First, at the urging of the Vermont Workers’ Center, there is now a clear statement in law that the purpose of the Vermont budget is to provide for the wellbeing of the citizens of the state. That’s a great advance. Typically, budget talk is all about numbers. Was the budget balanced—that is, did the Legislature come up with a way to match spending to anticipated revenue? How much did spending go up or down?

That’s how House Speaker Shap Smith (D-Morristown) and House Minority Leader Don Turner (R-Milton) talked on Vermont Public Radio recently, in offering their post-mortems on the session. Smith pointed out that during the depths of the recession, the Legislature confronted budget gaps of $200 million or more. This year, the projected gap at the session’s start was about $50 million, and the Legislature successfully balanced spending and revenue.

Turner gave the Legislature generally good marks. But he was disappointed that the fiscal 2013 budget will increase General Fund spending by about 6 percent, following on a similar increase in fiscal 2012. (In fact, spending on General Fund programs went down by 6.6 percent in fiscal 2012, according to figures from the Legislature’s Joint Fiscal Office, which take into account federal funds used to replace General Fund revenue during the recession.)

Certainly, maintaining a balanced budget is responsible fiscal policy. But the goal should be sustainable growth rate over the long term. In recessions, revenues take a dive just when spending goes up, because more people turn to public services for help. When things improve, the state catches up. Revenues don’t have to match spending every year. What’s more important is meeting people’s needs when times are tough.

The second important change is a requirement that the administration prepare an annual “current services budget.” That’s an estimate of the cost of the services the state is legally required to provide. For example, if the state were behind in investigating reports of elderly abuse or processing Medicaid claims, the current services budget would have to include the cost of additional staff to bring the state into compliance. Now when the Legislature cuts back on services to save money, the assumption seems to be that the services are no longer needed. Cuts made one year are carried forward to a subsequent year, which is part of the reason for the shrinking budget gap that Speaker Smith described. The current services budget should help Vermonters understand the cumulative effect of cuts and see whether we are adequately funding existing services and programs.

The final change provides for the first time an opportunity for Vermonters to weigh in as the governor is developing his budget. Currently, citizens get to comment on the budget only after the governor submits it in January.

There’s more to do. We should be tracking how Vermonters are faring and whether the $5 billion we’re spending each year is creating a state that works for everybody. Both the administration and the Legislature appear committed to developing the kind of performance indicators that measure Vermonters’ wellbeing. But these three new provisions are moving us in the right direction.

The Vermont Workers Center has proposed a People’s Budget that would fundamentally change the way Vermont approaches budgeting and begins to address the problems of income disparity, poverty, and the decline of Vermont’s middle class—all but forgotten this legislative session.

Vermont’s budget process now starts with a revenue estimate, and that determines how much is available to spend. The stated purpose of the annual budget is essentially to keep state government running.

The People’s Budget, by contrast, starts with a declaration of what the budget—indeed what state government—is about:

“The state budget seeks to meet the fundamental needs of all Vermonters in a way that advances human dignity and equity among Vermonters. Spending and revenue policies will strive to ensure every person’s right to health, housing, dignified work, education, food, social security, and a healthy environment. These are recognized as universal public goods that the state, in conjunction with the federal government, shall seek to guarantee for all Vermonters. Spending and revenue policies will seek to eliminate poverty and disadvantage and achieve equity among all Vermonters; foster a sustainable economy that protects the environment; and be developed as part of a publicly transparent and accountable process with direct participation from Vermont residents.”

The message of the Occupy Wall Street Movement resonated in Vermont—because we’re experiencing the same divide between the wealthy and everyone else that we see nationally. Middle-income Vermonters have seen no real growth in their income for the past 20 years, and 15,000 more Vermonters slipped into poverty in the last decade. Meanwhile, the share of income going to the top 1 percent in Vermont more than tripled between 1981 and 2005.

These changes are in large part the result of fiscal, regulatory, and economic policies at both the state and federal levels. New policies can get us moving in the right direction again. Indeed, a year before Occupy made headlines, candidate Peter Shumlin talked about the average Vermonters who had been “kicked in the teeth” by the economy. He promised to rebuild the middle class.

So far, though, few in Montpelier are making the link between the state budget and meeting that goal—or the fundamental needs of Vermont’s 99 percent.

The administration has started work on a strategic plan that begins to address some of the goals written into the People’s Budget. It’s a good first step. But the state also needs to develop indicators that will tell how close we are to ensuring everyone in our state healthcare, housing, dignified work, education, food, social security, and a healthy environment. Then we need adequate resources to achieve those public goods and measure and monitor our progress toward them.

