“Scissors, Glue, Pencils? Check. Cleaning Spray?” describes how other states are responding to the wave of school funding cuts that have occurred during this recession. Having already shifted the cost of routine school supplies onto families with schoolchildren, administrators in some states are now asking those families to pack toilet paper, paper towels, and cleaning supplies in their kids’ backpacks as they ship them off to school.

This is the kind of false savings we’re likely to see in Vermont if we allow the commissioner of education to dictate school budget amounts for every district in the state. One way to meet artificial budget targets is to simply move items off budget. Instead of buying toilet paper or Windex with tax dollars, ask local residents to pay for them. The community doesn’t save any money. In fact, without the benefit of bulk purchasing, families are likely to spend more on the supplies than the school would. But the school budget will be smaller, and we can pretend we’re better off because taxes are a fraction lower.

The school board in Williamstown recently reduced bus service in response to pressure to cut its budget. Perhaps the parents who now will have to drive their kids to schools will use less fuel than the buses, but it seems unlikely. Like many of the state budget cuts in the last couple of years, the Williamstown action will reduce school spending by shifting costs, but without a net savings to the community. It’s true that only the parents of schoolchildren will have to bear the additional cost, but that hardly seems fair when everyone has an interest in making sure our kids are well educated.

We’re coming up on the 30^th anniversary of Ronald Reagan’s declaration that government is not the solution to the problem, government is the problem. Three decades of anti-government, anti-tax rhetoric have created such a phobia about taxes that we’ve lost sight of our self-interest. We pool our money to buy and operate buses because it’s the most efficient way to get kids to school in a rural state like Vermont. We don’t (yet) ask kids to bring heating oil, chalk, fax paper, toilet bowl cleaner, or dry macaroni to school because it’s cheaper and more efficient to buy that stuff in bulk. But we’ve gotten so freaked out about taxes we’ll do almost anything to avoid them—even if ends up costing the community more than the taxes would.

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.A protracted slide in job creation
Net change in the number of Vermont jobs—the difference between jobs gained and jobs lost—doesn’t tell the full story. In the 1990s, Vermont’s private sector was adding nearly 30,000 jobs each year (blue line). But that growth eroded during the last decade, with only 20,000 jobs created in 2009. This makes the state more vulnerable to unemployment during this recession—when job losses (red line) rose to 30,000 in 2009—than it was during the recession of the early 2000’s.

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Out of work with no end in sight
Nationally, long-term unemployment is the worst it has been since the late 1940s. Vermont’s statistics don’t go back that far, but 2009 saw a sharp spike in the rate of unemployed workers who have been jobless for more than half a year. The rise in long-term unemployment is the likely cause of the shrinking labor force.

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Download a PDF of the jobs brief

The fact kits would be separate from position papers, but they would establish a common foundation on which the parties and candidate could build their positions. The kits would include basic information like the size of the state budget, tax rates, employment and unemployment numbers, as well as historical data so people could see how things have changed—or not changed so much—over time.

The idea of the fiscal fact kit came to mind after reading about a candidate for the Legislature who promised to reduce Vermonters taxes and push for a flat income tax rate of 5 percent. Five percent may sound like a pretty good deal on income taxes, especially when we think about the services the state is trying to provide. But the fact is very few Vermonters pay that much of their income in state income taxes.

According to Vermont Tax Department statistics for 2008, the latest available, it’s not until incomes reach about $300,000 that the average state income tax approaches 5 percent of income. In 2008, only 1 percent of filers had adjusted gross income of $300,000 or more. The more typical filer—those at the Vermont median family income level of $63,400—pay on average 2.5 percent of their income in state income taxes. A 5 percent flat tax, rather than reduce taxes for all Vermonters, would double income taxes for the median Vermont family. Only those in the highest income brackets—$300,000 and up—would be better off with such a flat tax proposal.

Nevertheless, if 5 percent seems like a reasonable enough income tax rate to build a political campaign around, and many Vermont families are paying less than half that amount, maybe Vermont isn’t such a high-tax state after all.

