• Vermont's budget is a crisis written in red
     | October 06,2009

    MONTPELIER – Late last week, officials in the administration of Gov. James Douglas sent out budget instructions to the state agencies and departments scattered around Vermont.

    Very clear, despite terms couched in technical lingo directed at managers of state government, was a stark message: Vermont's hard budget times are going to get a lot harder.

    That message will carry far beyond the halls of the Legislature, where difficult money decisions must be made this January, to all aspects of state government and the Vermonters it serves.

    "I am not sure the public and even our membership has a firm grasp on the problem we are facing," said Michael Obuchowski, D-Bellows Falls, the chairman of the Joint Fiscal Committee of lawmakers that oversees budgetary issues when the full Legislature is not in Montpelier. "It is a problem that is going to demand our utmost attention and some painful decisions."

    State managers, according to the memo, must figure out how to cut 8 percent from their current budgets. It is unusual, given contractual increases in salaries, increased health insurance costs and inflation in general, for state government to spend less in any given year than it spent in the year before.

    Even more unusual is to face the prospect of cutting $8 of each $100 in spending – before adjusting for inflation.

    Secretary of Administration Neale Lunderville outlined the context of state's finances in his Friday letter to those working for him. It is, by all accounts, a dire outlook.

    First of all, the revenue in the General Fund (the main account for state government) in fiscal year 2011, which starts next July, is projected to be less than the amount that came in during fiscal year 2006 – a half decade earlier.

    Of equal concern is that more than 40 percent of the American Recovery and Reinvestment Act money used to plug holes during the current budget year will be gone during fiscal year 2011.

    Finally the amount of revenue expected by the state has declined in each of the last six quarters, Lunderville wrote.

    The instructions to state managers are a necessary part of preparing what will be the final budget put into place by Douglas before he leaves office in January of 2011.

    It is not just executive branch officials who are worried. Obuchowski's concerns about informing legislators led to his working with the legislature's Joint Fiscal Office, a group of staff members who work for lawmakers, on a presentation on the status of the state's finances.

    The most striking aspect of the problem is its sheer size, Obuchowski said.

    That is a point borne out by some of the report's facts and figures.

    - In July of 2007, state income taxes were projected to bring in $650 million in fiscal year 2010 (the current budget year). That number had been revised to $494 million – a 24 percent decline.

    - Overall projected General Fund revenue from all sources during the same period has declined by 18 percent.

    - Net employment since the recession began has dropped in every sector – except in health care, social assistance and education. The total decline has been nearly 14,000.

    - Meanwhile the cost of prisons, Medicaid, mental health and unemployment insurance – services that government provides and that tend not to mirror the overall economy in demand – have grown faster than even typical revenue growth.

    - State General Fund expenditures have declined by 4.5 percent in fiscal year 2009 and 6.6 percent in the current budget year – despite a roughly $20 million increase in taxes put in place by the Legislature this year.

    - Much of that difference has been made up by federal ARRA money, but another federal stimulus bill to carry on when the current help ends in fiscal year 2012 is far from certain.

    - Current projected shortfalls – a nicer word for looming deficits – are massive. Vermont now spends something less than $1.2 billion in state General Fund a year. But projected shortfalls in each of the next three fiscal years (based on current spending) are $82 million, $155 million and $127 million, varying between 6 percent and 12 percent a year.

    - There are other looming fiscal worries on the horizon, including liabilities for the unemployment trust fund, pension systems, school construction backlogs and the need for a new state hospital.

    Tom Pelham, deputy secretary of administration, said the Joint Fiscal Committee presentation is useful, even if the administration and lawmakers have not agreed on how to approach the budget.

    "The facts are clear here, this economic context is bigger than the Legislature, and it is bigger than the elected officials in Vermont. It is something that has to be responded to," he said. "This is the message we had hoped the Legislature would have before them at last session. That is all water over the dam."

    "The consequences of a failed response are going to be very serious," he concluded.

    The tough budget negotiations of the last legislative session may minor when compared to the travails of the upcoming one, Obuchowski said.

    Still, Vermont is faring well compared to many states, including California and Michigan. But all of the bad news means that recent painful cuts, such as closing courts some days, reducing the number of highway rest areas, lowering reimbursements to hospitals, not to mention the looming possibility of elimination of 300 vacant and occupied state jobs, may just be a preview of things to come.

    Obuchowski said the state has faced problems of the same kind before – although perhaps not on this scale.

    "The state of Vermont and the people survived. A little bit thinner, a little bit more efficient," he said. "We will survive but it is going to be tough going for a while."

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