When the Vermont House passed the fiscal 2013 appropriations bill, it included no mention of the People’s Budget or any of the goals proposed by the Vermont Workers’ Center. There is still an opportunity for the Senate to amend the bill and commit Montpelier to developing a new budgeting process that puts the needs of Vermonters first.

Paul Cillo is the Executive Director of Public Assets Institute, a nonprofit, nonpartisan organization that promotes sound budget and tax policies to benefit all Vermonters. Additional information is available at www.publicassets.org

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The fiscal 2013 budget adopted by the Vermont House last month would increase state spending by about 6 percent over the current budget year. That may sound like a lot, compared to inflation, say. But Vermont’s General Fund budget was cut by 6.6 percent in fiscal 2012¹—so the proposed increase isn’t enough to make up for lost ground, let alone cover inflation or any increased need for services.

Focusing on a one-year percentage increase highlights an important flaw in Vermont’s budget process: No one can say whether 6 percent is too much, too little, or just enough, because Montpelier presents Vermonters with no vision of what the budget is meant to achieve—other than to keep state government running.

The “purpose” section of the House’s Omnibus Appropriations Act for fiscal 2013 states:

The purpose of this act is to provide appropriations for the operations of state government during fiscal year 2013. It is the express intent of the general assembly that activities of the various agencies, departments, divisions, boards, and commissions be limited to those which can be supported by funds appropriated in this act or other acts passed prior to June 30, 2012.

Although Vermont is the only state not required by law to balance its budget, the expectation in Montpelier and among Vermonters is that spending will match available revenues each year. That’s a fiscally responsible stance. But instead of looking at both available revenue and the cost of meeting Vermonters’ needs, state budgets start with the revenue estimate and then attempt to adjust spending to match what’s in the till.

In other words, Vermont takes the short-term approach of “managing to the money,” rather than working toward a long-term strategy to meet Vermonters’ needs.

If we think of the state as a bus, the process the governor and legislative budget-writers have followed is to look in the gas tank, estimate how much fuel they have, and try to figure out how far they can get in the coming year. If times are good, they may carry a few more passengers. At other times, in order to go a little farther they’ll tell some passengers to walk.

A better approach would be to determine how many passengers are on the bus and where they need to go, figure out the most efficient way to get there, and then make sure there’s enough fuel in the tank to get everybody to their destinations.

How we got here
Gov. Richard Snelling, who served from 1977 to 1985 and again from January 1991 to August 1991, earned a reputation for being a good manager of state government. His view was that government had a counter-cyclical role in the economy, which is the opposite of managing to the money. He said state government should grow faster when the economy slowed and more slowly when the economy was better and the private sector stronger.

Snelling maintained that state government could respond to Vermonters’ needs for additional services in the difficult times, cut back in the good times, and have a long-term, sustainable growth rate of about 2 percentage points above inflation.² He wasn’t proposing a rule that the budget ought to grow 2 percentage points above inflation each year. He simply said that was a sustainable growth rate—a reasonable long-term average through the economic peaks and valleys.

Managing to the money, which took root in the mid-1990s, shifted the goal from addressing Vermonters’ needs to making the numbers work. That approach didn’t pose serious problems before the Great Recession, because the economy was relatively strong. Both the administration and the Legislature assumed an average budget growth rate of 3 percent to 3.5 percent, but sometimes growth exceeded that. For instance, between 1997 and 2008 General Fund spending grew at an annual average rate of 4.7 percent because revenues also were growing at that rate. (As it turns out, 4.7 percent was also 2 percentage points above inflation for that period.) For 25 years before the Great Recession—fiscal 1983 through fiscal 2008—Vermont’s General Fund expenditures grew at an average annual rate of 5.3 percent. Inflation averaged 3.1 percent a year.

When the recession hit in December 2007 the economy shrank and tax receipts declined. Now managing to the money meant something different: appropriating less money for essential services just when more Vermonters were turning to state government for help. From fiscal 2007 to 2012, the growth of General Fund spending averaged 1.6 percent a year—including use of federal funds Vermont received to make up for the drop in state revenues. The increase approved by the House last week pushes up the average annual growth rate for 2007 to 2013 to 2.4 percent.

