1-26-15 – Sweet Budget Projections Are Made Of Cheese; Who Is Shumlin To Disagree?

by Chris Campion

What a difference a year makes. Vermont’s Governor, Peter Shumlin, after narrowly edging out a gubernatorial election by less than a percentage point, recently presented his 2016 budget to the Vermont legislature.  Shumlin described this budget as the “toughest” he’s had to deliver, which really means his budget planning has long been out of whack if it’s taken him this long – after years of revenue misses causing cuts to successive budgets to be made – to own up to the fact that the State of Vermont is spending well beyond its means.

“Like a family trying to adjust its budget to meet reality, it is our responsibility as state leaders to match spending with Vermonters’ ability to pay,” Shumlin said. “Government must be effective, efficient and affordable.”

This may come as a shock to a “humbled” governor, but his recent, ah, accomplishments demonstrate that government has been none of those things.  If he’s so concerned with Vermonters’ ability to pay, why does the state still rely on property taxes to fund education?  Property values have nothing at all to do with income and ability to pay.

The governor said he recognizes the state faces a structural economic problem. The state has faced eight years of budget gaps, and the economic situation isn’t expected to change anytime soon. State revenues are projected to increase by 3.5 percent annually for the next five years, while expenditures have increased by 5 percent or more in the past few years.

I’m still not sure if he does recognize the issue.  His FY16 recommended budget shows growth in General Fund revenues of 4.4%.  But in the same budget document, on page 5, he shows year-over-year forecasted increases to the GF as being 2.91% for 2015, and 3.26% for 2016.  If you take a longer term look at the forecast, the YOY percentages in revenue growth are in steep decline, yet his budget calls for anticipated revenues well beyond what his budget documents forecasts.  His appropriation for the General Fund does not seem to meet his own statement, talking about a need to “match spending with Vermonters’ ability to pay”.

Hey, don't let the reality of declining tax receipts interrupt the healthy YOY growth in anticipated revenues!

Hey, don’t let the reality of declining tax receipts interrupt the healthy YOY growth in anticipated revenues!

 

Why should the forecast match the budget, anyway?  Is it really that important?

Why should the forecast match the budget, anyway? Is it really that important?

This may seem like a relatively minor nit, the difference between 4.4% and 3.26% in the General Fund, but that’s a 25% difference in assumed revenue growth rate.  So why would his budget assume such a variance between the forecast and what his budget proposes?  Why base the budget on such shaky assumptions that are constantly being revised, downwards?

Call me crazy, but those revenue projections look flat to me - and don't look close to a 4.4% number, either.

Call me crazy, but those revenue projections look flat to me – and don’t look close to a 4.4% number, either.

Not pictured:  The Swiss Cheese holes this budget seems filled with.

The General Fund is the largest component of the budget – oh, wait, sorry, it’s the second-largest component.  Because while Shumlin is trying to tell us that we have to match our budget with Vermonters’ ability to pay, the largest component of the budget is federal funds.  In other words, Daddy’s covering our spending for us, because if we lost a third of the budget revenue, state government in Vermont would largely shut down.

But the General Fund is mostly comprised of Personal Income Tax, Sales and Use taxes, and Meals and Rooms – in other words, mostly driven by rates, which makes the General Fund the most “controllable” in terms of anticipated revenues.  The state can’t control how much income Vermonters earn, but it can control the percentages it charges for the privilege of earning a living in the Green Mountains.

So if the relative size of this tax revenue component changes, even by a percentage point, the result can be catastrophic in terms of the overall budget.  Which is why the state legislature had to return to Montpelier and come up with a new FY15 budget one month after they passed it.

Why?  Because they and the governor had based their revenue projections in something other than reality.  Now that those assumptions are being laid bare, it’s clear that the “consensus” assumptions were used to mask a serious budget deficit, one that we’re experiencing right now, and considering the historical trend, we will continue to experience no matter how many times Shumlin holds up a “Vermont Strong” bumper sticker.

In fact, the state has had to revise its revenue assumptions downwards, 3 years running.  Not only does this mean that the state lacks a certain, ah, seriousness about the actual tax revenues coming in, it also demonstrates that political concerns seem to override Vermont’s financial realities.  Political concerns do not seem to meet the Governor’s own shiny new standard of “responsibility” he so proudly touts now, after he’s cleared the hurdle of re-election.

{ 2 comments… read them below or add one }

Ann C. Kehoe January 28, 2015 at 1:12 am

Evvabody’s ….. Lookin’ for somethin’ ….

Nice job on this article. Now, how can it be disseminated?

Reply

jim bulmer February 1, 2015 at 3:30 pm

Hey Gov., it ain’t rocket science. First make a REALISTIC projection of anticipated income THEN establish priorities and allocate the funds accordingly.

Reply

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