carolyn

Hi guys. I see the New Year is off to a great start here on this thread!

First, let me explain that during the week I will always be in Montpelier until the session is adjourned. I attend as many Select Board and School Board meetings in Fairfax and Georgia as possible, but otherwise I am working in Montpelier during the week and can’t check the threads here on Henry's site. I usually catch up with them on the weekends and try to respond to questions. But if you really need me, the best thing to do is send an e-mail to cbranagan@leg.state.vt.us or call my cell phone at 802-782-4108. My husband is at home during the week in Georgia where we live, and he'll sometimes remember to give me political messages that come in on our home phone, but usually not. I get them when I come home late Friday night. And yes, the roads were terrible LAST night, but I made it.

Now about the money issues: remember that revenues are not the same thing as expenditures. Balancing revenues and expenditures is always a concern, but especially in this recession. We are currently in the middle of fiscal year 2011, and planning has started for fiscal year 2012. The fiscal years go from July 1st to June 30th.

Every year the legislature makes estimates as to what the incoming revenue will be and a budget is based on these 'guesses'. The budget is made up of all the expenditures.

When making estimates last year on the revenues for FY2011, legislators tried to be very conservative because the recession had hit Vermont families hard. People weren’t spending very much money: very few new cars, land sales were down, personal income taxes were down, etc. So the revenue estimates we came up with were conservative because no one wanted to end the year with a budget that was not completely funded. When the budget building committee completed their list of items that needed funding, there was not quite enough revenue to match the needed expenditures, so Challenges for Change was invented, a plan to reduce expenses and increase efficiency throughout state government, If the Challenges were met, expenditures would be less and the budget would be balanced.

So as the year progressed, legislators on the revenue counting committee (that’s me!) were extremely interested in how revenues were actually coming in. Were the estimates close to what was really happening? As I wrote back in December, the revenue news is good. Revenues for FY2011 are coming in a little ahead of the estimates and we should be in good shape to finish this year and pay for all our expenditures. Next week legislators will get a new report on revenues that is expected to be even more positive.

But don’t start cheering yet. Another year is coming.

Even before the start of the FY2011 it was clear that budget for FY2012 would face approximately a $112 million revenue shortfall. The early estimate of a revenue shortfall of $112 million came mainly from increased Medicaid spending and education costs. There is a $40 million shortfall in revenue needed to pay for Medicaid because we are using revenue sources that don’t grow as needs grow. The nearly $60 million shortfall in education costs are from the fact that these costs were covered for the last couple of years by money from the American Recovery and Reinvestment Act, ARRA. There is no federal money expected this year, so the state has to pick up the shortfall. The $60 million includes approximately $39 million in ARRA funds for education expenditures and $18 million in federal money used to cover other ed expenditures. Then there’s about $6 million from Special Education expenditures previously covered by federal money. The remaining few million is from base budget growth.

A few weeks before the election last fall, it became clear that the shortfall would be more like $150 million. The press has only recently caught on, so this was not well publicized, but this increase is not a surprise. From where did the $38 million increase come? Unexpected changes in federal funding for health related expenditures (mainly prescriptions for Medicare part D recipients) amounted to about $23 million. There were also changes in the match rate and FMAP for Medicaid and Global Commitment waivers. About another $20 million in the ‘new’ shortfall came from more base budget pressures, like growth in the Human Services caseload (thanks to the recession), $8 million from Challenges for Change, new retirement estimates and general fund transfers.

So, the revenues for FY2011 continue to look good, as reported in December. I expect that more positive news regarding revenues will come next week. The expenditures for FY2012 will probably have to be trimmed because of the $150 million shortfall .

Deficit spending is not in anyone's plan. On Friday I was pleased to hear new Governor Shumlin announce changes for state workers, including a hiring freeze, which should reduce expenditures for FY2012 by about $12 million. This is a good start in matching revenue with expenditure for FY2012.

I hope this explanation helps.

Carolyn B.