Gov. Phil Scott on Tuesday presented a state budget for the current fiscal year that addresses a $180 million deficit caused by the Covid-19 pandemic without making major cuts to existing programs or services.
The governor proposes using the remainder of the Covid-19 funding Vermont received from the federal government in April for a series of initiatives, including $133 million for additional grants for businesses strained by the crisis.
Outlining the fiscal 2021 budget at a morning press conference, Adam Greshin, Vermont’s finance commissioner, said the plan represents a “calm hand on the tiller steering through turbulent water.”
“We’ve kept the calm hand because we believe, and continue to believe, that this is not the time for major changes, that the dust has still not settled, that there are still a fair amount of questions that haven’t been answered, both in Washington as well as in Vermont, in our economy and our revenue stream,” Greshin said.
Last week, Vermont’s economists projected that the state would fall $182 million short in the current fiscal year because of the financial strain posed by the Covid-19 crisis.
But despite previous projections that the fiscal 2021 budget would contain austerity measures and proposals to cut spending, Greshin said the spending package “doesn’t vary dramatically in terms of the services we provide, the programs we fund, and the people we employ,” compared to the previous year.
It also does not rely on reserve funds.
The budget proposed by the Scott administration relies largely on a surplus from last year to fill the hole caused by the pandemic.
In July, after Vermonters filed their 2019 taxes, state officials reported an unexpected revenue boost, and estimated that about $110 million could be used to help address this year’s budget woes.
The tax revenue that came in ahead of the July tax deadline reflected earnings in 2019, when the economy was still strong.
With the roughly $110 million surplus, plus leftover savings from an emergency budget adjustment the governor signed earlier this year, the administration was able to come up with $130 million for this year’s budget.
In addition, Greshin said that the administration was able to move $30 million of revenue that wasn’t spent last year into the current fiscal year.
Greshin said these dollars came from the fact that state government had to “curtail” certain services at the outset of the pandemic — limiting state employee travel budgets, and delaying the opening of state parks, for example.
The state has also benefited from increased Medicaid payments from the federal government.
After the Covid-19 crisis, the federal government increased the rate at which it matches state spending on Medicaid by over 6%.
These increased Medicaid rates are expected to continue in the coming months, and Greshin said that means Vermont can save $40 million.
Although the Scott administration said the budget didn’t include cuts to “essential programs,” Vermont’s state government was still asked to reduce spending. On average, departments and agencies cut spending by 2.2%, resulting in $40 million in savings.
Greshin said the hiring freeze the state put in place during the pandemic helped the state reduce spending.
Organizations that receive money from the state including the Vermont Symphony Orchestra, the Vermont Humanities Council, the Vermont Arts Council, and the Vermont Historical Society were asked to reduce their budgets by 3%. This led to $62,000 in savings.
A complete breakdown of the budget’s proposed spending was not available Tuesday.
Legislative leaders expressed concern that the governor’s budget did not directly include “bridge funding” for the struggling state colleges.
Two reports released in June found that the state college system needs $30 million in additional funding this year to address its budget shortfall.
Scott proposed using $30 million of the federal Coronavirus Relief Fund dollars—as opposed to state funds— for the state college bridge funding. The federal government allocated $1.25 billion to Vermont through the relief fund in April.
However, under current law, those funds only be used for the state to cover expenses related to the Covid-19 pandemic, and can’t be used to address budget shortfalls.
States have been pressing the federal government to give them additional flexibility for using the Coronavirus relief fund dollars. But under the governor’s budget, the state college funding would be contingent on it granting that additional leeway.
“I am worried about what happens to the state colleges under the Governor’s plan if the feds say ‘no’ to using CRF funds for that purpose,” Senate President Pro Tem Tim Ashe, D/P Chittenden, said in a statement.
House Speaker Mitzi Johnson, D-South Hero, said it was “a little frustrating” that the governor didn’t make state college funding a higher priority in his budget.
“But I think we can get something worked out to make sure that we’re able to provide the state colleges the bridge funding they need to support those students in those communities,” Johnson said.
Johnson added that she was glad that Scott avoided using reserve funds, which could come in handy as the state puts together next year’s budget.
Fiscal Year 2022 is expected to be an even tougher year for state spending: Vermont is expected to lose just over $100 million in tax revenue without a surplus to soften the blow.
“We’ll need every tool in the book for next year’s budget,” Johnson said.
In total, the governor proposed spending $1.66 billion in the state’s general fund — the main source of state government funding — down from what he proposed spending in January: about $1.71 billion.
Normally, the governor would have signed a budget into law in May, weeks before the start of the new fiscal year on July 1.
But the pandemic threw a wrench into this year’s budget process. In the spring, lawmakers and the governor crafted a partial budget bill to fund the first quarter of fiscal 2021 in June, and scheduled a legislative session for August and September to come up with a complete spending package.
State officials wanted more time to analyze the pandemic’s impact on the state’s economy and revenues, and to see if the federal government would provide states with any additional Covid-19 aid, before they signed off on a full budget.
So far, Congress has been deadlocked over how to move forward with the next round of Covid-19 assistance. Until this point, it has also declined to give states the flexibility to use federal dollars to address their budget gaps.
But the federal landscape could change with the U.S. Senate slated to resume work on Covid-19 assistance in September.
“So the two big variables here are what course is the virus going to take over the next few months, and what is Congress going to do, if anything, when they come back in early September,” Vermont Secretary of Administration Susanne Young told reporters.
While Scott’s budget includes far fewer spending initiatives than the budget he proposed in January, it includes about $14 million of new spending in the general fund.
This includes about $6 million for roadway projects to be conducted by the Agency of Transportation, $2 million for broadband expansion and $1.4 million for a proposal to exempt military pensions from the state income tax.
In addition, the governor wants to spend $2 million on stimulus payments for Vermonters who were “left behind” by Washington when it released $1,200 stimulus payments this spring.
Some immigrants in Vermont file federal and state income taxes without using Social Security numbers and Young said these Vermonters did not receive the stimulus dollars in April.
“This is about bringing some equity and parity, and including those who were excluded by Washington when they implemented the stimulus program,” Young said.
In his budget, the governor also proposed a plan to spend the remainder of the $1.25 billion the state received from the federal government in April to cover expenses related to the Covid-19 crisis in May.
The majority of this money was spent earlier this year, but there is about $200 million left over.
The governor wants to use $133 million of this money to provide funding opportunities for businesses that haven’t met current eligibility requirements for grants.
So far, only businesses that have suffered revenue losses of 50% or greater during the pandemic have been able to receive the funding. She said the governor wants to lower the threshold to 30%.
He also plans on asking lawmakers to approve $12 million to help expand child care capacity for school-aged children, ahead of school reopenings this fall, and for $30 million to help the state colleges address their anticipated budget shortfall.
The governor wants to spend $20 million to make sure that Vermonters can continue to receive expanded federal unemployment benefits. The expansion allowed unemployed workers to receive $600 in additional weekly payments from the federal government through end of July.
President Donald Trump has extended the benefits, and the federal government will continue to pay out lowered, $400 weekly payments, but only if states cover 25% of the cost.