TimesArgus.com - We Are Vermont

'Grim, grim situation' on Vermont's budget

Economist Jeffrey Carr (left) confers with economist Tom Kavet before the meeting of the Vermont Emergency Board in Montpelier on Tuesday. The Vermont Emergency Board was planning to meet Tuesday to give the latest revenue for the current fiscal year. It’s expected state government is facing millions of dollars in additional budget cuts. The Associated Press

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MONTPELIER — The largest projected decline in state revenue so far this year was reported Tuesday, contributing to a $60 million budget hole that one lawmaker called "a grim, grim situation."

In all, expected revenue for the General Fund in the current fiscal year has been reduced four times, by roughly $100 million — a significant chunk of a budget of a little more than $1 billion.

Earlier this year, on the advice of state and legislative economists, Gov. James Douglas and others had predicted the economic downturn would be "short and shallow."

"Clearly that is not the case," Douglas said Tuesday.

It's not clear how or when lawmakers and the Douglas administration will take action in response to the new fiscal news, but the governor declined Tuesday to rule out the possibility of state government layoffs as some other states have already experienced.

The state is now expecting a $30 million decline in General Fund revenue for the current fiscal year that began in July. But in practical effect the decline will be larger. When several million dollars worth of lawsuit settlement money that has already been counted on in budgeting is factored in, the decline in revenue climbs to about $36 million.

Add to that the fact that lawmakers learned of an additional $27 million in unbudgeted spending needed in the current fiscal year and the budget hole grows to more than $60 million.

Those unexpected costs are being felt in a variety of agencies. For example, Vermont State Hospital was not recertified by the federal government as had been expected, which will cost the state reimbursement money. In addition, the Department of Public Safety is using more money than allotted, in part because of a large number of homicides this year.

And it is not the first such decline in state revenue projections.

A combination of factors, including a global economic collapse that caused credit markets to seize up and a record drop in new housing starts, have contributed to the state's budget problems, economists Jeff Carr and Tom Kavet said.

It might be late in calendar year 2009 or into 2010 before the economy begins to recover, they added.

Finally, the state's economy will likely get worse, with unemployment in Vermont expected to follow the national trend and increase, perhaps topping 7 percent. The state's unemployment rate has jumped in a year from about 3.8 percent to 5.2 percent.

What will happen next is not clear. State government has already made the "easy" cuts and trims, including a 400 position reduction through attrition in state jobs.

A possible tussle looms ahead over how to address the budget shortfall. Lawmakers and administration officials began meeting to propose ways to cut within moments of an Emergency Board meeting Tuesday to review the figures. But unresolved is whether to institute those reductions within weeks or wait for the new Legislature to meet in January before taking action.

"I think it needs to be done now," Douglas said. "I think we need to do this as quickly as possible."

Waiting until January could mean nothing would be approved until February, March or later, he said. That would leave scant months or weeks in the fiscal year to trim spending — and a lot of money to cut.

However, acting now through the Joint Fiscal Committee — a group of 10 lawmakers who meet on money matters throughout the year — poses problems for some legislators. For one thing, even if the group has the statutory authority to approve such cuts in an emergency, the legislators who are part of the outgoing General Assembly are reluctant to act on their own within weeks of their new colleagues joining them.

"We have a new Legislature coming," said Rep. Shap Smith, D-Morrisville, who favors waiting.

Given that past recessions have to a large extent trimmed the fat out of the budget — or more — whatever the new proposal is, it "will require a lot of policy changes," Rep. Martha Heath, D-Westford, who also supports waiting for lawmakers to return in January to act.

But others seemed inclined to agree with the governor that cuts should be made soon to save the most money in the least painful way.

"I hope they have the authority" to act now, State Treasurer Jeb Spaulding said. "There is a lot of money to make up and the sooner we get started the less impact there is going to be on people at the end of the year."

And since the $60 million budget hole is occurring in the middle of year, its effect will be twice as severe.

Gov. Douglas declined to take anything out of consideration for reductions, including state layoffs.

"I don't want to preclude that possibility at this point," the governor said.

And then there is fiscal year 2010. Under the new projections by the economists, the General Fund will be roughly $70 million below previous expectations.

For comparison that would mean the state would have less revenue in the General Fund than it did in 2006 — despite the subsequent increase in costs.

The Transportation Fund and the Education Fund projections are also down in this year and the next, although the education budget will not be down as much.

"It is a grim, grim situation," Heath said.