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.

This is some of the information that we uncovered last year and published in “Vermont Education Spending: The Facts” in October 2010. More people read this report than any we’ve written. So we decided to update it this month with the new data that has become available in the past year. While the new data don’t change the conclusions, the updated version of this popular two-page report is still a quick, illuminating read.

We’re in a similar boat here. We used funding from the American Recovery and Reinvestment Act (ARRA) to avoid making harmful cuts during the recession. If we don’t develop a strategy to replace the federal money, we won’t have really avoided the harm—just postponed it. Local voters once again will face a choice between raising property taxes or undermining their kids’ education.

Much of the ARRA money was designated for specific purposes. However, there was also a pot of so-called “fiscal stabilization” funding that was given to the states with few strings attached. Tax revenues had taken a nosedive. All of the states were facing big budget deficits. These funds were meant to help fill the gaps.

Vermont used the bulk of its fiscal stabilization money for education—specifically, to make up for cuts in General Fund spending. Every year, money is appropriated from Vermont’s General Fund to the Education Fund. For the last two years, the administration and the Legislature reduced the transfer by about $60 million, but backfilled only about two-thirds of the cut with ARRA money. That left Vermonters paying higher property taxes.

The cuts were supposed to be temporary—and full funding of the transfer restored in fiscal 2012. But in the budget he presented in January, the governor put back only part of the money and proposed a permanent reduction to the transfer of $23 million—nearly 8 percent.

That cut won’t be felt quite as much in the coming year because there is some additional federal money—about $19 million—that is going directly to school districts. But in 2013, if the Legislature goes along with this permanent education cut, local districts will be left holding the bag again as they were early in the recession. Neither the administration nor the Legislature is willing to raise taxes directly for education, but they don’t seem to mind shifting costs onto school districts, which forces local education officials to cut programs or once again ask for higher property taxes.

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

Vermont has long supported preschool. For 40 years, the federally funded Head Start program has served disadvantaged children whose families meet income-eligibility requirements. Since 1991, Vermont has required local school districts to offer Essential Early Education (EEE) services to young children with disabilities whose families seek assistance. And since the passage of Act 60 in 1997, local districts have had the option to provide pre-kindergarten (pre-K) education and include three- and four-year-olds as part of the student population eligible for state funding.

In 2007, the Legislature passed Act 62, which strengthened some of the requirements for school districts operating pre-kindergarten programs. However, the new law also set limits intended to slow the growth of pre-K enrollment.

Investment in pre-kindergarten is good for the economy in both the short and long term. Expanding early education creates jobs right away, and investment in education can increase a region’s income and employment over time. Research shows, for example, that money invested in pre-kindergarten education produces many more jobs than spending the same amount on business tax incentives.¹

Questions about whether and how to expand voluntary access of pre-kindergarten to more Vermont children revolve, at least in part, around the cost and tax implications of doing so. This report offers a preliminary estimate of the cost of increased pre-K education enrollment in Vermont.

Enrollment
In fiscal 2010, almost 4,900 children—about 37 percent of the state’s three- and four-year-old population—were enrolled in publicly funded pre-K education.² Because Vermont’s policy is to continue to offer voluntary pre-kindergarten, there will always be some families who choose not to participate.

It is beyond the scope of this report to try to estimate the level of enrollment Vermont might ultimately achieve or to suggest how quickly it should strive to increase enrollment. However, in order to project the cost of expanding access to pre-K services, it was necessary to make some assumptions.

Looking to a state with long experience in publicly funded pre-K education can help to inform the development of this estimate for Vermont. Oklahoma—which has been providing state funding since 1998—achieved 71 percent enrollment of four-year-olds by 2009.³ Oklahoma does not have a program yet for three-year-olds, and nationally the three-year-old enrollment rate is considerably lower than the rate for four-year-olds.

If Vermont increased its pre-K enrollment at 15 percent a year, approximately 65 percent of the state’s three- and four-year-olds could be receiving pre-K education by 2015. Fifteen percent a year would be a faster growth rate than Vermont has seen over the last few years, but enrollments did increase at that rate earlier this decade. At that rate, Vermont would have an additional 3,400 pre-K students by 2015. A 15 percent annual growth rate is a reasonable assumption, if somewhat ambitious. Using that assumption, we looked at the increased cost for a five-year period.