More than 13,000 jobs disappeared in the first 18 months of the Great Recession. Just as in previous recessions, more families turned to the state for help. From fiscal 2007 through fiscal 2011 the number of Vermonters receiving food stamps through the state’s 3SquaresVT program increased by 75 percent—to more than 90,000 (Figure 1). In the same period, the number of households needing fuel assistance through the Low-Income Home Energy Assistance Program (LIHEAP) rose 74 percent—to more than 36,000 (Figure 2). Reach Up, the program to help support low-income families with children, saw a 31 percent increase in enrollment.³ And the number of Vermonters receiving health care through Medicaid increased. Meanwhile, the cost of the health care services covered by Medicaid was rising at more than 6 percent a year.

Food stamps and LIHEAP are usually supported entirely with federal funds, so increased demand for those services shouldn’t create a direct demand for more state funds. However, Vermont did step in to help when federal LIHEAP funding was cut a few years ago, and in response to more cuts scheduled for next year the House approved $5.1 million from the General Fund for heating assistance. Medicaid and Reach Up require a state match for the federal funding, so increases in enrollment have demanded increases in state funding. General Fund spending for Reach Up, for example, grew at an annual rate of 8.3 percent from 2007 to 2012.

These larger increases were offset with cuts in other areas, which is how budget growth slowed to 1.6 percent after the recession. That’s why the courts closed their doors at least one day a month, and the state reduced its workforce by 8 percent, especially positions involving planning, data collection, and analysis. These cuts were not the result of an assessment that the courts were open too much or that the state had too many employees. They were simply the result of manage-to-the-money math: There wasn’t enough money coming in at current tax rates, so the state needed to cut spending regardless of Vermonters’ needs. If the spending track from 1983 to 2008 had continued through the recession, the fiscal 2013 General Fund budget would be about $240 million higher (Figure 3).

What’s enough? Who knows
Even this long-term growth trend doesn’t answer the question of how much Vermont should be spending in fiscal 2013. In fact, Vermont doesn’t know what it should cost to carry out all of the current functions and obligations of state government. One way of knowing would be to prepare a current services budget each year, which would provide an assessment of the cost of delivering existing state services with adjustments for known or anticipated changes—for example, higher fuel costs or higher unemployment. But Vermont does not prepare a current services budget.

Instead, what Vermont has published in recent years is a consensus “budget gap” estimate. The administration and the Legislature’s Joint Fiscal Office agree on a projected General Fund spending amount. Their economists also prepare a consensus estimate of how much revenue the state expects to collect with no changes to current law. The difference between the spending and revenue forecasts is the budget gap that needs to be closed to balance the budget. For the last few years, Montpelier has relied primarily on budget cuts and one-time revenue windfalls to close the gap, though officials have used small tax and fee increases to raise some additional funds. Both the administration and the Legislature have generally opposed raising broad-based taxes.

It’s not clear how the spending side of the budget gap calculation is derived, though it is usually based on the prior year’s budget—which itself may have been inadequate—with some adjustments up or down for unavoidable expenses or anticipated savings. The administration does not release information from agencies and departments showing how much they need to run their programs or carry out their obligations for the coming year. The budget gap estimates for the last three years show the demand for General Fund spending going down: The spending forecast for fiscal 2013 is about $40 million less than the fiscal 2010 projection.⁴ It’s hard to imagine the need for spending was dropping while the economy remained soft and demand for services high.

The real budget gap
Even with this forecast of declining spending, the administration and the Legislature calculated about a $50 million budget gap for fiscal 2013. When he presented his budget in January, Gov. Peter Shumlin recommended using one-time revenues left over from the previous year, primarily from human services; cutting human services programs; and using unanticipated revenues from other state funds, such as cigarette taxes and taxes from health care providers (Table 1).

This is the gap in the General Fund, which covers most functions of state government— such as the judicial and prison systems, environmental regulation, economic development, human service programs, state police, and a portion of education. But the $1.3 billion General Fund accounts for only about a quarter of all of the money the state will spend in fiscal 2013.

There is no discussion of a shortfall in the remaining three-quarters of state spending. Appropriations from the Education Fund, not counting money it receives from the General Fund, are about $1.1 billion. Spending from federal funds, including additional money provided for recovery from Tropical Storm Irene, will total almost $1.8 billion. Transportation, state-funded health care, and other functions grouped into “special funds” come to almost $750 million. With a few other minor funds, state spending totals $5 billion, including the General Fund (Table 2).

Vermont has numerous needs that are not being addressed—such as the backlog of paving and bridge repair projects even before Irene struck. But the difference between necessary spending on Vermont’s highway system and available transportation funds is not included in the budget gap projections. Nor do costs disappear simply because the General Fund has balanced its books. For instance, when the Legislature reduces the annual transfer from the General Fund to the Education Fund—as it has in recent years—the gap in the Education Fund grows and has to be closed by increasing property taxes or cutting school budgets. Projected shortfalls in education funding are never included in the budget gap projections.

