creating the state budget

Apples are not oranges. And, as legislators assigned to money committees quickly learn, apples aren't always apples. The economic impacts and spending decisions are more complex than a simple analysis of growth rates.

The Vermont state budget changes from year to year depending on the needs of its citizens and the fiscal situation faced by the state and nation. When building the Vermont state budget, input is needed from many sources, and the final product is different from year to year.

The total state funds growth rate has been 1.8% on average between FY08 and FY12. State funds total about $2 billion for this coming fiscal year. The total budget including federal money and education funds is $4.68 billion for FY12. Higher multi year averages for all funds appear because federal funds have risen as percentage of the total from 30.7% in FY08 to a high of 36.2% in FY11 down to 34.2% in FY12. There is no doubt that year over year, between FY11 and FY12 the budget has come down. The one year negative growth rate of -3.6% for the total budget is mostly due to the loss of ARRA federal funds but also due to an overall reduction in state funds and a reduction in net education fund spending.

Over the last four years, the state has cut budgets for agencies, eliminated 10 percent of the state workforce, asked state workers to take retirement and pay concessions, asked teachers to contribute an additional $15.3 million a year toward their retirements and cut $14 million from the nonprofit designated agencies that provide mental health services and programs for the developmentally disabled.

It is extremely challenging to understand this complex process and the interrelationship of funding sources, some of which the legislature has more control over than others, but all of which impact the state. What we as legislators are looking for is as much factual information as possible to help in balancing the inflows and outflows that make up our state budget.

How is the state budget built?

Late in the summer the Administration starts to build the parameters of the new state fiscal year budget. The parameters are consensus ideas from the administration and/or the legislature. In the past few years, the Joint Fiscal Office, working from the statehouse, has been consulted in developing this framework. This allows the administration and legislators a greater degree of consensus parameters within which debate can occur about budget policy instead of basic assumptions.

A good example of this process is the consensus revenue estimating process. By developing a consensus revenue, a baseline is established in which all parties work. The Governor then makes a decision as to proposed changes to the revenue estimates – up or down - and then he builds a budget around those new revenue assumptions.

Quite a bit of work has been done recently also to develop consensus caseload estimates which are designed to identify costs, for caseloads without changes to underlying policies. Again either the executive branch or the legislative branch can propose to change policy but at least there is agreement on the base assumptions.

Dealing with the recession has been especially difficult. In an effort to provide a realistic picture of the deficit and how it might play out in future years, budget building materials have included agreed upon consensus estimates of out year budget pressures. We compare these pressures to revenues and attempt to identify shortfalls or potential funding gaps. To be as realistic as possible, and make sure we've covered all the bases, I like to see conservative estimates of revenue and generous estimates for need.

Who establishes the budget amount for the new fiscal year?

The Governor, the House and the Senate all establish budget amounts depending on their decisions on what is likely for anticipated revenue and spending needs. Over time there has been an increasing effort to reach consensus on the underlying assumptions that these budgets are built on. The staffs of the Joint Fiscal Office and the Administration have been increasing their efforts to create a consensus platform for the budget deliberations. This happens in revenue estimates, caseload projections and budget pressures

Where do the pressures come from?

Defining growth and savings is tough. Some states use actual budget inflow and outflow figures, while others apply a concept of current services budgeting and go from there.

In Vermont both the Joint Fiscal Office and the administration try to develop an out year budget estimate which is based on a current service or current law approach.

Here are a few examples of how that works:
• If the education fund transfer is to grow by the state and local price index, say $9 million, that becomes part of the next year’s need estimate. So it is an upward pressure.
• If the retirement contribution from teachers' retirement and state employee retirement was increased that amount would be a downward pressure on state funds needed to fully fund these retirement systems.
• Program costs in Medicaid, Catamount and a number of other programs can all be estimated, the upward pressure in these programs is from increased participation and utilization.
• Generally state employee costs increase as a result of negotiated contracts and health care costs. Recently position reductions, and retirement and pay concessions have resulted in lower employee costs.

The Office of Finance and Management within the Governor's administration does a similar but slightly different exercise. They ask departments to identify current service program needs and separate them out from policy change needs. As they build their budget they have to identify available resources and make a determination as to what can be funded. The Administration’s budget can contain a number of decisions including revenue identification, policy changes to reduce budget pressure and choices about level of funding.

Budget building is not an exact science and there are a ton of estimates and assumptions made, no matter who is doing the preparation. The same type of budgeting happens at the federal level. Some legislators have mentioned that the entire federal deficit debate is based on assumptions of future revenues and spending. Ignoring current law and service needs when building out year budgets is recklessly irresponsible. Decisions made today for spending in future years need to be identified just as revenues need to be projected beyond the current year.

What about the future?

We don't know if there will be a need for new taxes in the future. But if so, where those new taxes might come from has already been discussed. A tax on sugar-sweetened beverages, eliminating some tax expenditures, expanding the sales tax to some services, raising the sales tax to 7%, and taxing private water are all ideas that have been discussed in the Ways and Means Committee. Often discussed this past session is adding an income tax surcharge to some of the income of the wealthiest 5 percent of Vermonters. All these suggestions were made in the statehouse this past year. I opposed every one of them.

As promised, Governor Shumlin did not impose any new broad based taxes this session. Raising new revenue next year has not been ruled out. Don't forget that new budget shortfall: it was $70 million last count. Additional pressure on the Vermont state budget would come from Congress and President Barack Obama if cuts are made in human services programs. Later this summer legislative leaders and folks from the administration will go through the state budget line by line , looking for savings and looking for genuine need that cannot be ignored.

This past January, I appreciated Gov. Shumlin's comments that legislators 'would likely improve' the budget. Like his predecessor, Governor Shumlin knew there had to be room for legislative ideas and solutions within the budget development process, and he made room for them. Looking for the common ground is always the best policy.
There's plenty to be found.

Rep. Carolyn Branagan
Franklin-1, Fairfax/Georgia
Vermont House of Representatives