Cost
Accurate figures on the cost of Vermont’s existing pre-K programs are difficult to find. In the past, school districts did not separate expenditures for EEE programs from other pre-kindergarten expenditures. Because districts are required to provide EEE, these children will continue to be served regardless of the extent of other pre-kindergarten programs. The Department of Education has begun to collect segregated data from the school districts in their annual expenditure reports, but the reports are not yet consistent, and the department acknowledges more work is needed to produce more accurate cost estimates.⁴

School districts are using three basic models for providing pre-K education: school-based programs, partnerships with Head Start, and partnerships with local, qualified child care providers that receive tuition payments or some other form of compensation from the district or supervisory union.

In fiscal 2010, 4,878 children were enrolled in pre-K and receiving EEE services. About 22 percent of them received services through private child-care providers, and the rest were in school-based programs or in Head Start partnerships. Of this total enrollment, 1,089 children were receiving EEE services.

Based on figures currently available from the Vermont Department of Education and the National Institute for Early Education Research (NIEER), Vermont spent about $4,000 per student for pre-K education in fiscal 2009. That figure was supposed to exclude EEE expenditures. But it appears that not all school districts segregated costs the same way.

Vermont’s per-pupil cost is about average for the 38 states that now provide publicly funded pre-kindergarten programs.⁵ However, Vermont’s programs are typically open 10 hours a week, fewer than in many other states. NIEER estimates the per-pupil cost of half-time pre-K programs (15 hours per week during the school year) to be about $4,400 a year. That would suggest that Vermont’s average cost is somewhat high, but the Institute also has found that per-pupil costs decline as enrollment increases and efficiency improves. Based on available information, $4,000 per pupil is a reasonable assumption for projecting the future cost of expanding Vermont’s pre-kindergarten programs.⁶

Cost Analysis
As noted above, at 15 percent annual growth, pre-K enrollment would increase by about 3,400. Assuming Essential Early Education continues at its current rate of about 4 percent per year, total pre-K enrollment, including children receiving EEE services, would reach about 8,400 by 2015, or about 65 percent of the projected population of three- and four-year-olds. At $4,000 per student, projected education spending for the additional 3,400 pre-K student would increase by about $13.6 million (Figure 1) over five years, or about 1 percent of Vermont’s total K-12 education expense.

Assuming this growth were to occur evenly over the five years, to cover the additional spending Education Fund revenues would need to rise about 0.2 percent each year. For the average Vermont resident with a $200,000 home, homestead taxes would go up a little more than $5 each successive year for five years. By the fifth year, the additional tax would be $27 (Figure 2). For an average family paying income-based homestead taxes on an annual household income of $60,000, expanding pre-kindergarten education would mean an increase of just over $3 each successive year for five years.

Vermont businesses, which also have a stake in improving education in Vermont, would see their school taxes increase about $2.65 each year on every $100,000 of assessed property value. At the end of five years, business school taxes would be about $13 higher on each $100,000 of property value.

Conclusion
Many Vermont organizations and members of the business community recognize the long-term educational and social benefits of early education.⁷ The economic benefits also are well documented.⁸ In these difficult economic times, the good news is that expanding pre-K education in Vermont can be achieved for a relatively small investment.

