Federal program cuts could last a decade

House Appropriations Chairwoman Martha Heath, left, and Mitzi Johnson, D-Grand Isle-Chittenden, take notes during Tuesday's hearings. Photo by Josh Larkin.

House Appropriations Chairwoman Martha Heath, left, and Mitzi Johnson, D-Grand Isle-Chittenden, take notes during Tuesday’s hearings. Photo by Josh Larkin.

The state’s economy is creeping out of the Great Recession in slow growth mode, slightly ahead of the rest of the country, but that recent soft glow in the tax revenue picture is about to dim.

Budget-writers who have been attempting to get state government in trim over the last five years will not get a reprieve from axe-wielding any time soon. New programs based on federal funding will be out of the question, and the state’s current heavy reliance on greenbacks from D.C. will likely mean much deeper cuts to existing programs over the next 10 years.

That’s because ongoing federal cuts to an array of state programs and services are projected to last at least a decade, and the state doesn’t have the funds to make up the difference, state officials say. As it is, lawmakers and Gov. Peter Shumlin used $50 million in one-time funds to balance the 2014 budget. That gap will be folded into next year’s budget at a time when revenues continue to lag behind pre-recession levels.

“There’s no way there’s going to be enough money to backfill federal program cuts,” Sue Zeller, deputy commissioner of the Department of Finance and Management, said. “It’s going to be a tough year because of that.”

A 16-page report from the Vermont Joint Fiscal Office released last month shows that Vermont could see tens of millions of dollars in annual program reductions in a broad swath of public services — everything from transportation funding to food stamps, law enforcement and the justice system, education, anti-poverty programs, scientific research, energy investments, environmental protection, agricultural programs, humanities programs and veterans services.

Steve Klein, the director of the Joint Fiscal Office, says the report is meant to be a cautionary, preliminary assessment, not a definitive rundown on how the cuts will affect state government. “It’s not something you can build a budget on,” Klein said. But it sends a message, he said, that federal funds will no longer be available to solve state problems.

“What we’re seeing in the reduction in federal funds today is something we’re going to be living with for 10 years or more,” Klein said.

How are the state’s budget-writers planning for a hodgepodge of yet-to-be released reduction amounts? They aren’t. Without more detail there isn’t much they can do. But one thing is certain: For the foreseeable future, Klein says, the Legislature and the governor’s office will have to be more “cautious about building programs that rely on future federal funding.”

Over the past five years, Vermont’s budget-writers have become increasingly reliant on federal funds. In 2009, the state balanced its books with $1.355 billion from Washington; in 2014, that amount climbed to $1.851 billion.

Though there is uncertainty about just how much the feds will cut and in which programs, an analysis from the Congressional Budget Office breaks down the cuts by category and shows the difference between the House and Senate proposals for 2014. (Meanwhile, the sequester cuts for 2013 have not yet been fully felt, the JFO reports.)

Here are a few of the big-ticket items that could be cut in Vermont:

  • Depending on how the reauthorization of the transportation budget pans out, the state stands to lose between $30 million and $62 million in 2015, analysts project.
  • The federal “global commitment” waiver for funding of non-Medicaid health care related expenditures is worth $50 million to $60 million. If the waiver is extended, it will likely be level-funded or lowered. The state’s regional mental health system will increase demand for this source of federal funding.
  • The state’s health care exchange has been largely funded by the federal government. Even without cuts, the state is expected to come up with $18 million to $20 million in support for the program in future years.
  • The Low Income Heating Assistance Program and the state foodstamps program will both likely be reduced.
  • Furloughs for federal employees may continue.
  • Programs like the Vermont Humanities Council could see federal grants shrink dramatically.
  • Student loan interest rate supports will be diminished.

For years, the state has received more money for transportation from the federal government than it contributed. That state of affairs will likely change. Sue Minter, deputy secretary of the Agency of Transportation, says the new transportation reauthorization bill proposal for 2015 favors large states over small ones like Vermont. Minter also worries about the stability of the federal highway trust fund which is losing money at an alarming rate because federal gas tax revenues have been dropping.

Both factors could have an impact on the state’s ability to keep bridge reconstruction and other projects in the pipeline, she said.

“We have a lot of risk out there in the language of the reauthorization bill,” Minter said. “It’s possible they won’t spend money for transportation at the level they do now. We use federal matches for almost all of the big projects going on out there. For us, the best case scenario is for the Continuing Resolution to continue, for the federal government to spend at level they are now. We’re hoping that’s where it comes out.”

The House and Senate split

David Carle, spokesman for Sen. Patrick Leahy, D-Vt., says the JFO report “illustrates that federal spending has a significant role in Vermont’s economy and Vermont’s communities, that federal spending is declining, and that sequestration makes it worse.”

“Before sequestration, Congress and the President already acted to reduce the debt by $2.5 trillion, with the vast majority of those savings coming from spending cuts,” Carle wrote in an email. “That is why Senator Leahy voted for a budget plan in March to replace sequestration and start moving forward with an appropriations process to fund the government at adequate levels and to set sensible priorities for the coming year, instead of the mindless autopilot mechanism of sequestration.”

With the exception of funding for Veterans Affairs, the U.S. House budget proposal for fiscal year 2014 includes $76 billion in cuts that average about 7.7 percent across 12 key areas. The House, which is dominated by Republicans, wants to cut transportation and housing programs by 15 percent; environmental protection by 18.6 percent and human services by 22 percent.

The U.S. Senate, which is almost evenly split between Democrats and Republicans, is proposing $15 billion in reductions, or average cuts of about 1.4 percent in fiscal year 2014.

Social services for the elderly are projected to squeeze the federal budget as a result of Baby Boomer retirements and ongoing raids of the Social Security Trust Fund and dramatic growth in health care costs. Over the next decade, Medicare spending is projected to represent an ever-larger wedge of the pie. Health care spending is projected to grow from 5.7 percent of gross domestic product in 2011 to 17.2 percent in 2085.

Carle says Leahy is disappointed that a minority in the Senate, who favor cutting government programs for the needy, “would rather see sequestration continue than close tax loopholes that only benefit the wealthy and that pad growing corporate profits.” Leahy hopes Republicans and Democrats “can come together in goodwill to solve this self-inflicted problem.”

Anne Galloway

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