In the most highly anticipated speech of his political career, Gov. Phil Scott says he’ll unveil a state budget plan Tuesday afternoon that calls for zero growth in ongoing general fund expenditures.
Scott says level-funding the $1.53 billion general fund “won’t be easy,” but he says it’s the only way to balance next year’s budget without resorting to new taxes or higher fees.
“And this isn’t going to be easy. I can’t underscore that enough – this will be painful,” Scott said Monday. “But I believe that if we put these policies into place, and we do a little belt-tightening, if we live within our means for the next couple years, the future will be bright.”
There’s potentially one major caveat to Scott’s no-growth proposal. The level-funding directive applies only to “ongoing” costs in the general fund; administration officials say Scott’s budget may include some “one-time” expenditures, on top of the $1.53 billion general fund figure that lawmakers approved in this year’s budget bill.
Scott says the temporary timeout for general fund increases reflects promises he made on the campaign trail.
“Many of our businesses, many of our citizens, have to live within their means every day,” Scott says. “And I think government has a responsibility to do so as well.”
During his campaign, Scott vowed to bring a new philosophy to the budget-writing process. Under his watch, Scott said, growth in the state budget would be limited to growth in the underlying economy.
Scott said he’d devise a formula to establish that cap, and he’s finally come up with one.
The cap will apply to the general fund, which is the pot of money funded by state revenues, as opposed to federal dollars. Scott says he won’t allow growth in the general fund to exceed “the mean of the nominal growth in average wages over the last six years.”
The formula basically ties growth in the state budget to wage growth for Vermonters. Scott says the formula, developed with the aid of state economist Jeff Carr, does not include income from capital gains. And he says using the six-year average will guard against volatility from year-to-year fluctuations.
The calculation would allow for a 2.2-percent increase in next year’s general fund. But Scott says that taxpayers can’t afford even that level of increase this year. And he says getting Vermont’s “house in order” requires a more austere approach.
General fund budgets have gone up an average of 4.4 percent annually over the past five years, according to the Legislature's Joint Fiscal Office.
“We need to limit the amount of growth because it already exceeds our ability to pay,” Scott says.
Scott says he might be more amenable to general fund increases in the future, if fiscal conditions merit. The 2.2-percent cap might get a slight adjustment up or down next year, depending on how wages fare in 2017.
“But this growth calculation is important for the future, because once the economy gets going again, gets revved up, and we start growing, then we will still need to limit this growth,” Scott says.
Critics, however, say tying government spending to wage growth, or other kinds of economic-performance models, is a fundamentally flawed approach.
Jack Hoffman is a senior policy analyst at Public Assets Institute, a left-leaning policy group in Montpelier that has called for increased public investments in government programs.
“When the economy is weak, that’s exactly the time when the people of the state, the demand for services increases,” Hoffman says. “People need help from state government at those times.”
Senate President Pro Tem Tim Ashe says abiding by a budget cap that’s linked to economic performance, as opposed to budgetary needs, could force some untenable decisions if Vermont find itself in another recession.
“Does that mean that we’re going to dramatically cut public assistance programs?” Ashe says. “If that’s the case, that runs counter to all of the best public economics thinking that has been bipartisan for many decades in this country.”
Ashe also rejects the notion that the Democratically controlled Legislature has been fiscally reckless for the past six years, under Democratic Gov. Peter Shumlin.
“I think the Legislature has been fairly disciplined. Could it do better? Yes. But it has been fairly disciplined in terms of budget pressures,” Ashe says.
Republicans and Democrats have long waged a battle of statistics over the merits of their competing fiscal strategies.
In an op-ed sent to news outlets across Vermont late last year, Shumlin noted that the “average annual growth rate of Vermont’s total budget during my tenure is 3.7 percent.”
“During that same time, Vermont’s economy, defined as the Vermont Gross State Product, has grown at 3.1 percent,” Shumlin said.
Shumlin’s point is that budgets passed under Democratic rule over the past six years aren’t the fiscal train wrecks that detractors have painted them as.
Scott says the 3.7 percent average annual increase is well above Vermonters’ means as it is. And he says the statistic misleads anyway.
General fund increases – that’s the state-funded portion of the budget that lawmakers have the most control over – have gone up by 4.4 percent a year, on average, over the past five years. In each of those years, lawmakers have relied on new revenues to balance the budget.
“So this is an unsustainable path,” Scott says. “And if you keep raising taxes and fees, you’re going to force more people to make decisions about where they live, and it’s not going to be Vermont.”
It’s a fact of government budgeting that the cost of running the state goes up every year. Employees get scheduled raises. The cost of health care benefits rises. And that means that a level-funded budget will, in fact, require some kind of cost-cutting initiative.
Scott says his budget proposal will pinpoint precisely where those cuts will come from.
“Throughout different departments and agencies, my executive order has asked to take a look and see what we could do to become more efficient, where we could save some money,” Scott says. “And we’ve done some of that, and will reflect that in the budget that I present tomorrow, some of those savings.”
Democratic lawmakers will be wary. When Scott, in his inaugural address, reiterated his pledge not to raise new revenues, Ashe explained later why the line didn’t win applause from many Democrats.
“And it wasn’t because those people wanted to raise everyone’s taxes and fees ... it’s because sometimes policy making, especially when the state budget is disproportionately used to support low-income people and people who are having trouble fending for themselves in this economy, to have a hard and fast rule about anything is a little bit challenging,” Ashe said.
General fund revenues are slated to rise 3.5 percent during the next fiscal year. That means the state is projected to bring in about $75 million more in revenues next year than it does in this fiscal year. Scott says it’s possible under his plan that Vermont would find itself with a surplus at the end of the next fiscal year.
He says he already has some thoughts on how the state might use it.
“I think giving it back to taxpayers, I think that’s one appropriate place to go,” Scott says.