© 2010 by Public Assets Institute

This research was funded in part by the Annie E. Casey Foundation and the Public Welfare Foundation with support from The Permanent Fund for the Well-Being of Children. 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. Jeffrey Thompson, “Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure and Tax Incentives,” August 2010.
2. Vermont Dept. of Education, “Report to the Legislature: Implementation of Prekindergarten Education in Accordance with Vermont’s Act 62,” January 2010, p. 10. (The enrollment figures include some, but not all, children receiving Head Start services.) According to latest U.S. Census estimates, Vermont’s three- and four-year-old population averaged 13,100 for the period 2005-09.
3. National Institute for Early Education Research, http://nieer.org/yearbook/pdf/yearbook_OK.pdf
4. Op. cit., Vermont Dept. of Education, p. 20.
5. Op cit, National Institute for Early Education Research.
6. This analysis does not adjust the per-pupil cost for inflation over the next five years. The National Institute for Early Education Research estimates that per-pupil cost will decline 10 percent to 30 percent if enrollments can be increased to 70 percent of the three- and four-year-old population. And the Institute’s data show that per-pupil costs have dropped 8 percent in the last five years. Finally, Vermont’s per-pupil expenditures include some fixed costs that schools would be paying if they had no pre-kindergarten programs. The $4,000 figure, therefore, is likely to be an overestimate.
7. http://www.prekvt.blogspot.com/
8. Op. cit., Thompson; Vermont Business Roundtable, http://vtroundtable.org/filemanager/download/8756/

Education spending is not out of control.

Education spending as a percentage of the Vermont economy (gross state product) has remained essentially flat since the early 1990s. Contrast that with health care, which has been growing much faster than the underlying economy. Should the education line trend down because Vermont’s enrollment is declining about 1 percent a year? Perhaps. But remember: Education spending includes those rapidly rising health care costs. Regardless of the number of pupils, the cost of Vermont’s public education is neither “skyrocketing” nor “out of control.”

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School boards have curbed spending growth.

The growth in education spending has been declining since 2005. There was an anomalous bump in fiscal 2009, following passage of legislation that required voters in school districts with high spending growth to vote twice on the school budget. Districts anticipating that they might be subject to the two-vote requirement in fiscal 2010 may have moved certain purchases to fiscal 2009 to keep their 2010 growth below the threshold. In fiscal 2011 spending was actually lower than the previous year.

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Property taxes now pay a bigger share of costs.

The Legislature reduced the General Fund transfer to the Education Fund in fiscal 2010 and 2011. Other dedicated revenue sources of the Education Fund, such as proceeds from the Vermont Lottery and a portion of the sales tax, also have not grown. Even with modest education spending growth, property taxes have had to cover their share, plus the growth that should have been covered by the General Fund transfer and dedicated taxes. In 2005, property taxes covered 61 percent of education costs; in 2011, 68 percent, even with the help of federal recovery funds (ARRA).

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Even with Act 68, school taxes are regressive.

Act 68 went far in reducing the burden of the property tax, which used to fall disproportionately on middle-income residents. More than six in 10 Vermont households now pay school taxes based on ability—that is, based on income rather than assessed property value. Even with this change, however, upper-income households pay a much smaller portion of their incomes to support schools than their middle- and lower-income neighbors. The chart is based on a new analysis by the Vermont Tax Department of homestead taxes as a percentage of personal income across all tax brackets.

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Investing in education strengthens the economy.

A recent study by economist Jeffrey Thompson at the Political Economy Research Institute documents the benefits to states and regions of investment in education, including pre-K and higher education. The benefits include higher personal income, employment, and tax collections and reduced crime and welfare dependence. Because education is labor intensive, such spending creates more jobs per dollar than many other sectors. The jobs resulting are direct (teachers and school staff) and also indirect (e.g., electricians who wire the school) and induced (workers at the market where school staff buy groceries).

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“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.

First, the governor repeated his (erroneous) claim that education spending was out of control, and proposed a plan he said would reduce property taxes. What he didn’t mention was that for his plan to work local school districts would have to make dramatic cuts to their school budgets, and most of the savings would accrue to the state to help balance the General Fund budget.

Next came the Legislature and endless discussions about school consolidation and improved efficiency. Lawmakers were starting to hear from local school boards that taxes were going up despite their efforts to curb spending. Legislators wanted to appear to be doing something, even if they couldn’t quite articulate the problem they were trying to solve.

What the proposed fiscal 2011 budget will do—in contrast to what people have been saying—is raise property taxes. The state property tax rate may or may not go up for next year. The House version of the budget keeps the rate the same as this year; the Senate increases it a penny, to 87 cents per $100 of assessed value.

