Editor’s note: This commentary is by Tom Pelham, formerly finance commissioner in the Dean administration, tax commissioner in the Douglas administration, a state representative elected as an independent and who served on the Appropriations Committee, and now a co-founder of Campaign for Vermont.
[I]t is important that Vermonters understand the realities and weaknesses of the so-called “budget gap” approach to the state budget. Unfortunately, the “budget gap” has replaced the concept of “sustainable spending” that reliably guided Govs. Snelling, Dean and Douglas. The “budget gap” clears a path for higher taxes while “sustainable spending” points toward living within our means. The Joint Fiscal Office, the administration and the media should abandon this unreliable and unrealistic portrayal of the state budget process.
To profile the flaws in the “budget gap” approach, only three documents need to be referenced. Readers should take the time to understand these documents in order to prepare for the 2017 “budget gap … OMG what can be done?” onslaught by the Legislature, governor and, too often, the media.
The three key documents are:
Doc # 2: – FY 2016 Budget Gap Closure.
Doc # 3: Total Appropriations FY 11 – FY 2016.
What we can learn from Doc # 1 is this: At the beginning of the most recent legislative session, reasonable expectations were that general fund revenues would be $1,423.3 million against established state obligations of $1,536.5 million for a “gap” of $113.2 million, an amount 8 percent greater than 2016 expected revenues. This “gap” encompassed such basic state commitments as debt service, transfers to the education fund, state employee and teacher pension responsibilities, expanded Medicaid commitments, among many others. A “gap” at 8 percent is a clear indictment of the failed fiscal policies of the Legislature and governor over recent years, where state spending grew at about 5 percent, far exceeding the 2 to 3 percent growth in the underlying Vermont economy. However, the public relations associated with an 8 percent “gap” are such that even an unsustainable 5 percent increase is portrayed as a “cut.”
Doc # 2 profiles the Legislature’s failed attempt to address this $113 million “gap,” leaving the heavy lifting for fiscal 2017. First, the Legislature increased general fund revenues (aka, taxes and fees) by $31.9 million. This increase, combined with the 2.6 percent or $35.2 million of baseline growth over fiscal 2015, provided the Legislature and governor with new general fund revenues of $67.1 million or a 4.9 percent increase for fiscal 2016. With 4.9 percent new money, the Legislature and governor could sustain their recent history of spending at close to 5 percent year over year, though the underlying economy is growing at less than 3 percent. The higher taxes component of the “budget gap” solution is a very real cost shift of the poor fiscal management of our Statehouse leaders onto the backs of taxpayers.
Secondly and profiled in Doc # 2, the Legislature employed $25.2 million in “one-time funds” to temporarily prop up the 2016 budget. Continued heavy reliance on “one-time” funds in 2016 will certainly hinder making the fiscal 2017 budget sustainable, absent of course, more taxes.
Finally, the Legislature and governor claim they “cut” $56 million from the budget, also profiled on Doc # 2. Here the truth is tenuous at best and more likely a bunch of malarkey. The almost $19 million in “labor savings” and “NonAHS” reductions are substantially real. Eliminating positions, closing PSAPS, phasing out Vermont Interactive Television and state funds to Vermont Public Television are as real to these organizations as the tax increases mentioned above are to taxpayers.
However, the $37 million in reductions at the Agency of Human Services (AHS) are highly suspect. The Doc #2 profile leaves the impression that the AHS budget was actually cut. However, one can go to Doc #3, pages 11-17 and see that AHS departments actually received a $40.6 million increase in general funds, or 6.5 percent over fiscal 2015. Inclusive of all state funds (general, education, special, tobacco, and state health care funds) one can do the math and see that AHS funding was increased from $1.016 billion to $1.064 billion, or $47.9 million or 4.7 percent. Further, federal funds for AHS increased by another $32.5 million.
The Doc #2 profile leaves the impression that the AHS budget was actually cut. However, one can go to Doc #3, pages 11-17 and see that AHS departments actually received a $40.6 million increase in general funds, or 6.5 percent over fiscal 2015.
In the context of such large funding increases for AHS by the governor and Legislature, it’s hard to understand that the AHS reductions profiled in Doc #2 are as real, for example, as the tax increases placed upon Vermonters or the real cuts to state employees or Vermont Public Television. Many of these reductions could be “situational” rather than “structural” in nature, or cost shifts from general funds to other funds. Recent reductions in gasoline and fuel oil prices for example are situational, allowing consumers to spend less for the same level of benefit. At AHS there are always situational reductions such as caseloads growing more slowly than anticipated, federal funds available to supplant state funds, etc.
We will know, however, that the AHS reductions profiled in Doc #2 are structural if changes in program eligibility or benefit levels are filed with LCAR, the Legislative Committee on Administrative Rules. To ascertain whether the reductions at AHS are structural or situational, an investigative reporter might seek to match each of the Doc #2 AHS reductions with whether or not the reduction requires LCAR review and approval.
Looking forward to fiscal 2017, the governor and legislators are hoping for more favorable fiscal winds. The state’s current “official” revenue estimate projects that general funds will increase in fiscal 2017 by 4.3 percent or $59.6 million over fiscal 2016. Cross your fingers! Adding this baseline increase to the new general fund taxes just agreed to by the Legislature and governor means fiscal 2017 general funds should be up almost 7 percent or $90 million from pre-session expectations.
With such an increase on the horizon for the next legislative session (and assuming the 2016 AHS reductions are not malarkey), the governor and the Legislature should readily be able to eliminate the one-time funds propping up the 2016 budget, end any “budget gap” discussion and put state government back on a sustainable spending course. Should such not occur, hopefully the media will no longer be seduced by scary “budget gap” discussions, but rather explore more intensely why our state leaders can’t manage the state budget responsibly.
