So now the fiscal ship of state has hit the rocky shoals, as predicted. Almost a year ago, those of us at Campaign for Vermont clearly made the case that Vermont’s fiscal ship was heading toward treacherous waters.
The Shumlin administration’s response was that the fiscal ship was in good hands. More recently, Campaign for Vermont predicted the revenue downgrade; so now we’ve arrived where the rocks start pounding the hull. On May 10, the legislature passed the fiscal year 2015 budget, which the governor signed on June 9. Relative to the budget passed the prior legislative session, this budget called for a 6.2 percent increase, or $84.3 million, in overall general fund spending inclusive of a 9.8 percent general fund increase, or $57.8 million, for human services. Since fiscal 2012, overall general fund increases have been at the annual rate of 5.15 percent, with human services spending growth at a 6.7 percent annual rate.
As noted in the commentaries mentioned above, such growth rates are neither responsible nor sustainable when the underlying economy is growing, at best, at about a 2 percent rate. This economic reality has now hit the state’s budget head on. On July 24, the governor and legislative leaders formally got the bad news from the state economists that the state budget is out-of-step with the state’s economy and rosy revenue expectations are not to be fulfilled.
It’s important to understand that contrary to the ever-present laments of professional statehouse lobbyists, the governor’s proposal, if accepted by the legislature, leaves general fund spending for fiscal 2015 still up 4.6 percent, or $62.3 million, above the general fund level passed during the 2013 session with human services up 6.9 percent or $40.7 million.
Unfortunately, the governor’s proposal does not get Vermont’s fiscal ship back in safe waters. At a 4.6 percent growth rate, the current general fund budget is not sustainable on top of the excesses of prior years. This means that during the next legislative session the budget adjustment process for the current fiscal year and the fiscal year 2016 budget considerations are going to be extraordinarily difficult.
The "feast then famine" approach to the state budget by Governor Shumlin and legislative leaders is both chaotic and destabilizing, especially for the most vulnerable who rely on state benefits. To bring thoughtful deliberation back to the budget process both the legislature and governor need to do what they failed to do during this past recession. As noted in the commentaries above, state house leaders abandoned in 2011 important efforts to align state government spending with underlying economic growth through reforms in state government. Thoughtful and bipartisan efforts in response to the recession to "clean-up" state government such as Challenges for Change were abandoned, as one-time federal stimulus funds temporarily patched over revenue weaknesses allowing the difficult politics of budgetary reform to be avoided. If Challenges for Change, which had identified tens of millions in potential savings had not been thrown over-board by the Shumlin administration, it’s likely that the budget chaos we see today would have been avoided.
While change is always difficult, thoughtful change is better than the fiscal shipwreck now unfolding before us. The governor and legislative leaders need to be firm with spending advocates who readily guilt trip elected leaders by branding even sizable budget increases as "cuts" and governmental reforms as harming the most vulnerable. Given that the last recession ended in June, 2009 it’s important now that our state budget be put back on sound footing before the wrecking ball of the next recession arrives, as it inevitably will.
Tom Pelham is former 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.