UPDATE: New numbers were made available on Dec. 23, 2010. Details have been revised accordingly.
CORRECTION: Due to a copyediting error, this article erroneously stated that the federal government contributed $240 million in stimulus funds for state schools in fiscal years 2009 and 2010. The amount was $57 million per year, $38.6 million was funneled through the state; and $18.4 million was distributed directly to schools.
Vermont’s General Fund budget gap will be much larger than officials originally anticipated.
Jeb Spaulding, Administration secretary-designee for Gov.-elect Peter Shumlin, told Mark Johnson of the WDEV radio station last Friday that the budget gap for fiscal year 2012 would be $150 million, but he declined to elaborate.
Monday, Spaulding affirmed that he anticipated a shortfall of $150 million, which would represent about 11.5 percent of the $1.296 billion General Fund budget.
Last August, the Douglas administration and the Joint Fiscal Office estimated that the budget gap would be $112 million, or about 9 percent of the budget. The gap represents the difference between anticipated revenues from taxes and other sources and the estimated expense of operating state government agencies and programs.
So what accounts for the sudden widening of the General Fund gap?
Revenues have been slowly rising, though they are still lower than pre-recession levels. Meanwhile, as more Vermonters have been hit hard by unemployment, underemployment and inflationary increases in medical and food costs, demand for state services has increased dramatically.
In fiscal years 2009 and 2010, the federal government contributed hundreds of millions in stimulus funding to the state’s budget, which allowed agencies to continue to serve larger numbers of Vermonters. The stimulus funding allowed state programs to grow.
A second stimulus isn’t going to happen, and revenues haven’t rebounded quickly enough to make up the difference. That means state services will be vulnerable to more cuts at a time when Vermonters continue to need assistance.
Between $15 million and $20 million of the increase is coming from “upward pressures” in the Human Services Agency.
Though details have not yet been made available, the Department of Children and Families has reported that demand for subsidized health care services via Dr. Dynasaur, Catamount Health and the Vermont Health Access Plan is up significantly.
The incoming Shumlin administration and the JFO are trying to solidify the human services numbers, and they hope to have consensus figures by the end of the week, but details could come sooner. The chief fiscal officer of the Agency of Human Services will be meeting with JFO to walk through the details Wednesday afternoon.
The other big ticket item is a $17 million drop in matching funds for Medicaid expenditures under the Federal Medical Assistance Percentages, a.k.a. FMAP.
Together, those two changes bring the minus column total to $149 million. Depending on how $10.3 million in teacher retirement and health care and tobacco settlement monies are counted, the grand total could go as high as $159 million. UPDATE: The total as of Dec. 23, 2010 has been revised to $149 million.
As the finance aficionados on the Fifth Floor scramble to finalize the numbers before the legislative session, one thing is definite – the budget gap increase will be at least $35 million. Consequently, lawmakers can expect to see a total budget gap of $147 million.
In the fall, Jim Reardon, commissioner of the Department Finance and Management, asked agency secretaries to take a 6 percent cut as part of a budget exercise. Recently, the transition team’s budget writers met with agency heads to review the results.
“It’s primarily AHS, and there’s significant pressure to restore the education fund contribution from the General Fund to the statutory amount,” Reardon said.
The statutory amount the state contributes to education is roughly $300 million. In each of the last two years, federal stimulus funding has enabled lawmakers to reduce the General Fund contribution to the Education fund by $57 million per year, $38.6 million was funneled through the state; and $18.4 million was distributed directly to schools.
The way the state addresses the gap will define what future budgets look like over the next few years, assuming the economy continues to recover slowly, according to Reardon.
Failure to meet education Challenges adds to budget woes
The bad news comes on the heels of revelations last Friday that most school districts did not meet Challenges for Change targets for their fiscal year 2012 budgets. Schools were asked to cut about $23 million from their budgets, or roughly 2.3 percent on average. The education portion of the Challenges government restructuring plan will be about $16 million short, but because there is $19 million in federal money available for next year as bridge funding, it’s not clear what impact the shortfall will have on schools or the annual General Fund contribution to the Education Fund.
Spaulding, state treasurer and incoming Administration secretary, said the state was “counting on $23 million in savings,” and “we (the Department of Education and the administration) need to hopefully come up with a coordinated message.”
Schools will have the option to use the $19 million in federal money this year or bank it for buffering future reductions-in-force.
Spaulding said he doesn’t know precisely how the administration will resolve the budget gap.
That said, he offered this absolute: “There is no way we can avoid making changes in human services.”
“We’re looking at everything,” Spaulding said. “Maybe we do have to look at copays, eligibility levels in Catamount and VHAP for awhile.”
Spaulding said he isn’t a big proponent of Challenges for Change, but something has to be done, and the incoming administration has cast its eyes on the two biggest ticket items: Education and human services. Together, those two areas of spending account for about 68 percent of the state’s budget, Spaulding said.
“I guess the part that bothers everyone is the arbitrary targets (of the Challenges), and not really knowing whether it saves money or not isn’t the best way to go about it,” Spaulding said. “At least it got the message through that we really need to be looking at different ways of doing things. AHS has had some ideas, and we are looking at savings.”
He said now that the buffer of the federal stimulus funds has disappeared, the budget roosters are coming home to roost. Spaulding said he’s not sure lawmakers understand the extent of the fiscal crisis.
“I anticipate the governor isn’t going to like the budget any more than anybody else,” Spaulding said.