For 30 years, we’ve been told government is the problem and the best way to help the economy is to reduce taxes for business and get government out of the way. What we’ve been told is wrong. Our economy does better when government plays its rightful role, building and maintaining our public infrastructure and insuring that we have an excellent education system that serves everyone from pre-school-age youngsters to older adult workers.

These insights on how to strengthen the New England economy are contained in a new report released last week by the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. The report, “Prioritizing Approaches To Economic Development In New England: Skills, Infrastructure, and Tax Incentives,” was written by Jeffrey Thompson, a research economist at PERI, who works with Public Assets Institute and its counterparts in the other New England states.

Thompson reviewed the available research on what works and doesn’t work to bolster productivity and ultimately expand economic prosperity. We learn from his report:

The most effective options for creating jobs, both short-term and long-term, are investing in infrastructure and building workforce skills.

Tax cuts and business subsidies do little to create jobs in the short run and are not the most effective way to generate growth over the long term.

In the last 30 years, the U.S. has reduced its investment in public infrastructure, and there has been a subsequent decline in the rate of economic growth.

In the 1960s, New England was ahead of the nation in public infrastructure investment, but in the last two decades it has fallen behind the rest of the country.

Most of jobs that businesses use to claim tax credits would have been created without the incentives.

Investments in public infrastructure and education increase the productive capacity of a state or region; tax credits and other subsidies for individual businesses do not.

Vermont provided more than $400 million in tax breaks for businesses last year.

There are many other findings in the report that there isn’t room to describe here, but this study needs to become part of the public discussion as we look for ways to put Vermonters back to work and address the budget problems facing the state. The report also offers suggestions for how Vermont and the other New England states can find the money needed to start to rebuild our neglected infrastructure and strengthen our education system. Some of the money can come from simply redirecting existing resources — away from ineffective tax breaks and into renovating schools, upgrading sewer and water systems, expanding broadband access, repairing highways, and replacing bridges.

We’ve been misled for the last 30 years to believe that we don’t need government and that those who disparage government are the best ones to lead it. As Thompson’s study demonstrates, there is ample evidence that when government is doing its job and doing it well, it’s good for the economy.

Economic development and investment in public services and infrastructure are not mutually exclusive.

The state needs to be part of the solution to rebuilding and sustaining our economy.

We need to put ideology aside, study the available research, and make sure we use our precious public resources wisely, effectively, and in ways that create economic prosperity that all Vermonters can enjoy.

Paul Cillo is president of the Public Assets Institute (www.publicassets.org), a nonpartisan, nonprofit fiscal policy think tank based in Montpelier.

For Immediate Release

MONTPELIER—States, including Vermont, have long viewed economic development and funding for public services as competing interests. That’s a false dichotomy. Indeed, rebuilding neglected infrastructure and improving education will reap economic benefits in Vermont far surpassing those achieved by tax credits and other business giveaways.

Those are the conclusions of a new study released today by economist Jeffrey Thompson of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. Thompson’s paper is based on his extensive analysis of research on what works and doesn’t work to create jobs and strengthen state and regional economies. It suggests a better approach to economic development for the New England states as they dig out from the Great Recession that began in late 2007.

“In many cases the most effective options for creating jobs are the same options that support public services,” says the introduction to Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives. “Spending and investing in areas at the core of the public sector mission—providing education and maintaining infrastructure—are effective at creating jobs in the short term and building prosperous economies over the long term . . . . The tax cuts-and-business-subsidies-approach to economic development, on the other hand, will do little to create jobs in the short run, and is not the most effective approach to generating growth over the long term.”

Paul Cillo, executive director of Public Assets Institute in Montpelier, welcomed the study as a refreshing reassessment of economic development opportunities for Vermont and the region. “For 30 years we’ve been underfunding our public infrastructure to pay for tax breaks and other so-called ‘jobs programs’ that have benefited individual business owners,” Cillo said. “As Jeff’s paper demonstrates, the result has been slower economic growth. We need to remember that government has an important role to play in economic development, and that role is to invest in and maintain the essential public structures that expand our productive capacity and help the economy to grow.