But the bigger problem is that both the House and Senate are underfunding the Education Fund again. Both are withholding almost $25 million that should have been transferred from the General Fund to the Education Fund. And the Senate is diverting almost $9 million more that should have gone into the Education Fund but now is going to be used to balance the General Fund.

Local school boards and local voters did their part this year. There will be essentially no growth next year in education spending, which is the important number because it determines the tax rate. Many districts actually reduced their education spending, but overall it’s up a small fraction of one percent.

That’s not easy. Even in this recession, schools are facing cost increases for health care, fuel, and salaries. Despite what the bean counters think, reducing staff to match declining enrollments is not a simple exercise. To even just level fund their budgets, school boards had to make cuts to programs, which diminishes the quality of education.

Local communities, therefore, will have to suffer the consequences of these cuts, but they are not being compensated with lower school taxes. Education spending will be flat next year, but residential and non-residential taxes are projected to increase almost $6 million in the House-passed budget or more than $22 million in the Senate version.

Property taxes should be going down, and they would be if the House and Senate weren’t short-changing the Education Fund. However, to meet their obligations to the Education Fund, the Legislature would have to raise some other broad-based taxes or make even more damaging cuts to the General Fund. It’s good they ruled out additional cuts. But once they acknowledged that they would need more revenue, there should have been an open debate about which taxes to raise.

They avoided such open debate because it’s an election year. But make no mistake, they decided to raise property taxes when they chose to short-change the Education Fund.

In this issue:
– Confused About the State Budget?
– Former Officials Decry Cuts in Human Services
– Tax Me More!
– Don’t Make Education Funding More Complicated and Less Fair

Continue reading April 2010 Update

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

As they wrestle with the recession, Vermont’s elected leaders are backing away from their commitment to citizens. This change in public policy is reflected in their language and in their budgets.

Political leaders this biennium are talking about “reanalyzing and renegotiating the social contract between the government and the people.”¹ They are telling us: “The truth we must all accept is that we can no longer afford the level of services we have come to enjoy.”²

Recessions challenge leaders’ resolve. And the resolve they are exhibiting during this recession is of a radically different kind from what Vermont saw during the major recession of the early 1990s.

Twenty years ago, Vermont’s governor warned against using budget problems as “an excuse for turning away from our responsibilities.” He was not afraid to say: “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.”³ It’s hard to imagine Vermont’s current leaders uttering words like these, much less backing them up with the revenue needed to deliver on those vows.

During this recession, as the governor and Legislature have been cutting the state budget, they have also been relying heavily on federal funds to keep it in balance, while struggling to meet the increasing demand for services that an economic crisis brings. Up to $450 million in temporary federal funds over three budget years is helping Vermont avoid deeper budget cuts and has largely spared Montpelier from the necessity to increase taxes to maintain the services that all Vermonters use.

But using federal funds is easy. Summoning the political courage to raise revenue is not. In the early 1990s, Vermont’s political leaders did both. They kept their commitment to Vermonters by using additional federal funding and also by initiating substantial increases in state revenues to meet the increased demand for human services.

The test of today’s leaders will come when the extra federal funds are no longer available. The early signs are not good.

A Temporary Reprieve from Washington

Extra federal funding has allowed the Vermont House of Representatives to undo some of the worst human services cuts that Gov. Jim Douglas proposed when he presented his fiscal 2011 budget in January. The House version of the budget passed in late March included about $114 million more in federal funds than the governor had in his proposal.⁴  With the additional money, the House eliminated the increase in Medicaid premiums the governor recommended ($1.7 million).⁵ It also restored cuts in adult dental services ($1.5 million), in several home- and community-based services ($3.5 million), and in Catamount Health, (3.0 million).⁶

Most of the extra federal money—about $62 million—will be new Medicaid funding. Under the American Recovery and Reinvestment Act (ARRA) the federal government is paying a greater share of Medicaid costs. But these enhanced payments were scheduled to expire at the end of December 2010, right in the middle of most states’ fiscal year. Congress is expected to extend the enhanced payments for six months.

The Vermont House version of the budget also uses additional federal money by increasing taxes on health care providers, which are eligible for more matching funds. The House plans to use this additional money to launch an incentive program to encourage providers to improve care and reduce costs. The program also returns some of the new taxes to the providers.

