Public Assets Institute > Policy Areas > Vermont Budget > General fund budget gap? What gap?

General fund budget gap? What gap?

On one level, Gov. Phil Scott’s first budget proposal provides a useful lesson. He showed it’s relatively easy to reduce or eliminate a state budget “gap,” at least on paper. You just move the problem into a different account. But it also could be a useful service if it shifts the budget conversation in Montpelier away from “the gap” and more toward to the purpose of raising and spending public money. We should be talking about how the budget can improve the lives of Vermonters and help them achieve their potential.

For at least 10 years now, as each annual session of the Legislature approaches, all eyes in Montpelier focus on the size of the budget gap projected for the following fiscal year. The gap is the difference between the estimate of taxes and other revenue flowing into the state in a given year and the projected cost of various public programs and services that year.

The gap that generates all the anxiety is the one in the state’s General Fund. Admittedly, this is the account the covers the operation of much of state government—human services, corrections, the state police, environmental protection, economic development, the courts, the Legislature, and so forth. And it’s funded with taxes many Vermonters are familiar with—the personal income tax, sales tax, rooms and meals tax, and corporate taxes are the big ones.

While the General Fund might be considered the state’s main account, it represents only about a quarter of all the money Vermont state government spends every year. The Education Fund is roughly the same size as the General Fund. And federal funds, about $2 billion a year, make up the biggest single account.

The drama in Montpelier each year is usually about closing the gap and balancing the General Fund. And this year Governor Scott has proposed another twist: He wants to set a limit on how much General Fund spending can grow in any given year.

But as the governor showed with his proposed budget, one way to make the numbers come out right is to move expenditures out of the General Fund into other accounts or move revenue from other accounts into the General Fund.

What the governor proposed for next year was to move a lot of expenditures that normally would be paid out of the General Fund—about $136 million—and pay for them out of the Education Fund. He also shifted some revenue from the General Fund into the Education Fund, but not enough to cover the additional obligations. This left the Education Fund with a $50 million gap. To close the Education Fund gap, the governor asked local school boards to cut their budgets.

This isn’t new. Administrations and legislatures have moved money around like this for decades. In this case, the shift makes the General Fund increase look smaller than it normally would be. It also gives local school boards the task of making the cuts. But the take-away in all of this is that we shouldn’t get too hung up on what’s happening with the General Fund in any given year.

That’s not to say the state doesn’t need to balance its budget. It does. And it’s important to track how money is being spent to insure taxpayers are getting the results they expect and deserve. But Vermonters would be better served if the budget discussion each winter in Montpelier focused less on whether the General Fund is growing faster or slower than it did the year before. The change may be due to spending, or it could be the accounting.

A better discussion would concentrate on whether the plan is meeting the purpose of the state budget. Will it move us toward the state we want to have five or 10 or 20 years from now? Will it improve the lives of average Vermonters, especially families who struggle the hardest to make ends meet?

Posted by Jack Hoffman on February 15, 2017 at 2:23 pm

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