“Tax credits and other faddish incentives provide short-term benefits to a few lucky companies. But they don’t bring prosperity to Vermont’s workers, businesses, and families in the way that public investments can.”

Public Assets Institute is a non-profit, non-partisan organization that researches and analyzes state fiscal policy. It is a member of the State Fiscal Analysis Initiative (SFAI) coordinated by the Center on Budget and Policy Priorities in Washington, D.C. Jeffrey Thompson is a research economist based at the Political Economy Research Institute at the University of Massachusetts and funded, in part, by Public Assets Institute and the other New England members of the SFAI network.

Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives is available at the Public Assets Institute website.

For further information, contact:

Jeffrey Thompson at PERI 413-577-3147 or

Jack Hoffman at Public Assets Institute 802-223-6677.

Download the report; the findings in brief

The recession has put many Vermonters out of work.  So policymakers are looking for an economic boost that will get Vermonters working again and give their families ongoing stability.

What’s the best way to do that?  Vermont has used tax credits and other incentives for companies to do business here. At the same time, Montpelier has cut investment in public infrastructure and services, calling it “unaffordable.”

But this strategy is backward according to an in-depth analysis by economist Jeffrey Thompson who studied the best research on how to build and sustain healthy economies. Indeed, rebuilding Vermont’s neglected roads, bridges, and water systems and robustly funding education, from preschool to adult worker education, will benefit the state’s economy far more than tax credits and other business incentives.

“The available evidence suggests that the most effective options for creating jobs, in the short and long term, are the same options that support public services: investing in infrastructure and building the skills of the current and future workforce,” says the report.

“The tax cuts and business subsidies approach to economic development, on the other hand, does little to create jobs in the short run, and is not the most effective approach to generating growth over the long term.”

Investing in Vermont’s public structures is the best way to give the economy a needed boost and create lasting prosperity for all Vermonters.

Read the report; the findings in brief

That’s not good management. You can’t give people 75 percent of the resources they need and expect them to get all of their work done. It’s unfair to the employees, a disservice to the people they’re serving, and often a waste of the money you do spend.

If we had been having an honest conversation about the state budget, everyone would know what the choices were. If we cut the budget, these are the services we might want to eliminate. If we decide we want the services and need additional revenue, these are the options for generating more money. That discussion also should include an objective assessment of what’s working and what’s not.

Challenges for Change, the government reform program passed by the Legislature this year, holds out the promise of getting better services for less money. But while the main focus of Challenges has been doing more for less, the latest progress report on the new efficiency program points to one area where Vermont may be able to do less and save more. The report doesn’t come right out and suggest we eliminate the Department of Economic Development, but it certainly raises the question.

Challenges’ first economic development goal is achieving “a sustainable annual increase in nonpublic sector employment and in median household income.” That really goes without saying; more jobs and higher wages is the essence of economic development. But look at the administration’s take on the government’s role in achieving this goal:

“We do not believe that the State spends anywhere near enough to actually affect median income. Other much more influential factors will affect medium[sic] income much more than any program or group of programs we could afford to implement. Factors such as cost of fuels, the weather, interest rates, inflation, etc will affect medium [sic] incomes far more than anything this Agency can do. We believe net new, nonpublic jobs are also more dependent on national and international forces more than our programs.”

If these programs really don’t work, why does the administration keep pushing tax credits and claiming that they’re creating jobs and boosting wages. And if we’re trying to reduce state spending, shouldn’t we start with programs we know are ineffective before we cut services that are going to diminish the lives of some Vermonters?

The Douglas administration has tried to provide some answers to that question in the latest quarterly progress report to the Legislature. But the Legislature’s oversight committee found a basic weakness in the administration’s approach.

“The report as submitted lacks baseline information for measurement in many areas and this is a key concern,” the committee said in its response to the progress report. “…. This report should have had July 1 baseline information or at least a clear timeline when that will be in place.”

Reading through the progress report, it’s easy to see what the oversight committee was talking about. There are boldly stated goals. But for many programs, especially in the Agency of Human Services, where Challenges for Change is expecting to find the greatest savings, the data needed to measure progress are lacking.