Eyes on the goal
Vermont’s budget process has become an exercise in making the numbers work—holding General Fund spending to an arbitrary measure of acceptable growth, which by definition does not exceed anticipated revenue. In the meantime, we seem to have lost sight of the purpose of the state budget—and of state government: to meet Vermonters’ needs.

Vermont should have a budget process that begins with an objective assessment of need. But before that assessment is made, there should be public agreement and understanding of what we’re trying to achieve with the $5 billion we’re spending each year. High on the list should be meeting the fundamental human needs of Vermonters, which include adequate food and housing, safe neighborhoods, a clean environment, high quality education, a fair and speedy judicial system, and economic opportunities sufficient to support a decent standard of living.

Vermont also needs to re-establish a system of accountability—tracking how well it is doing in meeting those fundamental needs. The state should resurrect the Vermont Well-Being Reports, last published in 2006, which measured the overall health of Vermont society. Can we honestly say Vermont is meeting its commitment to residents when more than 70,000 people are living below the poverty level?⁵

Vermont needs to develop new indicators so people can see whether everyone is sharing in the state’s economic prosperity, or just a few at the top. When the governor calls for rebuilding Vermont’s middle class, it should be easy for Vermonters to access information that shows the state’s progress toward that goal. The growth in Vermont’s income disparity over the last 25 or 30 years should tell us we’ve been moving in the wrong direction.

Finally, the annual budget process needs to provide a meaningful way for Vermonters to provide input beyond being allowed to speak for two minutes at a public hearing. After all, it’s Vermonters’ tax dollars that fund state government. The state should be using these funds for the wellbeing of Vermonters.

Without objective needs assessments, meaningful public participation, and easily accessible, comprehensible transparency and accountability, the budget process is disconnected from the people—and the debate shrinks to the budget’s percentage increase or decrease in a given year. Vermonters deserve better.

© 2012 by Public Assets Institute

This research was funded in part by the Annie E. Casey Foundation. We thank it for its 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 foundation.

1. Includes American Recovery and Reconstruction Act (ARRA) funds used for “base” appropriations—for essential, ongoing programs and services—in fiscal 2011. In fiscal 2009-11, Vermont used ARRA funds to pay for base appropriations that otherwise would have been covered with in-state revenues. Vermont received additional ARRA funds for projects and programs the state might not have undertaken without those federal funds.
2. Gov. Richard Snelling, Inaugural Address, Jan. 10, 1991.
3. Vermont Agency of Human Services, Economic Services Division.
4. Joint Fiscal Office forecast, November 2009.
5. U.S. Census, American Community Survey, 2008-2010.

Congress—at the urging of the Vermont delegation—appropriated more money to the program than the president had proposed. Vermont would have received only $11 million under Obama’s budget. The Consolidated Appropriations Act, 2012 that Congress passed early this month increased that to $19.5 million for Vermont for fiscal 2012. Nevertheless, the federal funding is short of the $27.5 million the state received in fiscal 2011, and Vermont is providing a smaller benefit—albeit to more people—than it did just a few years ago.

Vermont used to have a target of covering 60 percent of the cost of the average winter heating cost. Last year, it covered a third of the cost.

Governor Shumlin proposed today that the state allocate $6.1 million to LIHEAP. That, along with the $19.5 million in federal funds, is projected to cover 31 percent of the estimated average heating cost this winter.

This will be the third time since 2005 that Vermont has been forced to make up for inadequate federal funding, but this is likely to become the new normal if Congress insists on cutting federal spending instead of raising taxes, which are now at the lowest level since the early 1950s.

It was just a year ago that Congress and the Obama administration extended the Bush era tax cuts for the wealthiest taxpayers, producing a $190 million windfall this year and a like amount next year for the top 5 percent of Vermonters. Evidently afraid to ask the top 5 percent across the country to pay a little more, Congress chose instead to force poor and elderly Vermonters to shiver in the cold this winter.

The additional state funding will make a difference, and Vermont simply can’t allow people to freeze, but it’s not like the state didn’t have other budget gaps to fill.

Deputy Transportation Secretary Sue Minter summed it up best in a New York Times story last week. The Shumlin administration received well-deserved front-page kudos for getting the state’s highways and bridges fixed and functioning in record time.

