Letter
June 15, 2016

Understanding the budget 

By Andrew A. Pallito

It is the end of another legislative session and the beginning of another campaign season.  As with all campaign seasons, the State’s budget will likely become a topic of debate and conversation. Vermont, unlike most states, does not have a constitutional amendment requiring a balanced budget. However, Vermonters still expect fiscal responsibility from state government.  Even in difficult times, such as the Great Recession and Tropical Storm Irene, the state has continuously refused to run a deficit.  Moreover, Vermont has fully funded rainy day funds, and has refused to tap them during difficult budget periods.

Historically, Vermont has managed to balance its budget through tools such as one-time money.  This includes using federal stimulus funds, which were used to help dig Vermont out from the Great Recession, federal funds from FEMA received to help with Irene recovery, and federal funds to help Vermont with the expensive mandates required by the Affordable Care Act.  The budget signed into law this year is the first budget since at least 2009 that does not rely on the use of one-time funds for ongoing state expenses—a practice that leaves Vermont subject to the whims of the federal government and its budget process which, at best, is unpredictable.

This Administration has consistently made it clear that it would not increase certain broad-based taxes that could be counterproductive to Vermont’s economy. For the sixth budget in a row this Administration refused to burden Vermonters by raising income, sales, or rooms and meals tax rates on working Vermonters who can’t afford it. While true that this year’s budget raised certain fees in order to balance the budget, some of these fees have not been revised in a number of years. It is our collective responsibility to revisit fees annually to ensure that the fees match the cost to administer the associated program or keeps pace with activity in neighboring states.

In terms of budget growth, since 2012, the compounded annual growth rate of Vermont’s total budget is 3.7 percent while Vermont’s economy, defined as the Vermont Gross State Product, has grown at 3.1 percent.

One of the difficulties in having budget discussions and making comparisons is the lack of an agreed upon measurement of growth. When I was the commissioner of the Department of Corrections, the same issue existed regarding the lack of one defined measure for criminal justice services, commonly known as recidivism. In the end, the Legislature adopted a statutorily defined recidivism measure. This created a common measurement to monitor and have discussions regarding programmatic success or failure across the system.

As an accountant, it is my opinion that the best measure of Vermont’s budget growth is a “compounded annual growth rate” calculated on Vermont’s budget using all of the funds the state has at its disposal; this includes the state’s General Fund, the Education Fund, Enterprise Funds, the Transportation Fund, Special Funds, and all federal funds. This all-funds approach accurately measures total state spending and is blind to changes in the availability of federal funds and annual variability in individual revenue sources. Total state spending accurately reflects the purpose of the state budget and the true cost to provide the state government services to Vermonters.

As Vermonters, the budget is important to all of us; as we continue to discuss the state’s budget, it is important to remember the historical context that drives budgetary choices over the course of any governorship.

Understanding those choices and explaining them using consistent terminology and indicators is necessary to ensure that our conversations are accurate.

Ultimately, the budget, as proposed by the governor and passed by the Legislature is the financial plan for the real work of government–providing the means to protect our most vulnerable citizens and communities, grow jobs, teach our children, build and maintain roads, and keep Vermonters warm through the long winter season.

Andrew A. Pallito is commissioner for the Vermont Department of Finance & Management

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