Sadly, the agency used to collect and publish just the sort of information the Legislature is now seeking through Challenges for Change. Twenty years ago, the agency made a fundamental shift from focusing on caseloads to tracking indicators that reflect the health of our society—alcoholism, child abuse, prenatal care, graduation and drop-out rates, literacy, obesity, and others. Each year, the agency published a report that showed where the state was making progress and where there was still more work to be done.

The last of these “Vermont Well-Being” reports was published in 2006. In the push to reduce the size of state government, the administration also cut the state’s capacity to measure the performance and effectiveness of what it does. Now that Challenges for Change has sparked renewed interest in improving government efficiency, the administration and the Legislature are learning they need to rebuild the capacity that’s been lost.

For a good case of déjà vu, read the last published “Vermont Well-Being” report, and then read the Agency of Human Services section of the Challenges for Change progress report.

Try not to cry.

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A Positive Prognosis for State Revenues
After two years of decline, Vermont’s tax collections should begin growing in fiscal 2011 and 2012. According to the latest state forecasts, Vermont should see a 5 percent increase in General Fund revenues this year and 7.7 percent in fiscal 2012. Personal income tax receipts are expected to jump more than 11 percent in fiscal 2012. But that rise won’t bring income taxes back to pre-recession levels. Unemployment and Wall Street declines caused Vermont’s income tax revenue to drop nearly $125 million from fiscal 2008 to 2010.

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Fewer Hammers Swinging
The recession has hit Vermont construction workers hard. In the last year, the state has seen the greatest fall in construction jobs in New England, the second largest in the nation. Of approximately 240,000 private sector jobs in Vermont, construction accounts for about 5 percent or 11,200. That number is down 12 percent from January 2010 and 18.5 percent from a year ago. Vermont’s average construction wage for 2009 was $41,672—about 10 percent higher than the average private sector job. Despite the loss of construction jobs, Vermont saw the nation’s third-largest percentage point drop in the overall unemployment rate last year.

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Download a PDF of the Jobs Brief

Download a PDF of  the report or read the text below:

A little more than a year ago, the federal government stepped in to help the states weather the recession. When Vermont’s next fiscal year ends on June 30, 2011, the state will have received $874 million through the American Recovery and Reinvestment Act (ARRA). That money has been supporting the delivery of state services. In addition, Vermonters have received hundreds of millions in federal tax cuts, and other stimulus funds have been available to private businesses.

ARRA—commonly known as the stimulus program—has been a boon to Vermont during these hard times. But the temporary funds also have masked weaknesses in the state’s fiscal policy. There are structural problems, including the unsustainable rise in health care costs and outmoded tax policies, that have grown over the years. More recently, there has been a concerted effort to reduce the size and cost of government without changing what it is expected to do.

In 2012, when the ARRA funds cease flowing from Washington, a crucial debate over Vermont’s budget priorities, especially education and human services, will resume. Its outcome will determine whether we return to having a state government that competently and efficiently delivers the services that individuals can’t provide on their own, or we continue to underfund government and make it less effective.

How to Face a Downturn
Recessions are a difficult time for any government. The economy contracts, workers lose their jobs, and tax collections decline—so the state has fewer resources just when people are turning to it for help.

Some political leaders respond to recessions by using all the tools at hand to maintain important services: rainy day funds, budget cuts, tax increases, temporary federal funding, borrowing, even deficit spending. Gov. Richard Snelling and the Legislature used all those tools when they attacked the state’s last big recession in 1991. They recognized that Vermonters needed more, not less, from their government when the economy was shrinking. The state emerged from that slump on a firm fiscal footing, which allowed it to roll back most of the tax increases and budget cuts.

