House committee absorbs dire budget gap warnings

Next year’s budget won’t be drafted until January, but members of the House Appropriations Committee got a taste Wednesday of what they can look forward to when the Legislature reconvenes in 2014: budget shortfalls, increased costs and unfunded pension obligations.

Between dismal financial updates, committee members discussed how to prioritize allocation of the state’s limited resources and evaluate funding requests amid the now-chronic coupling of increased state costs and reduced federal funding.

Martha Heath presenting the budget on the House floor. VTD/Josh Larkin

House Appropriations Committee Chair Martha Heath. Photo by Josh Larkin/VTDigger

Appropriations Committee Chair Martha Heath, D-Westford, warned her colleagues they would face a lot of competing demands in the coming months, and “the pressure not to make … changes is going to be very great,” she said.

The gaps

The current fiscal year 2014 budget, which runs through June 30, is likely about $12 million short, according to preliminary estimates by Department of Finance & Management Commissioner Jim Reardon.

“Budgets are estimates, and sometimes they need to be further adjusted,” he said, noting that he’s pleased with how little adjustment is needed so far. “Less than 1 percent, it doesn’t get any better than that. I just wish it was 1 percent the other way.”

Reardon said Gov. Peter Shumlin’s administration has committed to delivering a request for budget adjustments by Dec. 2 to the House Appropriations Committee, in hopes of resolving the most immediate budget pressures before turning attention to even greater gaps in the near future.

Jim Reardon, commissioner of the Department of Finance and Management

Department of Finance & Management Commissioner Jim Reardon.

He doesn’t expect future congressional funding to be finalized in time for the state’s own budgeting process, however. He said departments have been instructed to request budgets in line with federal funding from last year.

Joint Fiscal Officer Steve Klein reiterated his prediction that the state budget would fall roughly $56 million short in fiscal year 2015, just from previous one-time funds that will no longer be available. Other discrepancies bring the annual gap even higher in the coming year and into FY 2017.

“We’re looking at a $70 million problem,” Klein said. “If you do not create revenues, that’s what you need to solve with reductions in spending.”

Klein said the gap is revealed most clearly in funding for education, Medicaid and retirement obligations. He added that the state’s Rainy Day Fund is nearly depleted, and there’s no money earmarked for technology improvements.

“We have no known source for technology funding,” Klein said. “Without … a regular source, it leads to other problems. It would be nice to have $10 million.”

State Treasurer Beth Pearce was more blunt in her plea for complete funding of the teacher retirement system. She closed the meeting with a stark warning about unfunded health care liabilities — costs that she said cannot continue to be covered by the pension fund.

“I understand the budget constraints you live in, but this one is costing us a boatload of money,” Pearce said.

Saying the retirement system is nearing a “tipping point,” Pearce blamed its woes on poor judgment in the past. She said actuarial improvements, benefit restructuring and “modest” increases in health care funding have helped stabilize the system, but a serious infusion of resources will be needed to keep it from accruing more debt that will balloon as it ages.

JFO Chief Fiscal Officer Stephen Klein. VTD/Josh Larkin

JFO Chief Fiscal Officer Stephen Klein. Photo by Josh Larkin/VTDigger

Pearce asked for as much as $20 million of additional funding for teacher health care costs.

What’s a committee to do

Reardon, Klein, Pearce and several lawmakers noted that the message delivered Wednesday was not new. Pearce, in particular, said she had been warning of the same tipping point since 2009.

Klein acknowledged the conundrum: The biggest “chunks” of the state’s roughly $1.3 billion General Fund budget are not easy costs to cut, but the remaining 28 percent of the budget is too small to find so much in savings.

As committee members shared their priorities for the next round of budgeting, Rep. Kitty Toll, D-Danville, hinted that she wanted to re-evaluate well-established appropriations traditions.

“I know there are some untouchable things,” she said. “I’d like to touch some of those things.”

Toll didn’t want to hazard an example on the spot, but other representatives caught on to her thinking, which aligned with another item on the committee’s agenda for the day: Results-Based Accountability.

Twenty existing programs have been identified for a pilot run of RBA principles applied to the budgeting process. When the appropriations committee evaluates those funding requests, they’ll look at finances alongside measurable program outcomes to help determine if the money is being well-spent.

Correction: This article was updated on Oct. 31, 2013, to reflect that the fiscal year 2015 budget gap is approximately $70 million, and to remove the statement that $15 million of the $20 million Pearce is requesting is included in Klein’s predicted budget gaps. 

