Vermont’s state budget is about to hit the rocky shores of fiscal reality. In key areas, including the state budget, human services spending, excessive capital debt , unfunded pension liabilities, education funding and soon health care funding, state leaders have put Vermont’s fiscal ship in troubled waters. Given their cumulative effect, the vital question is whether lawmakers will fess up to the need to adjust course in these key areas.
Vermont turned away from a safe fiscal course in 2009 when House Speaker Shap Smith and then Senator Peter Shumlin led the legislature to override the Governor’s budget veto. With that veto override, the legislature abandoned the fiscally moderate legacies of Governor’s Snelling, Dean and Douglas. Their decision set Vermont on a course of unsustainable spending, chronic underfunding, hidden cost shifts, higher taxes and a "kick the can down the road" approach to problem solving.
But, as Governor Kunin learned, casting a blind eye toward fiscal responsibility is not a fiscally or politically sustainable strategy. In the end, like it or not, economic realities prevail, resulting in painful outcomes for both Vermonters and fiscally-impaired politicians.
Unless an approach of moderate growth linked to underlying economic growth is restored to Vermont state finances, the legislature’s excesses will swamp Vermont’s fiscal ship.
Since most newspapers limit the number of words in an opinion editorial, only Part 1 of a five part series follows. The full opinion editorial can be found here at VTDigger.org and profiles Unfunded Pension liabilities, Capital Debt Excesses, Human Services Spending, Education Spending and Health Care. Part 1: The State Budget - Growing Faster than the Economy
From fiscal year 2008 to the present, the state budget has grown by $1.13 billion from $4.1 billion to $5.23 billion. That’s an increase of 27.5 percent%. Increasing federal funds fueled some of this growth, but more than a half-billion dollars ($534.8 million) of the increases has come directly out of the pockets of Vermonters through higher income taxes, health care taxes, property taxes, and gas taxes, among others. In contrast, during the same period, Vermont’s economy as measured by Gross State Product has grown by only 13.6 percent, from $24.3 billion to a projected $27.6 billion.
Yet, despite these higher taxes, the legislature’s own fiscal staff reports "roughly $55 million in one-time funds that were used to build the FY 2014 budget still remains a good proxy for the shortfall that (the Legislature) will have to address." On top of this $55 million, there’s certain to be additional spending pressures associated with inflation, federal fund cutbacks, and demands by politically influential special interest groups for higher levels of funding.
How the Legislature and governor created this problem is easy to understand.
First, during the 2009 legislative session, the Legislature wanted to spend more than Gov. Douglas and enacted their budget over his veto. This action increased state spending by 7 percent and vested near complete power over fiscal decisions in the Legislature, then and now controlled by a super majority of one political party.
Simultaneously, given recessionary pressures on the state budget, the Legislature (led by fiscal moderates Representative Donna Sweaney and Senator Diane Snelling) initiated an effort called "Challenges for Change" to reform state spending practices. The "Challenges for Change" process had identified over $79 million in potential savings for fiscal 2011 and over $161 million for fiscal 2012.
Certainly not all of these savings opportunities are achievable. However, if only 50 percent were implemented, the State’s current budget problem would not exist.
Unfortunately, at the request of the Shumlin Administration, "Challenges for Change" was abandoned in 2011. With almost $1 billion in federal stimulus funds available to temporarily prop up state spending, Governor Shumlin, Speaker Smith and other legislative leaders grew the budget at an excessive rate using "one-time" federal stimulus funds while avoiding the politically difficult leadership required to implement cost saving reforms.
Now that the "one-time" federal stimulus funds have been spent, our legislative leaders find themselves at the end of the road, holding the can they’ve been kicking.
Tom Pelham was finance commissioner for Gov. Howard Dean, tax commissioner for Gov. Jim Douglas and elected to the Vermont House as an Independent, serving on the House Appropriations Committee. He is also a co-founder of Campaign for Vermont .