The Budget Hits the Fan

The worsening condition of Vermont state revenues are rapidly becoming a large public issue. For hard evidence, one need go no further than a memorandum circulated to Senators in mid-October by Senate Appropriations Chair Susan Bartlett (D-Lamoille).

Backed up by revenue and spending projections of the legislative Joint Fiscal Office, Bartlett presents this information. The $15.6 million in FY 2002 reductions already in place or projected will be overtaken by reduced revenues for just the first four months of the fiscal year. Another eight months of diminished revenues will likely necessitate up to $25 million in additional spending cuts. The many "one-time appropriations" made last May are "in jeopardy".

The general fund is projected to grow at half the rate it grew in past years (less than 3 percent). As much as two thirds of available general fund growth will be needed to cover the escalating costs of the Vermont Health Access Plan (VHAP), Gov. Dean's ambitious expansion of Medicaid. Bear in mind that the costs of VHAP are largely paid not by the state budget, which qualifies people in families of up to $51,000 for virtually "free" health care, but by the health care providers. Depending on the service, VHAP pays as little as 15% of the actual cost. Thus VHAP is principally financed by a hidden tax on hospitals, doctors and dentists. Bartlett says the legislature will have to consider increasing patient copayments and reducing covered services.

The Education Fund (Act 60) deficit is now projected to grow to $18 million in FY 2003 and 2004. This is caused in large measure by public schools increasing spending at more than 6% per year. Says Bartlett, correctly, "there will be need for legislative action to address these shortfalls."

She lists a number of Act 60 changes that the legislature will have to consider: "level funding the block grant, reducing state support of the predictable yield; reducing income sensitivity, or raising revenue through taxes or transfers."

To put it in other words (this is not Bartlett speaking), here's what faces the 2002 legislature): "We can freeze the per pupil block grant at $5448, which will sharply increase the share of education spending covered by the unpopular sharing pool. At the same time we will have to quit putting $36 million a year - which we won't have any more - into bailing out the sharing pool. We can reduce the income sensitivity level from $75,000 down to maybe $50,000, thus increasing the homestead property taxes payable by thousands of Vermonters who were paying 2% of their income instead. We can raise the $1.10 state property tax rate, or the income tax or the sales tax rates, to try to grab some more money in a weakening economy, which will just weaken it further."

"We can rob the Transportation Fund again, at a time when that fund is already $11 million short and AOT is cutting back on highway repairs, or increase the gas and diesel tax and shift those proceeds for general fund uses. And of course we can impose spending caps on local school budgets, as both Gov. Dean and a Republican study group have proposed in the past."

The happy years of state surpluses have come to an end. During those years Gov. Dean, without much legislative resistance from either party, launched ambitious programs that depended on continued high revenue streams. Conspicuous among them were Act 60 and VHAP, both now full-fledged Budget Monsters.

Because there were surpluses, there was little pressure for lean, efficient operation of state government. Why incur the political pain and employee resentment of running a tight ship, when there was plenty of money to go around? Why work hard to improve our economic climate, when we already have a surplus? Privatization, which has produced enormous program savings in other states and cities, was a forbidden word.

Gov. Dean's last year in office will be an exceedingly trying one. He runs a serious risk of departing, as Gov. Madeleine Kunin did, following a painful last-ditch effort to balance a budget whose major league spending commitments are now far outstripping today's minor-league revenues. It's too bad more people in public office, in both parties, didn't explain to him and the public that this was coming.

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October 2001