11-14-14 – Surviving Shumlin’s Budget

Posted by Chris Campion

Vermont’s tax revenues are unexpectedly drying up, according to Jeb Spaulding, Shumlin’s Secretary of Administration.  From the Vtdigger article:

Financial forecasts predicted more than $115 million would flow into the state’s General Fund during the peak leaf-peeping month. So-called consumption taxes — sales and use, meals and rooms — cleared their targets. But personal income tax receipts fell short by more than $7 million, or 11 percent.

It’s a good idea to think of budgets as a target – you try to hit what you’re aiming at.  In other words, if you’re off a little bit, that might not be a big deal.  But if there’s a major component of your targeted revenues falling short by over 10%, then that’s a miss.  Ask your mortgage company if they’re ok with you “missing” the full payment this month by 10% and see what their reaction is like.

What’s interesting is the revenue component that’s missing its target – personal income tax receipts.  Why?  How can receipts be underperforming when Vermont’s economy – according to Peter Shumlin, anyway – is a juggernaut, featuring low unemployment and boundless opportunity for those who might be involved in an E5-B project or, if you’re extremely lucky, you’re the state’s largest private employer and you’re able to wrangle out a few ducats from the state on your way out the door.

But revenues are off in the form of personal income.  Shumlin’s 2015 budget was based, in large part, on projections of revenue growth from FY2013 data, in July of 2013.  Fy2013 hadn’t yet closed, FY2014 hadn’t started yet, but those FY13 numbers were used in Shumlin’s Fy2015 budget – the budget year we are now facing shortfalls in.

What did Shumlin’s own FY2015 budget recommendations show for YOY growth in the General Fund revenues, through FY2013?  A 1.9% average YOY growth rate (FY2009A through FY14F).

Hey, we've had some tough years here - so let's double our expectations!

Hey, we’ve had some tough years here – so let’s double our expectations!

What did he propose in the FY2015 budget, for an increase in general fund spending?  3.56%, which he describes as “restrained”.

If you ignore prior history, this seems reasonable - which is kind of a big "if".

If you ignore prior history, this seems reasonable – which is kind of a big “if”.

In fact, if you look at the revenue projections from Shumlin’s budget, not just for the General Fund but for other funds, it’s a snapshot of irrational exuberance writ large:

Usually rosy forecasts are actually rose-colored, chief.

Usually rosy forecasts are actually rose-colored, chief.

Even allowing for the recession’s effects on general fund revenue receipts, casually tossing aside the most recent history and projecting rosy growth estimates does not comport with the realities of Vermont’s economy.  Diminishing median household income, middling to awful rankings for business climate, a low unemployment number relying heavily on an extremely low labor force participation rate, and the state’s own workforce projections showing the bulk of job growth at the low end of the salary spectrum, well, that forecast of revenue grow seems to be based much more on wishful thinking than on real, quantifiable data.

The actual performance of the fund, and its YOY increases, coupled with the rescission work that had to be done one month after the FY15 state budget waspassed, seems to indicate that the 2013 

A good thing the Fed can print money, or we'd be in big trouble.

forecasts were wildly optimistic.  If you’re trudging back to the statehouse to fix the budget you just spent months finalizing, that means your core assumptions are flawed.  The core assumptions, for the biggest revenue component the state has (excluding federal funds, which make up almost 35% of the budget’s revenues – a fact that should startle anyone who thinks Vermont’s budget is solid), will have to be revisited.
.

Oh.   And the state’s unfunded liabilities, the fact that the cost for Vermont’s version of single-payer will range into the $2 billion dollar realm, and the state’s (formerly) largest employer had to pay another company $1.5 billion dollars to take its “asset” off its hands does not seem to paint a rosy growth picture ahead, no matter what color the glasses Shumlin’s wearing while he’s crunching the budget numbers.

 

{ 4 comments… read them below or add one }

Jeanne Norris November 15, 2014 at 2:59 am

Its the same and more of the same for us taxpayers in this State! They will not be happy until we are out panhandling because this state has taken our very last dime!! I am so sick of the way they do business, and sick of getting taxed to death for the benefit of some deserving soul… we are deserving souls also, we just happen to be the ones earning the wages..

Reply

H. Brooke Paige November 15, 2014 at 7:58 am

Double the Taxes, Double the Fun?

My favorite statistic isn’t even mentioned above. The State was projected to spend a total of $5 billion + this year. With GF revenues projected to come in around $1.4 billion, if all went as planned – the remaining $3.6 billion was coming from Uncle Sam. We are one of only a handful of States that take more from the Federal Govt. then we send to Washington. Vermont has become a “welfare state”, that is we rely on the largess of the Federal Govt. to operate our state government. How Embarrassing! Even worse, what happens when our “sugar daddy” cuts back our allowance? What if our Federal funding is cut in half to say $1.8 billion? You think folks are screaming about taxes now! Wait until Montpelier is forced to double every single tax we pay just to make ends meet!

H. Brooke Paige
Washington, Vermont

Reply

Jim Bulmer November 15, 2014 at 2:46 pm

If only pot were legal in Vermont. The critics would only have to take a few puffs on the weed just as those did before putting the numbers together and these critics would see the same rosey picture. It’s that simple. Unfortunately, reality rears its ugly head, and we have to deal with the consequences.

Reply

Peg November 15, 2014 at 2:58 pm

What will happen if Montpelier decides that a resident OWES a Vermont tax obligation simply by being a resident and anyone deciding to move out of the state, will be obligated to pay “their fair share” of tax debt, even if they leave?

Reply

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