$18 Million Budget Omission Complicates Vermont's Fiscal Outlook

Sep 29, 2015

An $18 million omission during last session’s budget process has created some unexpected fiscal headaches for Vermont legislators. And the Shumlin administration’s decision not to tell lawmakers about a significant Medicaid obligation has complicated what had already become a difficult budget year.

It doesn’t happen very often, but every five to seven years, the state of Vermont is on the hook for an extra week’s worth of Medicaid payments. It’s a phenomenon that arises from the fact that there are, in fact, slightly more than 52 weeks in a year.

The latest extra week happens to fall during the same budget cycle that lawmakers approved a spending plan for earlier this year. The budget legislators passed, however, doesn’t include a dime for this $18 million financial liability, and they say that’s because administration officials never notified them the obligation even existed.

Since the bill involves Medicaid payments, the federal government will pick up a significant portion of the $18 million tab, but the state is responsible for $8 million of that bill.

“For me the possibility of this happening was just not even on my radar,” says South Hero Rep. Mitzi Johnson, the Democratic chair of the House Committee on Appropriations.

The existence of the 53rd week came as a surprise to Johnson and other legislative leaders, who say the liability wasn’t brought to their attention until after they’d given final approval to the fiscal year 2016 spending plan.

Caledonia Sen. Jane Kitchel, the Democratic chair of the Senate Committee on Appropriations, says the surprise discovery of the 53rd week has complicated a budget that was already swelling from unanticipated spikes in Medicaid costs.

She says lawmakers count on the administration to keep them appraised of these kinds of liabilities.

“When we’re building the budget, I guess the question that needs to be asked was, ‘are there any anticipated expenditures that are not reflected in your budget request as you’re presenting it to us?’” Kitchel says.

"When we're building the budget, I guess the question that needs to be asked was, 'are there any anticipated expenditures that are not reflected in your budget request as you're presenting it to us?'" - Vt. Sen. Jane Kitchel, Committee on Appropriations

Administration Secretary Justin Johnson says the administration was aware of the 53rd week well in advance of the last legislative session, but purposefully chose to omit it from the governor’s spending proposal.

The Shumlin administration says it is a "flexible" budget item that they can postpone until 2017. The federal government is expected to cover more than half.
Credit Angela Evancie / VPR

“At the time we put the budget together, it was determined because it was a flexible piece we would wait for budget adjustment and see what things were looking like,” Johnson says.

Johnson says the payment is “flexible” because the state could decide to delay payment on the 53rd week until fiscal year 2017.

That means lawmakers have three choices when it comes to resolving the unexpected obligation when they consider their budget adjustment bill early next year: they could raise $8 million in revenue to cover the cost; they could reallocate $8 million from other areas of the budget; or they could wait until next year to deal with the problem.

House Speaker Shap Smith says the episode shows how reliant the legislative branch is on the executive branch to have a full understanding of the state’s fiscal situation.

“It does point to a challenge within the process, which is that the Legislature is under-staffed and under-resourced, and to a certain extent we are reliant on the administration for providing us with the information that helps us build the budget,” Smith says.

"It does point to a challenge... the Legislature is under-staffed and under-resourced, and to a certain extent we are reliant on the administration for providing us with the information that helps us build the budget." Shap Smith, Vt. House Speaker

The $18 million payment amounts to slightly more than 1 percent of the state’s annual general fund budget, but budget battles have been waged over far less.

Lawmakers for example took the controversial step of eliminating the 6 percent sales tax exemption on soft drinks earlier this year to generate an additional $5 million in revenue annually. It was part of a $15 million end-of-session revenue package that nearly derailed a timely adjournment. Smith says foreknowledge of the $18 million Medicaid obligation would have substantively changed his approach to late-session fiscal negotiations.

“I think we would have had to go back to the drawing board and get a sense of how we would solve the $8 million problem,” Smith says.

Justin Johnson says the 53rd week isn’t like most other budget line items since it’s more of a one-time obligation than an ongoing liability. He says it made sense to get a lay of the fiscal land once state government was into fiscal year 2016 before deciding how, or whether, to deal with the 53rd week this year.

“I think once we have a better sense of those numbers, then we’ll be in position to make a recommendation about how to move forward,” Johnson says.

The $18 million payment is in part fueling Medicaid costs that, according to some projection, are already running $60 million over budget this year.

The administration will present lawmakers with a mid-year budget-adjustment proposal in December.

This story was originally published with the headline 'Surprise: $18 Million Omission Revealed To Legislators After Passing The Budget'.