“The attitude,” said Minter, “was, ‘We’ll do the work and we’ll figure out how we’re paying for it, but we’re not waiting.’”

In other words, the administration was committed to rebuilding the state’s infrastructure after the flood regardless of where the money was coming from. That was the right attitude and it’s not a surprise that it got results.

It’s the opposite, however, of the usual manage-to-the-money approach where the state estimates its annual receipts at current tax rates and then decides what it can and can’t do.

We’re still waiting, for example, for the state to investigate the backlog of reports alleging abuse and neglect of elderly and disabled Vermonters. Organizations representing the victims felt compelled to sue this week to force the state to take action. We’re still tying to figure out how to pay for state policies that we know will reduce poverty—11.7 percent of Vermonters lived in poverty in 2010, up from 9.4 percent in the 2000 Census. And we’re still waiting to have adequate and affordable childcare for Vermont’s working families.

If we had managed to the money with post-Irene repairs, we would still be reading about impassable highways and stranded residents. The state would still be in crisis.

And in fact, the state is in crisis, but not in ways that make headlines. At least 70,000 of us live in poverty, and our middle class is losing ground. But our elected leaders aren’t showing the post-Irene, can-do attitude to tackling these problems.

After Irene, the state had a clear goal of rebuilding roads and bridges and our public officials kept at it until we achieved those results. We need to bring the same approach to the rest of state government and to state budgeting. Instead of allocating a certain sum each year to anti-poverty programs, the Legislature should adopt a budget that will reduce poverty. Instead of arguing that we can’t afford to hire more investigators, our political leaders should be saying we can’t afford to allow elderly or disabled Vermonters to be abused or neglected.

In other words, Montpelier needs to use the new thinking that guided the flood recovery – a commitment to results – to create a state that works for all Vermonters.

That said, last week’s meltdown creates a big problem for Vermont—along with the rest of the states—as it prepares to develop a state budget for the 2013 fiscal year, which begins next July 1. The bill creating the Super Committee called for automatic budget cuts if the committee failed to meet its deficit reduction targets. The automatic cuts don’t take effect until January 2013, which leaves Congress to continue to fiddle until after the November elections.

The states, meanwhile, have to proceed on the assumption that the automatic cuts will occur on schedule, which will be smack in the middle of fiscal 2013 for most of them. This auto-pilot plan is the least responsible way to start to close the budget deficit because it doesn’t require any additional revenue. Nevertheless, the states have no choice but to develop their budgets next year around this worst-case scenario.

Maybe the message of the Occupy Wall Street will carry into the November elections. Maybe the next Congress will start thinking about national budget priorities that address the needs of the 99 percent rather than cater to the 1 percent. But the states can’t count on that, and by November much of the damage will already have been done.

There are no estimates yet of how the automatic cuts will affect federal funding to the states for specific programs. Those will emerge in the coming weeks and months. Rather than passively waiting to take the hit, Vermont should prepare to step in to take the action that Congress is seemingly incapable of taking. If members of Congress won’t raise revenues to pay for needed services, then Vermont ought to do it for them. We could call them “federal replacement revenues,” and if a new Congress accepts its responsibility and raises the taxes that have to be raised, Vermont’s replacement revenues could expire automatically.

Vermont wasn’t afraid to move forward with real health care reform when Washington failed to respond to voters’ desire for a public option. Yes, it probably would have been better to do this at the national level, but that wasn’t going to happen, so Vermont had to do something. Similarly, Governor Shumlin is right that it would be better if Congress would raise historically low federal taxes. But, again, if Washington won’t act, Vermont should claim the unused federal taxing capacity to generate the revenue necessary to meet its responsibilities to the citizens of the state.

While he doesn’t frame it that way, Margolis points out that Gov. Peter Shumlin, in a speech at the University of Vermont last week, urged the school to focus on preparing students for business, without mention of the arts, culture, or philosophy. The governor didn’t use the word “citizen” once in his speech about the “better results” the state should expect from its university.

The governor’s remarks reflect a perspective that runs deep these days among members of both major parties—in the Vermont State House, in this administration, and in the last administration.  It’s a money-first, people-second view that underlies policies that affect Vermonters’ lives every day.  As we pointed out in a report last year and in an op-ed last month, the state budget process now focuses on doing what we can for Vermonters with available revenues, instead of starting with a vision of the kind of state Vermonters want and need and adopting fiscal policies to achieve that vision.