During his eight years in office, Governor Douglas has been clear about his desire to reduce the size and lower the cost of state government. He has held to that position through this recession, too. He doesn’t subscribe to Snelling’s counter-cyclical fiscal policy. Instead, he says that when families and businesses cut back, government must cut back, too.¹

In January 1991, Snelling told Vermonters: “We cannot and will not set lower standards for the education of our children, for the health of the population, for assistance to the troubled, jobless, or homeless, or for protection of the environment.”²

Eighteen years later, this was Douglas’s message: “The truth we must all accept is that we can no longer afford the level of services we have come to enjoy.”³

While the governor has sought to lower expectations, his administration hasn’t said what functions and services should be eliminated. He has pressed local school boards to reduce education spending, but hasn’t said anything about lowering performance standards. There are fewer state employees working with fewer resources, but except for the judiciary’s decision to close the courts on certain days, the basic jobs of state government have not been changed. Despite a promise not to “nickel and dime services . . . [to] a point where our programs are no longer able to serve their purposes,”⁴ that has been the result of some recent budget cuts.

The Legislature for the last three years has stood somewhere between Snelling’s counter-cyclical approach and Douglas’s determination to reduce state spending. Legislative leaders have been willing to use federal stimulus funds to make up for lost state revenue. But they, too, have called for “belt-tightening” and been almost as resistant as the governor to raising taxes.

Even with hundreds of millions in ARRA funds, the recession has left Vermont with gaps between available revenue and the cost of needed services. The Democratic-controlled Legislature passed modest tax increases in 2010, but during fiscal 2009 and 2010 it approved $4 in cuts for every $1 in new tax revenue.⁵ This year, the Legislature rolled back some of last year’s tax increase and closed the fiscal 2011 budget gap almost exclusively through cuts.

The governor also has been willing to use ARRA funds; as chairman of the National Governors’ Association, he sought federal help from President Obama and Congress. But back in Vermont, his acceptance of Washington aid seemed almost grudging.

“I am not counting on additional federal [Medicaid] assistance in my budget,” Douglas said. “But even if new aid does eventually come our way, we must recognize that federal recovery funds will not flow forever, nor should they. We must take responsibility for our own programs and begin to step down our funding levels gradually and responsibly. By starting now the difficult process of realigning human services spending within currently available resources, we will spare programs from devastating cuts when the federal spigot is inevitably turned off.”⁶

At a time when thousands of Vermonters were losing jobs, the administration resisted participating in a program to provide hot meals to poor schoolchildren that was fully funded by the federal government.⁷ (It eventually gave in.) Among the more than 700 state positions eliminated in recent years, some were funded entirely with federal money. Cutting the federally funded jobs saved no state money, took the money out of the state economy, and put workers on Vermont’s unemployment rolls.

Similarly, the administration has pushed for Medicaid cuts that end up costing Vermonters more money. For every $1 in Medicaid cuts, the state saves 30 cents and the federal government saves 70 cents. Meanwhile, the full cost of those services is shifted to low-income families—or those people go without. Where Medicaid is concerned, it costs Vermonters $1 to reduce the state budget by 30 cents.⁸

More with Less
Challenges for Change was the Legislature’s attempt to reduce spending without undercutting important public services. The government reform plan, developed by a group of Minnesota consultants, recommended ways to “do more with less”—to increase efficiency so that agencies and departments could cut their budgets and still improve or at least maintain the quality of services. Challenges for Change has provided one of the rare instances in recent years of a discussion about delivering better government services.

The plan was unveiled at the start of the 2010 session and garnered broad support. The Legislature quickly endorsed the goals laid out by the consultants and committed to the plan’s savings before knowing how they would be achieved. When legislators later saw the administration’s implementation plans, many had second thoughts.

The fiscal 2011 budget assumes $38 million of Challenges for Change savings in the General Fund, of which about $30 million have been identified so far. Of those, more than half—$18.6 million—are expected to come from human services (Figure 1).

One of the main criticisms of Challenges for Change is the absence of adequate measures to determine whether the reforms will, in fact, improve services. The problem is compounded by the fact that some of the state employees laid off in recent years were those who collected and analyzed information needed to assess the government’s performance. The Agency of Human Services, for instance, last produced its annual assessment of the state’s social programs, “Vermont Well Being,” in 2006.

Critics of Challenges for Change, including those who support its general goals, believe the administration has seized on the plan as another way to reduce the size and cost of government, regardless of the effect on Vermonters. “Efficiency savings” has begun to look like another way to cut the budget and reduce services—to do less with less.

