Public Assets Institute > Policy Areas > Vermont Taxes > New data show Vermont’s problem is revenue, not spending

New data show Vermont’s problem is revenue, not spending

All we’ve heard from Montpelier this year, from the governor to legislative leaders, is that Vermont has a spending problem, not a revenue problem. A new analysis by the Joint Fiscal Office (JFO) shows this conventional wisdom is wrong.

The JFO data show state spending has gone down as a percentage of the economy over the last 10 years.

040615Vermont’s gross state product—the sum of all the goods and services produced and sold—is growing again. We are essentially tied with Massachusetts for having the fastest growing economy in New England since the bottom of the recession in 2009. That’s good news.

But the state’s revenues—taxes, fees, fines, and the like—aren’t keeping pace with Vermont’s economic growth. And because the administration and the Legislature are more inclined to match spending to available revenues despite a growing need for services, they have chosen to cuts services to close the state’s budget gap.

It’s not clear why revenues are lagging, although suggestions in a 2011 study that Vermont expand the sales tax to include services and reform the income tax might be part of the solution. But since revenues aren’t keeping up with economic growth, lawmakers need to focus on fixing that problem rather than cut critically needed state services.

The new JFO analysis shows that before the start of the recession, spending of state funds—not including federal money—represented 11.5 percent of the Vermont economy as measured by gross state product. JFO projects expenditure of state funds for fiscal 2016 at 10.9 percent of gross state product.

That may not look like much of a difference. But if state spending equaled the same percentage of our economy in fiscal 2016 as it did in fiscal 2007, the budget would be higher by nearly $200 million.

That 0.6 percent could mean a lot to Vermonters needing help heating their homes next winter or doctors struggling to serve their Medicaid patients. It could mean getting serious about a cleanup of Lake Champlain.

Acknowledging the data that show Vermont has a revenue problem, not a spending problem, is a good first step. But the new analysis doesn’t tell us how much we should be spending or where. For that, we have to look to the needs of Vermonters.

Three years ago, the Legislature passed a new law titled “Purpose of the state budget.” It said: “The [s]tate budget should be designed to address the needs of the people of Vermont in a way that advances human dignity and equity.” The Legislature has largely ignored this law since it was passed. In fact, the budget passed by the House late last month says nothing about Vermonters or their needs in its statements of purpose or intent.

Meanwhile, homelessness and poverty are rising in the state. The number of Vermonters relying on food stamps nearly doubled during the recession and remains at historically high levels. Nearly 60 percent of single mothers with children under five years old are living in poverty.

The One Vermont coalition presented a modest reform plan to the Legislature this year that would end income tax breaks primarily benefiting those with the highest incomes and lower tax rates across the board. This proposal both addresses the structural revenue problem and balances the budget without any of the cuts proposed by the governor or approved by the House. And it would keep General Fund spending, as a percentage of the economy, below pre-recession levels.

As the Senate develops its version of the budget, the One Vermont proposal offers a way to meet the new statutory purpose.

If Vermont simply maintained the same commitment of state funding that it made before the recession, the Legislature could produce a balanced budget, meet current needs, and also make critical investments in the state’s future. Lawmakers owe Vermonters at least that much.







Posted by Jack Hoffman on April 6, 2015 at 12:06 pm

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