Although the House budget includes about $88 million more in federal funds for the Agency of Human Services than the governor’s, the House increases total spending for the agency by only about $39 million (Table 1).⁷ That’s because the House appropriates about $60 million less General Fund money to the agency than the governor did and sets it aside in the “human services caseload reserve.” A future administration and Legislature will decide how to spend those reserves.

Human Services in the Crosshairs

The governor has been clear that he sees the Agency of Human Services as one of the keys to solving Vermont’s budget problems. The agency accounts for about 40 percent of General Fund spending. So, faced with a projected $150 million gap in the fiscal 2011 budget, human services is largely where he turned for cuts (Table 2). His plan also proposes to shift costs and redirect revenue. That doesn’t reduce expenditures; it simply pays from a different pocket.

The governor and the Legislature have agreed to try to close about a quarter of the budget gap by following recommendations of a Minnesota consulting firm hired to study efficiency in state government. In its report Challenges for Change, the firm identified eight areas where Vermont could supposedly spend less and still deliver services as good as or better than those now provided. They projected potential savings of $38 million in fiscal 2011 and $72 million in fiscal 2012.⁸

In February, the Legislature quickly passed, and the governor signed, a bill directing the administration to go forward with the consultants’ recommendations. In late March, “design teams” began presenting their plans for achieving the new efficiencies.

Like the governor’s cuts, the Challenges for Change savings are concentrated in human services. Of the $38 million in anticipated savings for next year, more than 60 percent—almost $24 million—is supposed to be found in the Department of Corrections, which is part of the agency, and in programs for Vermont families and the elderly.⁹ And those are just the General Fund reductions. Vermont could lose another $26 million in federal matching funds if it makes all of the cuts in human services that the consultants suggested.¹⁰

The idea of providing the same or better services for less money has broad support. The Douglas administration came into office eight years ago promising to make state government more effective and efficient and initiated at least three efforts to reform government.¹¹ The Challenges for Change bill passed with only one opposing vote in the Senate and three in the House. The administration and the Legislature have already assumed that the efficiencies can be achieved, and they have booked the savings in their 2011 budgets. But skeptics worry that the cuts are being made without any assurances of equal or better services.

Including the Challenges for Change savings, the governor proposed nearly $70 million in cuts to human services to close the projected $150 million budget gap for next year.¹² His plan assumed that the federal government would restore $8 million in funding for the Vermont State Hospital in Waterbury. However, the administration learned last month that the hospital was not recertified, so Washington will not provide that $8 million—and that amount will have to be cut unless additional funds are found.

The State Stands Down

Thanks to the federal funding that became available after the governor presented his budget, the House put more money into some of the human services he wanted to cut, especially programs for elderly, disabled, and mentally ill Vermonters.

But while the House budget allocates more money overall for human services than the governor would, the lawmakers are also reducing the commitment of state resources. The House bill appropriates 16 percent less—almost $80 million—for human services from the General Fund than Vermont spent in 2008 before the start of the recession.¹³ Meanwhile, the number of people turning to state government for help has gone up, as it always does during recessions.

So far this recession has seen a 20 percent increase in the number of households receiving assistance through Vermont’s Reach Up programs.¹⁴ However, Vermont provides families with only 49 percent of the benefit’s “basic needs allowances,” which have not been adjusted for cost-of-living increases since 2004.¹⁵

The number of Vermonters receiving food stamps is up 63 percent since the start of the recession, due in part to the economic crisis and also to a change in eligibility requirements.¹⁶  Funding for food stamps, which is all federal money, doubled from fiscal 2008 to 2011.¹⁷

Vermont’s tax revenues dropped $170 million between fiscal 2008 and 2010,¹⁸ so it’s good that federal funds are available to help fill the hole. But balancing the state budget is not the same as meeting the state’s responsibilities to Vermonters. Advocates for Vermonters with disabilities, for example, point to a shift from counseling, training, and rehabilitation services to caretaking.

