Mind the gap......redux

June 30, 2015

Some of the veteran legislators in the State House called this the most difficult legislative session in memory, primarily in reference to this year’s budget challenges.  While it’s little consolation if a program you depend on has been cut or a tax you pay has been increased, states around the country are facing similar budgetary challenges to Vermont’s and are reaching for similar mechanisms to get their budgets in-line.  Red states like Kansas and Alabama are pushing through record tax increases while blue states like Illinois and Washington are cutting state pensions.  As federal aid to states is withdrawn in the wake of the Great Recession, and as economic growth continues to limp along, we will be continue to be challenged to serve our most needy (Medicaid recipients, the elderly, those recovering from addiction) and to make investments where they are most needed (transportation and communications infrastructure, education).

 

In my April 5th post, I wrote about the House budget proposal to address Vermont’s colossal $113 million budget gap for fiscal year 2016, which begins tomorrow.   That legislation, which I supported, was a compilation of the difficult choices that legislators needed to make to balance the budget.   Nearly all of the tough decisions made in that original House bill survived the House-Senate conference, and even withstood the governor’s early-May entry into the budget debate.  When the dust settled on the last piece of legislation the General Assembly passed before adjourning in May, the budget gap had been closed.  It happened through $56 million of spending cuts, $25 million in one-time and reserve fund usage, and $32 million in tax and fee increases.

 

What does $56 million of spending cuts look like for Vermonters?  The biggest cuts come in the form of reductions to Vermont state employee pay and positions ($10.8 million), reduced funding for Vermont Health Connect ($6.3 million) and the Low Income Heating Energy Assistance Program ($6 million), and a decrease in the out-of-state corrections budget ($5.4 million).  There are many, many smaller cuts in the budget – savings from 911 call center consolidation, reductions in the inpatient opiate addiction budget, consolidating the state law library to the VT Law School, reductions in funding for autism patients, cuts to the Reach Up program and funding for the Working Lands program.  I heard from many constituents with concerns about cuts to VT Public Television:  the reduction in VPT funding that was being considered back in March will still occur, but those cuts are now being phased in over two years.

 

I also want to highlight a few other budget decisions that retained current services.  The Community High School of VT, which provides a high school education for incarcerated Vermonters, was preserved.  Funding for the VT Veterans’ Home in Bennington was saved, as was funding to keep Vermont’s over-burdened county courthouses open.  Funding for child protective services was increased, while the Arts and Humanities Councils were level-funded.

 

The $25 million infusion of one-time funds in this budget drew from a variety of sources.   There were, for example, about $7 million of appropriated but unspent funds from last year’s budget that are being used to plug the 2016 budget gap.  $1 million was pulled back from The Enterprise Fund, a somewhat controversial $5 million pool of capital that the governor controlled to be used for keeping the Essex IBM plant open.  Various agency fund surpluses were called upon to contribute.   $4.6 million in funding for the VT Housing and Conservation Board was taken out of the 2016 general fund budget and, while considered one-time savings in a budgetary twist of phrase, was ultimately funded as part of the state’s separate, biennial capital budget.

 

The $32 million of tax and fee increases instituted to balance this year’s budget required the most negotiation between the House, Senate, and governor in the waning hours of the legislative session.  Approximately $23 million will be raised through the elimination of some tax deductions for the roughly 25% of Vermonters who itemize their tax deductions each year.  When most Vermonters add up their mortgage interest, charitable contributions, significant medical expenses, and prior year’s state taxes, that figure is less than the standard deduction ($12,600 for married income tax filers), so they do not itemize.  For the quarter of Vermonters who do itemize their income tax deductions, in 2016 they will no longer be able to deduct the state and local taxes paid last year and, while they will continue to get unlimited deductions for charitable contributions and significant medical expenses, all other deductions will be capped at 2.5x the federal deduction ($31,500 for married filers).  According to the most recent VT Tax Department data, fewer than 6% of filers have deductions that exceed 2.5x the standard federal deduction.

 

The removal of the sales tax exemption for soft drinks, effectively a tax increase, is projected to raise $5 million annually.  Starting tomorrow, non-alcoholic beverages that contain natural or artificial sweeteners will be subject to the 6% sales tax.  “Soft drinks” do not include milk, soy, or rice products, or beverages that are greater than 50% fruit or vegetable juices.

 

SPOILER ALERT: closing this year’s budget gap won’t solve the budget challenges we are going to face next year.  Current estimates peg the 2017 budget gap at around $60 million.  By far the biggest chunk of that shortfall will be due to health care costs, especially as more Vermonters qualify for Medicaid.  Even if health care costs stay flat in 2017, the reduction in federal government payments for Medicaid health care will rip a $25 million hole in Vermont’s budget.  Remember a decade ago when policy analysts predicted that health care costs were going to swamp state and federal budgets?  It’s happening.  More on our state’s budget challenges in future posts.

 

Three pictures to share from the last week of the legislative session:

 

Rep. Alison Clarkson (Woodstock) took this picture of Jim and me on the last day of the session.  Toward the end of the session, legislators are allowed to remove their jackets when on the House floor.  Clearly, I had missed that memo.

 

 

Don Milne is retiring as Clerk of the House of Representatives this year.  Don, husband of the late Rep. Marion Milne and father of gubernatorial candidate Scott Milne, has worked in the State House since 1961.  I’m honored that my service overlapped with Don’s.

 

 

One rarely sees pictures of the State House golden dome from the north side of the building.  Behind the State House there’s a trail network that steeply ascends to the Hubbard Park Tower.  After the House adjourned on this mid-May evening, it was a great hike to see the forest and  the trees.

 

 

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