Tax policy has become a mindless mantra of “no new taxes” even in the face of greater human need, the greatest income disparity in 80 years, and a declining middle class in Vermont. Economic development has come to mean more business tax breaks rather than public investment in a society that produces widely shared prosperity. Now the governor wants to bring this thinking to education.

The irony is that Governor Shumlin’s liberal arts education did not have the narrow focus he is encouraging Vermont’s university to adopt. Buxton, where the governor spent his high school years, educates each of its charges “to live a fully conscious, responsible life” — not exactly job training.  And his alma mater, Wesleyan University, boasts “[f]reedom, rigor, intellectual experimentation and the desire to make a positive difference in the world” as the Wesleyan Experience.

These institutions are focused on developing human beings to be productive members of society.  While that might involve a life in business, it might also be in the arts or public service or politics, but always as a critical thinking, participating citizen.

Occupy Wall Street has rightly demonstrated to the world how the current focus on money is leaving people behind.  The balance between money and people is tilted toward money in Vermont as well.  And while philosophers still argue about it, we can be confident that the purpose of life involves a lot more than cash.

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On Nov. 30, 1927, a little less than a month after floods ravaged the state, Vermont Gov. John Weeks opened an emergency session of the General Assembly with a summary of the damage that had been done to the highway system. “Approximately 1,258 bridges were destroyed or severely damaged,” the governor said. He put the estimated cost of the bridge damage at just over $5 million—and added $2.7 million in destruction of federal aid roads, state roads, and town roads. The Vermont State Hospital in Waterbury suffered extensively too—as it did during the floods last month when Tropical Storm Irene came through Vermont. In 1927 the water reached the second floor of the hospital, taking a heavy toll on the buildings and equipment. And, Weeks told the Legislature, “the entire dairy herd and nearly all of the other livestock [at the hospital] were drowned.”

Private property—railroads, businesses, farms, and houses—was devastated too. Estimates varied, but most put the physical damage at around $30 million. In 1928, Vermont Congressman Ernest Gibson testified that, counting lost business and other indirect losses, the cost of the storm came to $100 million.¹  To get an idea of how much that was in 1927, to run the entire state government for fiscal 1928 the Legislature had appropriated about $7 million.²

Challenges and Dangers
The governor understood that the toll of the Flood of 1927 was unprecedented. He also recognized the possibilities that lay in moving past the crisis. “Vermont has a future before her that she has not realized,” Weeks said in his address to the emergency session. “I want to personally consecrate every ounce of my strength to the work of making Vermont a stronger force in the outside world and a happier place to live in.”³

Much has changed in Vermont and the U.S. in 84 years. But Irene—whose damage in Vermont is likely to total $1 billion or more⁴—is not unlike the Flood of 1927 in this way: The calamity, like every crisis, holds challenges, dangers, and opportunities. Vermont can respond with actions and policies that strengthen its future and make it a happier place for all its citizens—or not.

As Naomi Klein argues in Shock Doctrine, the chaos of a crisis can provide cover for the consolidation of wealth and power. She documents the way Sri Lankan fishing families were prevented from re-building after the tsunami in 2004 so that large corporations could build luxury hotels on the beachfront property.⁵ Crises can lay bare government’s failure to respond with competence and compassion—as during Hurricane Katrina in 2005, when Washington left thousands of people on their own to find food, drinking water, and shelter. In part thanks to government policies, New Orleans is a different city now. The historically low-income African-American population has been displaced by middle-class whites.

And crises, like Tropical Storm Irene, can open the way for policies that strengthen an economy and make all citizens’ lives better. As Vermont rebuilds, what lessons can we learn from 1927 and the policy choices, intentional or not, that were made at the time?

Rethinking Government

Washington’s relationship to the states
The lore that has grown up around the 1927 flood is that Vermont refused to accept outside help—that Governor Weeks vowed, “Vermont will take care of its own.” In fact, Vermont, albeit reluctantly, did ask President Calvin Coolidge for help and in the spring of 1928 received $2.6 million as part of a federal aid package approved by Congress.⁶

Such aid was also a new idea for Washington. But in the spring of 1927 there had been massive flooding along the Mississippi, and the southern and midwestern states devastated by those floods had been appealing to the federal government to help with both disaster relief and flood control.