Gaps in the General Fund
Vermont’s fiscal 2011 budget relies on $320 million in ARRA funds, including $54 million for transportation projects and a $46.7 million increase for federally funded education programs (Figure 2). The remaining stimulus money has gone into General Fund programs, most of which would have been funded with state revenue if the federal money had been unavailable. The administration and the Legislature’s Joint Fiscal Office have concluded that $181.4 million of ARRA funds were used in the fiscal 2011 budget to cover appropriations considered part of the General Fund base budget—that is, expenditures for continuing programs that the state expects to make year in and year out.

Fiscal 2011 is the last year for federal recovery money. For fiscal 2012—just a year away—Vermont will have to go back to relying on its own revenues to pay for General Fund obligations. While the state does not expect to replace all the federal funds, it is likely to cover those base budget expenditures. Looking ahead to some revenue growth and other changes, the Joint Fiscal Office is forecasting a $120 million hole in the General Fund base budget in fiscal 2012.

The budget projections for fiscal 2012, including the potential deficit of $120 million, assume that the savings from Challenges for Change will be expanded in fiscal 2012, and there will be $72 million in efficiency savings that year. If the efficiencies are not realized, the gap will be bigger.

ARRA: A Bridge to What?
It was always understood that the recovery funds were temporary. The question is how to incorporate these temporary federal funds into a budget plan that sets the state on a sustainable path.

The problem policymakers face is a compound one. The recession has reduced revenue to operate state government at time when Vermonters need government to do more. Furthermore, the downturn has come on top of long-term economic changes that have made it more difficult for the state to meet Vermonters’ needs and balance its budgets. For decades, health care costs have grown at nearly twice the rate of the overall Vermont economy. Taxable sales have diminished as a percentage of the overall economy; motor fuel taxes, levied on a per-gallon basis, have been lagging as higher fuel prices move Vermonters to use less. These and other structural issues require reform before Vermont can expect both to sustain existing services and balance its budgets. The solution will require something more creative than budget cuts.

The governor clearly has seen the ARRA money as a bridge to smaller, leaner state government. His philosophy is simple: “Manage to the money.” In this case, that means when the stimulus funds run out, cut state services to adjust.

Others have seen the recovery funds differently: as a way to maintain the state’s most critical services until the economy picks up and necessary structural reforms can be enacted. The expectation is that a stronger economy reinforced by structural reforms will provide sustainable revenue to support the services and other public structures in which Vermont has invested over the years.

Despite its over-reliance on cuts to deal with the current crisis, the Legislature also has made progress on health care and tax reforms. It established the Blue Ribbon Tax Structure Commission in 2009, which is looking at ways to modernize Vermont tax system. It also appropriated funds to design three options for a new health care system for Vermont, which will be ready for review early next year.

State revenues are beginning to grow again, but the projected budget gap for fiscal 2012 means they’re not yet growing fast enough.

Education and Human Services At Risk
Temporary federal money can be a double-edged sword. On one hand, it can be a lifesaver for maintaining critical services. But when the money is gone, those same services can suddenly become the most vulnerable. Among these are education and human services, which together account for three-quarters of state spending. Although the Legislature has resisted some of the administration’s efforts, Governor Douglas has targeted these two areas for reductions, especially as he prepares to leave office. It remains to be seen whether the next governor and Legislature will maintain Vermont’s commitments to high-quality education and the services and public structures that make the state a good place to live for all its citizens.

Much of the recovery money given to Vermont and the other states came with requirements for how it could be spent. That was true for most of the human services funding. With some of the ARRA money, states had more flexibility. Vermont chose to use these so-called Fiscal Stabilization Funds, given to the governors, to cover some of the state’s share of education funding. The administration and the Legislature could have used the stabilization funds to replace state dollars for other programs and left all of the state funds for education intact. Instead, they put the money into education, which makes it vulnerable when the federal money dries up.

Between the loss of ARRA money and other cuts to education, the Legislature needs to come up with $60 million to restore the General Fund commitment to education to its pre-recession levels. Already, this shortfall of education funding is being portrayed as a big culprit in the projected $120 million budget gap for fiscal 2012—so pressure is building to get local school districts to cut their budgets rather than make up the lost revenue at the state level. If school districts choose not to make cuts that they believe will undermine their children’s education, and the Legislature doesn’t restore education funding, local residents will face another round of property tax increases.