While relief from Washington has allowed Vermont to cut its own spending, the danger going forward is that this reduced state effort will become permanent. The governor has stated repeatedly that he wants a permanent reduction in state spending. The Legislature has been reluctant to cut as deeply as the governor, but legislative leaders are only marginally more willing to maintain services if it means raising taxes.

A Changed View of Government

The response of the Douglas administration and the Legislature to the current recession stands in contrast with that of leaders facing the downturn of the early 1990s. Twenty years ago, a Republican governor and a Legislature controlled by Democrats didn’t try to cut their way out of the crisis. Instead, Gov. Richard Snelling—who also was governor during the severe recession of the early 1980s—advocated a counter-cyclical fiscal policy. Lawmakers agreed to raise taxes—including temporary income tax surcharges on wealthier Vermonters—slow the growth of spending, and run deficits so they could continue to meet the demand for services. When the economy improved, demand declined, and revenues began to increase again—the governor and the legislators agreed that that was the time to cut back on spending and reduce taxes.

Underlying these policies was a philosophy of government: Montpelier believed that a paramount responsibility of the state is to meet the needs of people suffering through an economic crisis.

That earlier recession began in June 1990.¹⁹ Technically, it lasted eight months, but the number of jobs didn’t return to pre-recession levels until the end of 1993.²⁰ Demand for human services rose, which is the pattern when the economy shrinks and people are thrown out of work. More people turn to the government for heating assistance, food stamps, welfare, and other services. At the same time, the recession left the state short of revenue. The projected shortfall was on the order of $150 million, which represented almost 25 percent of the General Fund budget, a larger percentage than the acknowledged shortfall today.²¹

Political leaders of the early 1990s understood the magnitude of the problem because the administration prepared a current services budget. Such a budget estimates the cost of providing all existing services for the coming year, with adjustments for inflation, caseload changes, and other foreseeable factors. It allows policymakers and the public to measure whether the state is meeting its commitments.

With a handle on both the financial shortfall and Vermonters’ needs, Gov. Snelling and the Legislature responded by making some cuts, but they also increased taxes and ran budget deficits. The long-term plan was to roll back the tax increases after the economy recovered so that the state could be prepared to respond to the next downturn. From fiscal 1989, the year before the recession began, to fiscal 1992, when Vermont was still recovering, the budget for the Vermont Agency of Human Services rose 41 percent.²² The share of the agency’s budget supported with state tax dollars grew by 40 percent during that period, and the portion funded with federal dollars rose 41 percent (Figure 1).

A Colder Response

Twenty years ago, Montpelier put people first and money second. Today, our leaders’ priorities are the opposite. They no longer view the increased demand for services brought on by the recession as a state obligation—but, rather, as a cost that must be reduced.

Those values are reflected in fiscal policy. In the governor’s latest budget, General Fund spending for human services would be 4 percent less than it was in fiscal 2008.²³ If all state funds are taken into account—the General Fund, Catamount Health, State Health Care Resources, Special Funds, and the Tobacco Fund—the governor’s budget would increase spending for human services just 1 percent over fiscal 2008.²⁴

The House bill commits even less state money for human services. General Fund spending on human services is 16 percent lower than it was in fiscal 2008; counting all the various state funds, the House budget spends 6 percent less on human services than in 2008.²⁵

The governor’s budget proposal describes the situation this way: “[W]e cannot deny that the sharp growth in the demand for human services in recent years threatens the overall stability of our budget. Nearly one-third of our population receives services from the [s]tate. Next year, the Medicaid system alone will serve 172,000 Vermonters.”²⁶

The governor is not lauding the Medicaid system for providing health care to Vermonters who cannot afford it. For him, the size of Vermont’s Medicaid rolls is not the fault of the health care system or a tough economy, but rather the sign of an overly generous social services network. The problem, as he sees it: If Vermont keeps serving its residents as it has in the past, the budget won’t balance without raising taxes. For him, as for the Legislature, additional taxes on anyone, including the wealthiest, are worse than Vermonters going without needed health care or other services.

Vermont’s history, as reflected in its budgets, has been one of making sure people were cared for. For years, when various state rankings have been published, Vermont typically had a median income lower than the national average and per-capita spending on social programs slightly higher than the national average.

