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    August 14,2014

    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 Vermontís fiscal ship was heading toward treacherous waters. The Shumlin administrationís response was that the fiscal ship was in good hands.

    More recently, Campaign for Vermont predicted the revenue downgrade.

    So now weíve arrived where the rocks start pounding the hull. On May 10, the Legislature passed the fiscal year 2015 budget, which the governor signed 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.

    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 stateís 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 stateís economy and rosy revenue expectations are not to be fulfilled.

    Gov. Shumlin immediately proposed reducing some of the spending increases he approved just a month earlier. He proposed to the Legislature general fund reductions of $21.9 million be approved immediately and searched the nooks and crannies of the state budget for another $8.5 million in non-general fund revenues to plug the rest of the hole in the budget.

    Itís important to understand that contrary to the ever-present laments of professional State House lobbyists, the governorís proposal would leave 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 governorís proposal does not get Vermontís 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 ďfeast then famineĒ approach to the state budget by Gov. 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. 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 ďlean-upĒ 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 overboard by the Shumlin administration, itís likely that the budget would be on a sustainable footing and the 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 ďcutsĒ and blast governmental reforms as harming the most vulnerable. Given that the last recession ended in June 2009, itís 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 a co-founder of Campaign for Vermont and was finance commissioner in the Dean administration, tax commissioner in the Douglas administration and a former independent state representative.

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