Reality check for Vermont's finances

Posted

Saturday, March 29
Debate on the fiscal 2009 state budget is expected to begin next week in the House. It's not going to be pretty to watch.

General fund tax revenue is expected to be flat next year. Transportation fund tax revenues are also projected to be flat.

There is no help forthcoming from the federal government. There are no new sources to tap for additional tax revenue.

There are growing expenses for the state. The combination of inflation and what some predict may be the worst recession since World War II is biting down hard on Vermonters.

Add it all up, and there is the potential of a $59 million deficit for fiscal 2009.

The choices are simple, make budget cuts or try some other strategies.

Gov. James Douglas and his administration has proposed $59 million in budget cuts. Here are the choices they've made.

* Defer a $3.3 million contribution to the teachers retirement fund;

* Defer a $7 million appropriation for employee pay raises;

* Defer a $450,000 appropriation for holding the 2008 general election;

* Cut $6.5 million from low-income fuel assistance;

* Cut $8.5 million from smoking cessation programs;

* Cut $5.2 million for the Vermont Housing and Conservation Board;

* Cut $8 million in payments to hospitals to offset the provider tax;

* Cut $8 million in highway aid to towns;

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* Cut $6 million from child care programs;

* Cut $2.1 million from assistance to needy families;

* And generate $4.4 million from increases to Medicaid premiums and co-pays for services.

So is it more OK to underfund pensions? To cut assistance to the needy? To scrimp on road repairs? To renege on promised pay raises? To cut anti-smoking or housing programs?

In a recession, you have to pick your cuts carefully. Reducing services just when demand for them is increasing isn't good policy. And budget cuts aren't the only remedy available to lawmakers.

There is about $58 million in the general fund's "rainy day fund." There's $17 million in the human services reserve fund, about $11 million in the transportation fund and about $27 million in the education fund.

These funds, established in the mid-1990s, are designed to fill in budget gaps when times are tight. We are certainly heading into one of those times, and this money should be made available.

A proposal to eliminate a tax break on capital gains, estimated to bring in about $21 million in new revenue, appears stalled in the Legislature. We think it needs to be seriously considered.

During the budget crisis in the early 1990s, taxes were temporarily raised on upper-income Vermonters to help reduce budget deficits. It needs to be done again, rather than do things such as increase Medicaid premiums or cut heating assistance.

Increased state bonding for school improvements, highway and infrastructure repairs and renovations to state buildings is something else to consider. The state's solid credit rating and current low interest rates make borrowing for capital improvements a good idea. And it will save money in the long run, for the cost of fixing roads or building new schools will only go up if the projects are postponed.

The state is not obligated to have a balanced budget, and in the recessions of the early 1980s and early 1990s, Vermont ran up big budget deficits rather than making cuts in needed services.

The Republican governor who served during both economic slumps, Richard Snelling, wasn't afraid to maintain slow but steady growth in state spending and to raise taxes temporarily when the economy slowed.

Howard Dean carried on Snelling's policies after his death in 1991. Dean, a fiscally conservative Democrat, was able to not only return the budget back into the black by the mid-1990s, but eliminated the temporary taxes and created the rainy day funds when the economy improved.

What characterized both Snelling and Dean's actions during their respective fiscal crises was strong leadership and the ability to work with the Legislature to do what was necessary in difficult times. We have yet to see that from Douglas.

With economic storm clouds gathering, Douglas presented a budget in January that was unrealistic. Senate President Pro Tem Peter Shumlin has called it "a fairy tale budget," and we wouldn't disagree.

Douglas has more or less left it up to lawmakers to figure out how to close a budget gap while not raising taxes or substantially cutting services. The governor needs to get more engaged in the process and work with lawmakers in the coming weeks to craft a spending plan that is realistic and workable.


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