On September 16, 2020

Balanced budget can’t make up for lost federal aid

By Jack Hoffman

Dithering in Washington has left a lot of states scrambling to figure out how to pay for the support and services their citizens desperately need. In Vermont, Washington’s paralysis means the Legislature will have just over a month to determine whether the $7.1 billion budget Gov. Phil Scott proposed for the current fiscal year will be adequate to get Vermonters, including individuals and businesses who have seen federal support dry up, through the coronavirus pandemic. In a normal year, House and Senate committees spend four or five months taking testimony, negotiating, and deliberating on appropriations bills.

Vermont’s political leaders made a sensible decision—they really had no other choice—when they passed a stopgap budget in June to see the state through the first quarter of the fiscal year that began July 1. They—foolishly, it now appears—thought Congress would follow the CARES Act with additional funding to address the continuing damage caused by Covid-19. The expectation was that Congress would act before the end of July, when the lifeline of federal unemployment benefits was due to be cut for tens of millions of jobless workers. There also was a hope that Congress would help state governments directly with either additional funding or relaxed rules on the use of Coronavirus Relief Fund money given to the states earlier this year.

In broad terms, the proposed budget spares Vermont from the dire, early forecasts about the state’s finances when the pandemic first hit. Excluding money Vermont received from the federal Coronavirus Relief Fund, appropriations for fiscal 2020 increased 3% over the previous year. And the governor’s proposed budget calls for a 3.1% increase for fiscal 2021—again after excluding the federal relief funds.

Vermont’s General Fund—the source of state funding for most state services other than education and transportation—was saved by a somewhat unexpected surplus that carried forward from fiscal 2020. In response to the pandemic, the federal government increased its share of funding for Medicaid, and that saved the state about $50 million. Some tax payments, which had been deferred from April until July, came in higher than anticipated. In the end, nearly $130 million in one-time revenue was available to offset tax losses forecast for fiscal 2021.

That means Vermont should be able to maintain the status quo without having to make major spending cuts or raise a lot of new revenue. In addition, the governor’s proposed budget appropriates nearly $800 million in federal funds to try to counter the effects of the pandemic. But while it appears the budget will be balanced, it also seems doubtful it will be adequate to get Vermonters through the next nine months without a lot more help from Washington.

More than $700 million in federal unemployment benefits flowed into the state to help people without work to feed their families and pay the rent or mortgage. That program expired at the end of July. (A replacement, the Lost Wages Assistance Program, provides only $300 a week—half the previous amount—and the money Vermont is scheduled to receive is expected to last just three weeks.)

Vermont can’t provide that level of support on its own, or anything near the $1.2 billion in federal loans and grants that went to businesses to help them protect their payrolls. But it needs to be prepared to respond to the consequences of having the federal aid cut off.

Winter’s coming. Virus infections are forecast to rise. Vermonters will need to eat.

Jack Hoffman is a policy analyst for Public Assets Institute (publicassets.org), a non-partisan, non-profit organization based in Montpelier.

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