(By James Dwinell. Vermont Business Magazine) Will Hunter of Cavendish wrote to the Rutland Herald last month, At least we have not touched a penny of our rainy day funds. Perhaps our leaders can print up copies of the bank statements showing the millions that we are hoarding in the bank. I would like to have a copy to look at to make me feel better as I watch my beloved state fall apart.
This month Tom Davis of Barre and son of Governor Deane Davis wrote to the Burlington Free Press, Is there anyone on the planet that honestly believes that by rearranging the chairs on the Titanic, aka the Vermont budget, that they can save $38 million? It is raining; we have a rainy day fund, use it!
I had seen the rainy day fund accounts in some years be above $100 million, then in some years below. I asked Vermont s State Treasurer Jeb Spaulding, Why do the rainy day funds fluctuate? Is it because of the way that they are invested and therefore the value goes up and down?
Spaulding answered in hushed tones, It is because there are no rainy day funds.
The rainy day fund is a budgetary number, a percentage of the general fund, highway, or education budget, called a reserve account. There are no actual funds in the reserve accounts. If the State decided to spend the amount of money in the budgeted reserve accounts, we would first use the available cash in the checking account, and when that was gone, we would have to borrow the money to fully meet the reserve value.
Who knew? I asked Governor Douglas and he understands that there are no rainy day funds, saying, The rainy days funds are just a budgetary figure. Chairman Michael Obuchowski, Chair of the House Ways and Means Committee and Senate pro tem Peter Shumlin both knew. But most of the politicians I asked including candidates for governor, legislators, lobbyists, commissioners, and the state economist join the ranks of many Vermonters who do not realize that the rainy day funds were not actual funds set aside for a rainy or stormy day.
Do the bond rating companies know that there is no rainy day cash, and if so, do they care?
Standard & Poors latest credit report on Vermont January 26, 2010 reads, The general fund budget stabilization reserve was $60 million and there were additional general fund reserves for revenue shortfalls of $14.8 million and human services caseload reserves of $16.3 million.
The FitchRatings conclusions were the same in a credit report of the same date, Reserves in each major operating fund at the close of fiscal 2009 were at full funding at 5% of prior year appropriations.
Moody s Investor Service had similar findings in their report dated February 18, 2010. Vermont s fully funded budget reserve fund was $60.1 million at the end of the 2009 fiscal year. Vermont maintains a fully funded Transportation and Education reserve fund ¦ The state maintains a Human Services Caseload Reserve of $16.29 million. The 2010 budget adjustment utilized $16.22 million leaving only $70,000 in this reserve.
Treasurer Spaulding said, I am not sure how each credit agency works, but some states handle their reserve accounts as Vermont does, other states segregate them and fund them with cash.
We asked Moody s if it mattered in its credit analysis, and John Cline, Moody s analyst wrote, We decline to comment beyond the report that we sent to you.
Ken Weinstein, credit analyst for FitchRatings, said, We do not really know if there is cash or cash equivalents in these accounts. We go by the GAAP financial statements provided by the State of Vermont which show on its balance sheet the values of all the fund reserves.
Moody s credit report concluded with a warning, One of Vermont s credit strengths is the maintenance of budget reserves at statutory limits. One of the things that would make its ratings go down is the depletion of budget reserves with swift replenishment.
For its part, the Vermont Legislature s Joint Fiscal Office (http://www.leg.state.vt.us/jfo/) has issued three memos this year (http://www.leg.state.vt.us/jfo/Budget%20Stabilization%20Reserve%20Memos....) attempting to explain the reserve and rainy day funds.
In the memo, dated February 9, 2010, prepared by Chief Fiscal Officer Stephen Klein and entitled General Fund Budget Stabilization Reserve Use and Operation, the JFO makes four points about the reserve funds:
1. The fund s primary statutory purpose is to reduce the effects of annual variations in state revenues upon the general fund budget of the state by reserving certain surpluses in general fund revenues that may accrue for the purpose of offsetting deficits or reducing general fund bonds. Accordingly, Vermont s stabilization reserve is designed to provide some protection against revenue variance after the end of the fiscal year and is an integral part of our budget operations.
2. As a secondary benefit, the fund plays an integral role providing a cash reserve that reduces the need to access short-term borrowing to meet state financial cash flow needs. Existence of these funds has created a resource for the state s cash flow that has reduced the need for short-term borrowing. The state s cash balance has been below the fund resources at points during each of the past six years and is projected to be so again in FY 2010.
3. The existence and preservation of this fund has been cited by Standard and Poor s, Moody s, and Fitch as having a positive impact on Vermont s bond ratings.
4. Vermont created a rainy day type reserve in 2008 in 32 V.S.A. § 308d similar to the rainy day funds utilized by other states. This revenue shortfall reserve is empty, and deposits will be made only if revenues exceed forecasts by greater than 1%. A full listing of other states reserves is available at http://www.ncsl.org/?TabID=12652
Other states, such as Massachusetts, have reserve funds that have been set aside for use in years where economic shortfalls exist. Vermont created such a fund in 2008 in 32 V.S.A. § 308d. This revenue shortfall reserve is empty and thus not available for use.
n www.vermontbiz.com. 4.28.2010
No cash in Vermont's Rainy Day fund
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