Legislative preview: House Speaker wants to bring down state spending trend

by Anne Galloway vtdigger.org The legislative session doesn’t start until January 7, but lawmakers have been streaming into the Vermont Statehouse over the last few weeks in anticipation of the second half of the biennium. At the behest of House Speaker Shap Smith, every committee will meet before the new year and on November 20, the General Assembly will hold a daylong legislative briefing for a preview of the session.
The purpose of the preseason quarterbacking, Smith says, is to better coordinate the priorities of the 15 committees in the House with his own agenda for the session.
Not all the committees have met, and details about specific legislation have yet to emerge. But in an interview, Smith outlined some of the major issues lawmakers are likely to face, including yet another tough budget year, the erosion of the teachers retirement fund and supervisory union consolidation (again).
Finding a way to balance the state budget without raising taxes or expanding the lottery is at the top of Smith’s list. Over the past five years, the pattern has been consistent: There has been an ongoing gap between state spending and revenues. Though the state is slowly crawling out of the 2008 Great Recession, tax receipts have not kept pace with state spending, and this year is no different.
Budget-writers face a $55 million to $70 million gap again, and this time there aren’t enough one-time monies to paper over the difference. In addition, the $12 million rainy day fund, which has been carried over for future spending in prior years, will be consumed by higher-than-expected costs for human services programs when the state balances its books for the current year as part of the mid-year correction, also known as budget adjustment.
The trend line from the Joint Fiscal Office, the Legislature’s nonpartisan research arm, shows a gap of $50 million-plus for the next five years. In addition, federal supports for programs, including the low-income heating assistance program and food stamps, are diminishing. Smith says the sequestration cuts will go into effect in January, and the state expects to see more reductions in federal spending on human services programs.
Smith says the federal government is ‘abandoning its role in helping out people in need,’ but the state can’t afford to ‘backfill’ funding for human services programs. The same assertion has been oft-repeated by Shumlin administration officials, including Jim Reardon, the commissioner of the Department of Finance and Management, and Jeb Spaulding, the secretary of the Agency of Administration.
‘We have done it for LIHEAP, and it’s putting pressure on our budget, and I don’t think we have the capacity to take on what the federal government originally had as an obligation,’ Smith said.
Despite the uncertainty about the impact of federal cuts on Vermonters, Smith, who has served as speaker since 2009, is optimistic about closing the budget gap this year. In his experience, he said: ‘You never know in November how you’re going to balance the budget in May.’
One thing is clear, however, in Smith’s view: The solution is not raising taxes. Though H.528 is still on the table (the tax bill which passed in the House last year includes a cap on deductions and would have raised an additional $10 million), Smith says this year he will only consider alterations to the state’s tax code if the changes are revenue neutral. (Last year when the House approved H.528 in lieu of Gov. Peter Shumlin’s proposal to cut the Earned Income Tax Credit and a bogus break open tickets proposal, the administration retaliated with blistering criticism of Smith and the House Dems in comments to the press.)
‘The income tax proposal was one that was formulated in a moment where there didn’t appear to be any revenue,’ Smith reflected. ‘I think we have to go back and think about that proposal in the context of where we are now.
‘My personal view is we should not raise revenue,’ Smith continued. ‘I think that before we raise additional revenue, we need to get our spending trend line under control because there are $50 million to $70 million gaps as far as the eye can see, and if you’re going to solve it by raising revenue every single time, you’re going to run out of that solution over time.’
Instead, Smith believes budget-writers have to return to ‘results-based’ budgeting. In 2010, the state used a similar program, Challenges for Change, to’ whack more than $30 million from ongoing state spending in 2010.
‘The gap is based on estimates of rate of growth, those rates of growth may not be fully accurate one way or the other,’ Smith said. ‘We may have to decide we’re not going to do some things.’
What those budget items will be, Smith declined to say. ‘I don’t think I want to get in front of any of my committees on that particular issue,’ he said. ‘The last thing I need is having people call me, asking why their program is the one I’ve identified for the chopping block.’
Smith says he wants to take a look at the ongoing growth of the general assistance housing program, which has continued to blossom over the last several years despite the administration’s attempt to control costs through several changes to the program.
‘I’d like to figure out what’s going on there because it seems directly contradictory to what we were trying to get at in the budget last year,’ Smith said.
Other programs, he said, may need a bigger investment of taxpayer dollars. He pointed to Creative Workforce Solutions, which helps disabled Vermonters and Reach Up beneficiaries (state welfare recipients), find work.
‘Let’s see how that investment’s doing for us,’ Smith said. ‘If it’s doing well for us and it’s successful, should we be putting more money into that because what it’s doing is helping people be successful, and that really should be the goal I think of the investments we’re making to people who are really having challenging circumstances.’
One of the big ticket items that could put additional pressure on the state’s General Fund budget is the state teachers’ retirement fund. Smith and legislative leaders say pay-as-you-go health care costs for teachers are increasing at a rapid rate and eroding the value of the pension fund. The latest actuarial figures show that the teachers pension system is 60 percent funded. The recommended rate of funding is 80 percent.
Smith says the Legislature, the administration, the Vermont-NEA and the state treasurer’s office must broker a deal this year. He worries that if the state doesn’t act soon, the problem will become as intractable as the pension issues in Rhode Island, and the state will be forced to eliminated its defined benefit plan for teachers and opt for a defined contribution program.
‘It’s really about the health care, and we’re paying for it out of the corpus of the retirement fund, and that’s a problem ‘ we don’t do that with state employees,’ Smith said.
The state employees retirement system is funded at about 80 percent, largely as a result of a compromise between the Vermont State Employees Association and the Shumlin administration in 2011.
‘The state employees were great,’ Smith said. ‘They came to the table and made a good offer in 2011 and have really stepped up to the plate, and the teachers did in 2010, too, but we still have some challenges and we need to address them.’
Another hot money topic could be supervisory union and school board district consolidation, though Smith says he doesn’t want to ‘have a conversation that’s going to go nowhere.’
Smith says he doesn’t think the state needs 64 supervisory unions or more than 300 individual school boards. He would like the House Education Committee to discuss how supervisory unions are governed.
‘I think a conversation around consolidation around supervisory unions is worth having,’ Smith said. ‘I don’t think it can happen without a rigorous discussion and an agreement that there will also be a change in governance. What I mean by that is, if we have a consolidation of supervisory unions and still have as many school boards, you just push the work to somebody else.’