2003, he tried to rebuild the budgets for the Department of Public Safety and the Department of Health, but he said there was no substantive difference in the outcome.
“Once we took it down to (zero) and built it up again, we pretty much ended up with what we had in place,” Reardon said.
Though Reardon is a proponent of sustainable budgeting, which remains the guiding philosophy in state government, he believes budget writers should look at program needs and services first to determine “whether they’re operating efficiently and effectively and whether they reflect the priorities of the Legislature and the administration before you commit to finding additional revenue.”
“To me you always look at the spending side for opportunities before you necessarily commit to needing additional revenues,” Reardon said.
Reardon: Challenges could make budgeting less subjective
Reardon firmly believes the state needs to continue the Challenges for Change government restructuring effort that began in the 2010 legislative session. He said asking departments to do more with less is essential.
“I actually think it should be expanded to more areas of state government,” Reardon said. “I haven’t given a lot of thought of where it should go next, but I certainly think it should be extended across state government.”
In October, Reardon told the Government Accountability Committee that the state would fall short of the fiscal year 2011 target of $38 million by about $7 million. Reardon found one-time money to fill the void.
Next year’s $72 million target is “a pretty significant bogey,” he said.
“I don’t know if it’s a little too ambitious, but I definitely think we should continue to roll out this initiative and assume some savings,” Reardon said.
In the future, Reardon said the Challenges initiative could change the way budgets are presented by departments and agencies. Instead of only reporting budget numbers, commissioners and secretaries will be required to present data that show whether or not a given program or service is successful.
“Then you can evaluate whether you want to put more dollars into it, or, in the case of a program that’s not working, whether you want to go a different direction and eliminate that particular program,” Reardon said.
In theory, that process could make state government more agile, though some programs and services would take years to evaluate.
“If you’re doing early intervention programs for children, in terms of getting them ready for school, you probably see some near-term results, but you probably have to find some long-term results,” Reardon said.
He cited the Blueprint for Health as an example of a program that is supposed to provide early intervention and prevention for patients that could need more costly treatment down the road for diabetes or other chronic diseases. “Those savings could be years out,” he said. “So you’d hope to have more near-term measurements, but you also have long-term measurements that you have to monitor for a while.”
The art of finance
Despite the long hours and serious nature of their work, Reardon and Trautz manage to have some fun. Neither man professes to have a hobby — Reardon dabbles in carpentry, fishing and hunting, though he says he doesn’t have much time, and Trautz is a storyteller for the monthly Montpelier MOTH program. (Trautz jokes that when he retires, he’ll try to finish reading the novel he started when he took the job in 1980 — “Zen and the Art of Motorcycle Maintenance.”)
It would seem that Reardon and Trautz both enjoy number-crunching so much that they don’t need outside interests.
In fact, they first bonded over a Sunday morning confab over the budget in 1994. Reardon, who lives in Essex Town, was working for the Agency of Human Services at the time, and he needed some information and called Trautz, who happened to be in the office.
“We’ve been in here a lot of Sunday mornings since then – and Saturdays,” Reardon said.
“People talk about the office,” Trautz said. “I think of it more as a workshop, and perhaps even a studio or a laboratory, because you’re doing all these wicked interesting things, and the budget office is fortunate in one way and that is in large part, we set the rules for how these things are going to be done.
They keep “budget development” safety caps (construction hardhats) on hand. A whistle dangles from Reardon’s door, in case he needs to call the troops.
“We all have inline skates in case we need to make a visit to Jim’s office,” Trautz jokes.
Reardon says: “We may operate like a MASH unit, but we’re good at what we do.”
So good, in fact that the department is a two-time winner of the Certificate of Achievement for Excellence in Financial Reporting – the highest recognition in government accounting and financial reporting – from the Government Finance Officers Association of the United States and Canada for its 2008 and 2009 comprehensive audited financial reports.
Trautz, who lives in Montpelier, has a working memory of the complex budget statutes, and he combs the hundreds of pages of budget language in the Big Bill every year. He said two-thirds of the legislative act, which is typically 1,000 pages long, is filled with budget language that must be carefully parsed.
“If you make your way through the words, you can see how many strings are attached and how many angles there are – different things you have to satisfy to spend the money,” Trautz said.
Trautz, though, finds a way to make his analysis of the budget – and its complex language – interesting for non-accounting types, maybe because the Harvard master’s program graduate isn’t an accountant himself, but a self-taught finance expert.
During the meetings with the House Appropriations Committee last year on the Budget Adjustment Act recommendations, Trautz brought a stuffed animal and a baby blanket to illustrate to lawmakers that it was time to put the budget to bed. (See the video clip at the end of this post.)
“People talk about the office,” Trautz said. “I think of it more as a workshop, and perhaps even a studio or a laboratory, because you’re doing all these wicked interesting things, and the budget office is fortunate in one way and that is in large part, we set the rules for how these things are going to be done.
“We write the budget instructions,” Trautz said. “We always feel that it’s your own project that you’re pursuing, and that way you can feel you’re putting your own imprint on it. That’s what has kept me so interested over the years is that it’s ours. And it’s in a real-time environment. You’re doing something that not only people care about but they hang on every word when you go to a committee. You have a built in audience for what you’re doing. What could be better?”