In 1928, six months after the Vermont floods, Congress approved a relatively modest package of less than $5 million in aid for Vermont and Kentucky. Reluctant to set a new precedent, however, Congress included language in the bill declaring the relief aid was a “contribution” that did not imply any liability on the part of the federal government.⁷

At the same time, Congress also approved the flood control plan for the Mississippi Valley with an estimated cost of $325 million. According to Deborah and Nicholas Clifford, in The Troubled Roar of the Waters, the flood control project sowed the seeds for the massive public works projects that President Franklin Roosevelt would propose a few years later to try to pull the country out of the Great Depression.⁸

Today, we have FEMA—the Federal Emergency Management Administration. Only a few hardcore libertarians question whether the federal government should help states when natural disasters strike. But federal support is not necessarily a given, either. The U.S. House wants any disaster relief funding to be offset by cuts elsewhere in the budget. The Senate has resisted, and the fight has been put off to another day. But if the House prevails, it will mark a major shift in the federal government’s role in times of emergency.

The state and its towns
Just as Vermont prized its independence from the federal government prior to the flood, its towns preferred autonomy to centralized state control, especially when it came to roads. At the time of the flood, state law limited aid to towns to $5,000 per bridge. But nearly 800 town bridges had been destroyed or damaged, and local communities couldn’t cover the repairs on their own.

In his Inaugural Address 11 months earlier, Weeks—a longtime advocate of modernizing the highway system—had urged the Legislature to raise taxes to pay for the expansion of “hard-surfaced” roads in the state. “For the necessary and convenient purposes of daily use, as a public investment and as a means of attracting visitors who may become permanent residents, good roads are no longer a luxury but a necessity,” Weeks said. The towns had balked, because they didn’t want to bear the cost or give up local control in return for state funding.

Now the governor used the flood as clear evidence that the state had to step up and take control. The federal aid the crisis brought could be used not only for reconstruction but also for modernization. “Bridges and highways are no longer built and maintained principally for the good and convenience of the people of the town where they are located, but for the good and convenience of the people of our entire State,” he told the Legislature. He proposed that the repair of the highway system be put under control of the State Highway Department.

In its first statute of the special session, the Legislature agreed to “aid all municipalities…to the full extent of the flood damage to public highways and bridges.” In return, it placed the supervision for all work in the hands of the state highway board and gave the state emergency board ultimate authority to resolve any disputes between the highway board and the municipalities.

The state and individuals
The governor’s message to the Legislature focused exclusively on the loss of public property, and the action of the Legislature was limited largely to repairing and replacing public buildings and infrastructure. There was no mention of appropriating money to help flood-stricken individuals and families directly in either Weeks’s address or any of the bills passed in the daylong special session. That job was left to a large, voluntary fundraising effort, as well as extensive efforts by the Red Cross.⁹

The closest the Legislature came to providing aid to individuals was in the creation of the Vermont Flood Credit Corporation, which provided loan guarantees for businesses or individuals who borrowed money to repair flood damage. The loan guarantees reduced the risks for banks that made loans to flood victims.

Providing loan guarantees to individuals and businesses turned out not to be much help, however. All of the farmers and most of the businesses that applied for loans received them—but very few applied. Only 38 individuals and businesses received guarantees on loans that totaled about $270,000.¹⁰ It’s possible the program wasn’t well advertised or well run or, as the Cliffords suggest, that many farmers simply couldn’t afford to take on more debt.

Today FEMA provides grants of about $30,000 to individuals to help with cleanup and repair. Clearly, that is not enough to help a family whose home has been washed away. Low-interest, guaranteed loans also will be available through a variety of agencies and programs. But many Vermonters will be in the same straits as people in 1927: They already have debt—a mortgage on the house they lost, college tuition loans, or car payments—and they can’t afford to take on more.

As Vermont began to do in 1927, the administration and the Legislature, along with help from Vermont’s Congressional delegation, will have to find creative ways to aid Vermonters who cannot borrow more—at least through conventional means—to replace their losses.

Modernizing after disaster
Governor Weeks seized the opportunity presented by the flood to modernize Vermont’s highway system. After Irene, some state officials appear to be thinking along similar lines. Lt. Gov. Phil Scott, for ex­ample, has suggested that restoring the State Office Complex in Waterbury might not be the wisest use of the tens or hundreds of millions of dollars it could cost. Mental health officials are going forward with strategies already under way to move residents of the Vermont State Hospital into therapeutic community settings. Whether or not the state decides to use the complex in Waterbury, the administration and the Legislature should be looking beyond simply renovating or replacing the facilities the state had prior to the flood. The opportunity now is to reassess the state’s needs and determine how best to invest public money on infrastructure that will adequately serve Vermonters for the next 50 to 100 years.