In human services, the loss of recovery money will leave another big hole. The General Fund appropriation for the Agency of Human Services in fiscal 2011 is expected to be about $437 million if the Challenges for Change savings are realized. That would be about $65 million less than the General Fund appropriation for the agency in fiscal 2008, before any ARRA money was available.

Assuming even the modest budget growth rate of 3.5 percent that the Joint Fiscal Office typically uses and continued savings from Challenges for Change, the Human Services Agency will need an increase of about $65 million in fiscal 2012 just to maintain existing services.⁹

Needed: New Revenue
Since the recession began, Vermont’s elected leaders have looked to budget cuts and federal help to address the revenue shortfall. Over the governor’s objections, the Legislature did raise some taxes in 2010, but these were outweighed by cuts. In fiscal 2011, new tax cuts cancelled out whatever small tax increases the Legislature approved. Meanwhile, the Legislature cut another $110 million from General Fund programs to balance the budget.

Vermont could have taken a balanced approached through the recession and used an equal measure of spending cuts and new state revenues, including reserves, to make up for the shortfalls. The result would have been a more stable budget situation going into fiscal 2012 when the temporary federal ARRA funds run out.

With the help of the ARRA funds, Vermont’s General Fund base budget grew at an average annual rate of 2.6 percent for fiscal 2007-2011.¹⁰ That is not enough to cover the normal growth in General Fund spending, let alone the increased demand for state services during a recession (Figure 3). The state workforce has been reduced, and the deterioration in the delivery of services is beginning to show. The courts have reduced their operating hours,¹¹ the state has closed bridges because it can’t afford to repair them,¹² and Vermonters with developmental disabilities have fewer support services.¹³ But if Vermont fails to find new revenue after the stimulus money is gone, the deterioration of services will accelerate.

Conclusion
So far in this recession, Vermont’s elected leaders have not asked Vermonters to step up to help maintain the essential public services that are important to their quality of life. Voters in many local communities did that on their own when they rejected calls from Montpelier to cut their school budgets. In the face of decreased state funding for education, they accepted higher property taxes rather than undermine their children’s education.

If the Legislature does not restore the lost federal funding for education in fiscal 2012, that will mean a further shift onto the property tax. And without increased revenue to restore the human services budget, poor and vulnerable Vermonters will continue to bear the heaviest burden of this recession.

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© 2010 by Public Assets Institute

This research was funded in part by the Annie E. Casey Foundation and the Public Welfare Foundation. We thank them for their support but acknowledge that the findings presented in this report are those of the Public Assets Institute and do not necessarily reflect the opinions of the foundations.

1. “It is unfair and unacceptable for us to expect the people of Vermont—who are making difficult budget choices everyday in their homes and businesses—to pay for an unwillingness to make tough budget decisions.” Gov. Jim Douglas, Inaugural Address, Jan. 8, 2009.
2. Gov. Richard Snelling, Inaugural Address, Jan. 10, 1991.
3. Gov. Jim Douglas, Budget Address, Jan. 22, 2009.
4. Gov. Jim Douglas, Inaugural Address, Jan. 8, 2009.
5. Public Assets Institute, Reducing State Services: The Wrong Fix, December 2009.
6. Gov. Jim Douglas, Budget Address, Jan. 19, 2010.
7. Public Assets Institute, No Supper for Schoolchildren, December 2009.
8. Public Assets Institute, Medicaid Math, February 2009. Under ARRA, the Medicaid match rate for Vermont was increased to 70 percent federal and 30 percent state.
9. Public Assets Institute analysis of appropriations data from the Joint Fiscal Office.
10. Ibid.
11. Public Assets Institute, Vermont Judiciary, October 2009.
12. Public Assets Institute, Vermont’s Bridges are Going Nowhere Good, February 2010.
13. Public Assets Institute, A Step Backward for Developmentally Disabled Vermonters, April 2010.