That commitment to making Vermont a place that works for everybody is not as strongly evident today. Perhaps it’s the result of 30 years of anti-government rhetoric. Perhaps it’s the fear and anxiety brought on by the recession. We just don’t hear many political leaders speaking about the common good, obligations to fellow citizens, or the importance of public structures.

“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.” When federal stimulus money recedes and Vermont needs to rely more on its own resources, will any of our political leaders speak such words or honor a similar vow? If not, many Vermonters will be even worse off after this recession than they are now.

© 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. House Speaker Shap Smith, Stowe Reporter, Jan. 21, 2010.
2. Gov. Jim Douglas, Governor’s Budget Address, Jan. 22, 2009.
3. Gov. Richard Snelling, Inaugural Address, Jan. 10, 1991.
4. Joint Fiscal Office, FY2011 annotated bill (HAC), Mar. 31, 2010.
5. HAC Proposed Changes to Human Services
6. Ibid.
7. Joint Fiscal Office, FY2011 annotated bill (HAC), Mar. 31, 2010.
8. Challenges for Change—Results for Vermonters, Summary of Fiscal Impacts
9. Ibid.
10. Ibid.
11. Vermont Institute on Government Effectiveness, Vermont Program to Advance Government Efficiency, and Vermont Commission on Government Efficiency.
12. Gov. Jim Douglas, Fiscal Year 2011 Executive Budget Recommendations, Jan. 19, 2010, 3.
13. Challenges for Change
14. Vermont Department of Children and Families, Reach Up caseload count spreadsheet, RU caseload.xls
15. Report to the Vermont Legislature, Evaluation of Reach First and Reach Up, Jan. 1, 2010, 13; www.leg.state.vt.us/reports/2010ExternalReports/254471.pdf
16. Vermont Department of Children and Families, 3SquaresVT Participation Report FY1999-2010 spreadsheet, 3SquaresVT Participation Report (PET).xls.
17. Joint Fiscal Office, FY2011 annotated bill (HAC), Mar. 31, 2010; www.vttransparency.org
18. Kavet, Rockler & Associates, Economic Review and Revenue Forecast Update, January 2010.
19. National Bureau of Economic Research, Business Cycle Expansions and Contractions, www.nber.org/cycles.html
20. Vermont Department of Labor, Vermont NonFarm Employment, seasonally adjusted, 1990-2011.
21. Snelling, op. cit.
22. Joint Fiscal Office, FY2011 annotated bill (HAC), Mar. 31, 2010; www.vttransparency.org
23. Challenges for Change
24. Ibid. 22.
25. Challenges for Change
26. Douglas (2010), 9.

Challenges for Change is a report prepared by a Minnesota consulting firm hired to recommend efficiency savings for Vermont. According to the report, Vermont could save about $38 million in General Fund spending and about $11 million in education while maintaining or improving existing services. Legislation to institute the Challenges for Change recommendations has been passed and signed into law. This week, the administration is scheduled to report back to the Legislature exactly how it proposes to achieve the promised efficiency savings and what legal or regulatory barriers might need to be cleared away.

While all of the attention has been focused on the potential General Fund and Education Fund savings, any reductions in spending on human services are likely to decrease the matching federal funding for those programs. Because of the relatively high match rate in human services programs, Vermont could lose more in federal funds than it saves in state money.

Of the $38 million of potential General Fund savings identified by the consultants, about $23 million would come from human services programs, including the Department of Corrections. But the total projected savings from human services—counting federal funds—is $49 million.

The House budget passed last week accounts for the General Fund savings from Challenges for Change, but not the $26 million loss in matching federal funds. The loss of this federal money will mean additional budget cuts, wiping out much of the human services spending that the House restored last week.

The Challenges for Change report promises to do more with less. But skeptics worry that both the administration and Legislature are counting their chickens too soon and booking the savings before they know what the cuts will mean to the delivery of services. When the implementation plans are unveiled, the administration should provide Vermonters with a full accounting of all planned budget reductions including those resulting from the loss of federal money.