Budget Cuts Loom After Revenue Downgrade

Jul 24, 2014

A downgrade in revenue projections has opened up a $31 million hole in the state budget. And the shortfall will likely result in unexpected cuts to government programs.

When lawmakers and Gov. Peter Shumlin gave final approval to the fiscal year 2015 state budget back in May, they assumed a 4.8-percent increase in revenues over the coming year. But it turns out the economic recovery isn’t going quite as well as they’d hoped.

"This really is no different than when a family thinks they have a raise coming, they get a raise, but the raise is a little smaller than they had projected." - Gov. Peter Shumlin

Economists for the administration and Legislature are now forecasting only a 3 percent increase in revenues. And while that means elected officials will have to trim 2 percent from the state’s $1.4 billion general fund budget, the Democratic governor said it shouldn’t be cause for alarm.

“This really is no different than when a family thinks they have a raise coming, they get a raise, but the raise is a little smaller than they had projected,” Shumlin said.

Shumlin said raising taxes to fill the gap is out of the question, something lawmakers wouldn’t be able to do anyway, without calling all of their 180 members back to Montpelier for a special summer session.

The governor said he also won’t allow for spending reductions to the portion of general fund spending that goes to pay for schools.

Calais Rep. Janet Ancel, the Democratic chairwoman of the House Committee on Ways and Means, said avoiding reductions to education spending will prevent property taxpayers from having to foot the bill for this latest downgrade.

“I think it’s the right thing to do … But it does mean the cuts need to be deeper,” Ancel said.

Shumlin said he will also not reduce the state’s contribution to public pensions, or postpone payments on debt obligations.

Shumlin has directed the heads of all government departments to come up with new budget plans that would cut 4 percent from this year’s spending. Shumlin said his cabinet will review the options, and submit a final rescission proposal to lawmakers on Aug. 11.

“We’re going to make the cuts wherever we feel we can do it with the least hardship to Vermonters,” Shumlin said.

Caledonia Sen. Jane Kitchel, the Democratic chairwoman of the Senate Committee on Appropriations, said the mid-year budget correction facing lawmakers now pales in comparison to the ones they faced during the Great Recession. Still, she said the cuts could be steep and painful.

“Whether it’ll mean … benefit reductions, whether it means in some programs you have the ability to create waiting lists … It is not an easy task,” Kitchel said.

Economist Tom Kavet said lower-than-expected gains in personal income and sales and use taxes – the two largest sources of general fund revenue – figured significantly in the latest downgrade. While the economy is showing signs of improvement, Kavet said signals are mixed.

Vermont’s unemployment rate, which at 3.3 percent, is second-lowest in the nation, might sound like a good thing, Kavet said. But he said that in many areas of the state, the statistic has more to do with a loss of workers than the creation of jobs.

“So a shrinking labor force will make the unemployment rate look good, but you’re not really getting it through job creation,” he said.

Members of the Legislature’s Joint Fiscal Committee say they aim to pass a rescission plan as soon as possible.