Editor’s note: Jon Margolis is VTDigger’s political columnist.
[I]sn’t it amazing how state officials discovered – as if by a miracle – $55 million in unexpected revenue just days before the Legislature has to adopt the fiscal year 2019 budget?
That’s not chump change, 55 million smackeroos. That’s a lot of money to show up without advance notice.
No, there’s no hanky-panky going on here. It’s all on the up-and-up. For various reasons, more businesses got sold and more capital gains cashed in than expected.
Still, it does come close to blowing the mind that the extra money came along just in time to be added to the plus side of the budget, the revenue that the state can use to pay its bills? Is this not extraordinary?
No, it is not. In the words of an old movie title, it happens every spring.
Or at least something like it happens almost every spring. Not just in Vermont, either, though the fiscal calendars of other states might mean that something like it happens every winter or fall. But in public finance (and often enough in private finance) there is nothing bizarre about a big chunk of cash appearing as if out of the blue at just the right time. The working motto of budget appropriators could be: “look what I found.”
Again, this is not because anybody is doing anything wrong. Finance and Management Commissioner Adam Greshin and the Legislature’s Chief Fiscal Officer Stephen Klein are honorable gentlemen. Neither is hiding huge hunks of money only to reveal them at the last minute.
But on one level a state budget is a collection of abstractions fully understood by almost nobody (maybe not even Greshin and Klein). It includes various funds, accounts, reserves, and carryforwards (look it up) which are constantly in flux, receiving money from various sources, including each other, and dispersing money to various recipients, again including each other.
No wonder substantial sums can appear (or disappear) toward the end of every fiscal year.
On another level, there are times when specific sections of the state budget have to have actual money in them, enough to cover the checks or electronic payments to state employees and vendors, school districts, welfare recipients and other people and entities to whom and to which the state owes actual money.
But this actual money bears only a modest resemblance to the $5.8 billion in the budget approved by the House or the very similar $5.85 billion in the budget approved a few days later by the Senate.
To begin with, most of those billions are from the federal government. State funds – the money that has to be raised from Vermont taxpayers – add up to a little more than $2.5 billion of the budget passed by the Senate.
That’s an increase of only seven-tenths of 1 percent over the state funds total last year. That tiny rate of growth helps explain why the Senate passed the budget bill unanimously, and why the House passed its version with only 10 no votes.
But it wasn’t good enough for Gov. Phil Scott, who said on Wednesday, “the budget approved last night by the Vermont Senate raises taxes and fees, and grows faster than Vermonters wages.”
(The preceding sentence is a translation into standard English from the governor’s original Twitterese, with its ampersands and abbreviations, which will be avoided here whenever possible).
Scott’s arithmetic seems to have been off, too. He may have confused the projected general fund growth for next year of 2.8 percent, which does outpace the growth in Vermont incomes, with the 0.7 percent increase in all state funds, which does not. There are different ways of measuring the growth of wages and salaries, but by any of them Vermont incomes are going up by more than 1 percent a year.
In both cases, the growth is projected. It is not guaranteed by some supernatural force. Most budget forecasts are projections, based on assumptions. The assumptions are not invented out of the ether. State officials base them on available data. But the data only describe what did happen and what is happening, not what will happen, which can only be projected.
“Projected” is not the same as “guessed at.” But it isn’t all that different, either. Hence the gulf between “the budget” and the real world.
As legislative budget analyst Mark Perrault told a House committee last week, “it’s highly speculative to book savings five years out. You can hope that we save money, but there is no guarantee.”
Perrault was discussing Scott’s plan to hold down education spending over the next five years. In explaining how their plan would work, administration officials distributed a document with a colorful bar graph showing how all their proposals would balance out, with the education fund operating deficit shrinking from today’s $58 million to nothing, “one-time transfers” all repaid by the end of fiscal year 2023, and more money available for investment.
On the graph it works perfectly, with the blue, the green, and the purple bars squared up, the red (the education fund deficit), the amber and the yellow (transfers that would be repaid) gone.
Whether it will all work perfectly in the real world is debatable. That depends on projections, based on assumptions, one of which is that the “grand list” – the value of taxable property – will grow by an average of 3.25 percent each year for the next five years.
Maybe it will. But as House Speaker Mitzi Johnson noted the other day, the country is now a few months away from experiencing the longest period of economic growth in its history. This growth could go on forever. But it never has. An economic slowdown would knock that grand list assumption into a cocked hat, whatever a cocked hat is (apparently an 18th century tricorn with a turned up brim).
Not to mention that the pretty blue and green and purple graph will only turn out to be a prediction as opposed to a pipe dream if the Legislature goes along with Scott’s formula to change the staff-to-student ratio, and if that ratio actually changes in response to whatever the Legislature decides, neither of which is certain.
But it’s OK. It’s only part of a proposed state budget, meaning it needs only a tenuous connection to reality.
And who knows? Maybe at the end of the 2023 legislative session, officials will discover a big pile of unexpected money.