Hilary Niles

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  • James Ehlers

    Perhaps we should also be looking at complete reform of the tax code.

  • Keith Stern

    But all is good according to Moodys.

  • David Usher

    “Twenty existing programs have been identified for a pilot run of RBA principles applied to the budgeting process. When the appropriations committee evaluates those funding requests, they’ll look at finances alongside measurable program outcomes to help determine if the money is being well-spent.”

    Focused Accountability by measuring results should be standard practice. Taxpayers have a right to know that their dollars are wisely spent, particularly as they are in short supply.

    The tools for measuring results are available. Here’s hoping legislators will take advantage of them.

  • Charles Root

    Didn’t Vermont just spend tens of millions of dollars to develop a website for the Health Care Exchange?

    All in an effort to put 100,000 people on insurance. Something that could have been done by hiring 20 to 30 people temporarily and have them contact the 100,000 directly and save tens of millions of dollars.

    Perhaps an entire audit of where we could cut government in Vermont is in order before we start talking about additional revenue.

    • Moshe Braner

      But, Charles, “technology” is the religion of the age. Giving jobs to humans to help sign people up, instead of spending hundreds of dollars, per potential person to be insured, on poorly working “technology”, is just, well, heretical. Note the specific lament up above in the article about a lack of money for “technology improvements”. As you know, you can eat “technology”, and it also keeps you warm in winter. Or not. ’nuff said.

  • Craig Powers

    Wait until the politicians really start to run out of $$$ when single payer financing really begins to stress them out after a few years of being in place.

    I have a suggestion…send all your problems over to the VT Senate so that Sen. Ashe can think about it for a minute and a half and say “let’s find a new revenue source to fill the gap”.

  • Kathy Callaghan

    Once again, I challenge the Legislature to apply this “new think” to the “single payer” statute before it’s too late.

    It is unimaginable that something of this magnitude is so bereft of publicly available unbiased critical analysis, which to date has been notably lacking or vigorously opposed.

    With these large budget holes now existent and greater ones predicted for the future, Vermont taxpayers will have to pony up the money to fill them first, before the estimated $6.1 billion cost of single payer.

    We can’t tax cut our way out of this morass.

    Is anyone looking at Vermont’s financial state in its entirety? If so, why aren’t legislators addressing it straight on, instead of continuing to believe that Vermonters can afford this ill-conceived health care scheme, in addition to the decreasing federal funding and gaping budget holes? Common sense would tell them to do so.

    It is fair to ask this question, as to date we have heard nothing from any legislator regarding revisiting the viability and affordability of the proposed Green Mountain Care system.

    Legislators do not appear to share the concerns of their constituents, the Vermont taxpayers. I would feel better if I were hearing some objective and unbiased conversation from lawmakers, in addition to the significant amount of concern among their constituents. After all, this is their responsibility. At least take a look at it, for heavens’ sake!

  • Jim Christiansen

    Unfortunately, this is just part of the recipe for Vermont’s fiscal stew.

    Add in municipal rate increase at 3+%, local school increases at 5+%, reductions in Federal funding (sequester and beyond) and increases in Federal taxes (part of any future budget deal).

    Stir well and hang on.

  • Phyllis North

    It seems we hear about these huge shortfalls every year. What they amount to is looking at what we would spend if we keep going the way we are. What we need to do is look at some changes in spending priorities.

    As for the entire budget, how about looking at last year’s total number and saying we should only increase it by 1.5% (that’s the current inflation rate). I bet the increase would be much higher than that if we tried to fund all these “shortfalls.”

  • Cynthia Browning

    First, we need a framework that shows us how much is allocated to different uses in the Budget, the Capital Bill, and the Tax Expenditures.

    Then, we need to apply results based accounting to all of those amounts. Then we need to evaluate whether our allocation of resources in that unified framework is the most effective way to achieve our goals.

    Then we need to do thorough tax reform that would lower all rates significantly by eliminating special provisions and broadening the tax base. Once the rates are low, there will be less need for certain groups or activities to get tax credits or exemptions.

    And in terms of those goals? I think that government needs to do all the basic functions like transportation, judiciary, law enforcement, education, social support, and so forth REALLY WELL before looking to take on big new obligations.

    Rep. Cynthia Browning, Arlington

  • Wayne Andrews

    So Ms. Pearce wants more money to completely fund teachers retirement and health care costs? These individual and bringing home $55-70 thousand a year and us working stiff need to fund it more? Get real!

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