Gov. Peter Shumlin has drawn the connection between global climate change and the change in Vermont’s own weather patterns. One adjustment to that change, which the Agency of Transportation is reviewing, will be how to redesign bridges, culverts, and the built landscape to accommodate a new, wetter climate.

Fiscal policy: People before money
Governor Weeks had been an advocate of “pay as you go” fiscal policy. It wasn’t as rigid as the “manage to the money” approach Vermont has followed in recent years—the idea that the state can only spend whatever revenue comes in at current tax rates, regardless of Vermonters’ needs or larger economic conditions. Pay-as-you-go meant that while Vermont shouldn’t spend money it didn’t have, the state could raise taxes to cover necessary spending.

In the 1927 crisis, Weeks saw the urgency of breaking with the usual way of doing things. In his address to the emergency session he asked the Legislature to borrow $8.5 million to tackle the immediate job of rebuilding the state. “It will be expensive,” he said, “but let us not eliminate from our minds what it means to restore the waste[d] places of Vermont.” The Legislature also moved into new territory when it instituted a system by which the state could help individuals and businesses borrow in times of general crisis.

It will be expensive to rebuild after Irene, as well. But the state has no choice. This is one of those events that requires people to shift their thinking and accept that the next several years won’t be what they expected. That includes shifting expectations about public spending and taxes.

Once all the damage estimates are in and it’s clear how much federal aid is available, Vermont should look for the fairest and most efficient way to raise the money it needs to rebuild state and municipal roads, bridges, buildings, and other public infrastructure. Just as Governor Weeks recognized that many local communities simply couldn’t afford to replace their roads and bridges, the administration and the Legislature will need to look beyond the property tax as a source of recovery revenue. The hardest-hit towns not only lost bridges, roads, and culverts; some of their property tax base was washed downriver, as well.

All of Vermont has a stake in helping these communities rebuild for the same reasons that residents of these towns are helping their neighbors get back on their feet. In the end, it’s not about the money, it’s about people—Vermonters, their quality of life, and their hopes for a brighter future. In Weeks’s words, the task ahead is to make “Vermont a stronger force in the outside world and a happier place to live in.”

© 2011 by Public Assets Institute

This research was funded in part by the Annie E. Casey Foundation. We thank it for its 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 foundation.

1. Deborah and Nicholas Clifford, The Troubled Roar of Waters (University of New Hampshire Press, 2007), 32-33.
2. Vermont General Assembly, Public Acts of 1927, 24-37.
3. Vermont Press Bureau, “Text of Governor Weeks’ Message to the Legislature,” Burlington Free Press, December 1, 1927, 2.
4. Anne Galloway, “Irene damage edges toward the $1 billion mark,” VTDigger.org, September 20, 2011.
5. Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (Metropolitan Books, 2007), 9.
6. Clifford, Troubled Roar, 73.
7. Ibid., 123.
8. Ibid., 124.
9. Ibid, 105-106.
10. Ibid., 107-108.

– Talking About the Middle Class
– A Double-Dip Recession?
– The Rich Stay Put
– Let’s Level with Vermonters
– Your Tax Dollars at Work

Continue reading August 2011 Update

Level funding: The words suggest two things: no cuts, no increases.  For that reason, politicians love to use them. But what does level funding really mean?

Any one of three different things, depending on the speaker and the context.

1. We’ll maintain services, hold the status quo: In hard economic times like these, maintaining existing levels of service usually requires higher spending. More Vermonters need services, and some costs are difficult to control, like oil and health care. Providing the same services from year to year can require a 5 percent to 7 percent increase in dollars spent.

2. We’ll keep up with inflation: Even though inflation is low these days—2 percent in the Northeast in 2010—prices are rising. Level-funding the budget in real terms—that is, after adjusting for inflation—will result in somewhat higher spending. But there also will be services cuts, thanks again to costs that rise faster than general inflation and also to increasing human need. State officials like to say that they can make up for the difference through greater efficiency. That’s possible once in a while, but not year after year.  Using this definition, level funding means real cuts to state services.

3. We’ll spend the same next year as this year: If the state spends $1.2 billion for General Fund services this year, a budget of $1.2 billion for next year would result in even deeper cuts than with the inflation-adjusted approach. Again, there are some increases that simply can’t be avoided, and covering those increases means taking bites—big ones—from other areas of the budget.

At best, the term “level funding” creates public confusion. At worst, it’s an opportunity for mischief. The citizen thinks: “Phew, at least we won’t see budget cuts this year.” The speaker means: “We’re making aggressive cuts again.” Our advice: Strike “level funding” from the official fiscal lexicon and tell it like it is.