Public Assets Institute > Policy Areas > Vermont Budget > What is a budget gap anyway

What is a budget gap anyway

Closing the budget gap is the Legislature’s focus again this year as it has been for the past eight sessions.

What is a budget gap? It’s the difference between projected state revenue and … well, it’s actually hard to say.

The administration and the Legislature start the budget gap calculation with a revenue estimate for the next fiscal year. That’s the easy part. The Legislature’s and the governor’s economists develop a consensus revenue forecast in January and July each year.

Projecting spending is more complicated because there isn’t really a system for determining that part of the calculation. The projection typically begins with base spending from the previous year, that is, spending that is anticipated year after year. Base spending is adjusted based on “pressures” (additional spending needed) and “offsets” (savings anticipated) in the new budget year.

Offsets are fairly straightforward. But why some pressures are counted and some are ignored is not clear. Caseload adjustments and debt service are easy to track. For example, the recent increase in the number of people who qualified for health care coverage through Medicaid is an upward pressure. More people than expected signed up, so that creates an increased funding need.

But more money is also needed to meet the state’s child care subsidy commitment, yet it’s not considered a pressure. Though Vermont has agreed to follow the federally recommended guideline to pay the market rate charged by 75 percent of the highest rated providers, the state’s Child Care Financial Assistance Program actually pays rates charged by about 35 percent of providers for pre-school-aged children. That limits access to high-quality child care for low-income families. Not only did the governor not include the estimated $9.1 million in his budget, he didn’t note child care as a pressure.

Meanwhile, Reach Up families are overdue for an increase in financial support. Vermont law says benefits should be based on “current cost-of-living indices,” but they’re actually based on needs calculated in 2004. Even so, the benefits paid cover less than half of the calculated need. And like child care, no additional money was included in the fiscal 2017 budget to bring Reach Up benefits in line with Vermont statutes, nor was Reach Up mentioned as a pressure.

When the governor presented his budget in January, he projected a General Fund gap of $68 million for fiscal 2017 based on the pressures he acknowledged. He proposed $30 million in fund transfers and revenue adjustments including $13 million in new General Fund revenue. He also produced $38 million in General Fund reductions through cost savings and transferring costs onto other funds.

But regardless of its size, the budget gap that drives the legislative and public debate year after year is an artificial number, a moving target that can change over time. Nobody really knows whether the fiscal 2017 budget gap is $68 million or $40 million or $100 million.

Legislators need better information for their budget debates, and citizens need more transparent information in order to follow these debates. A detailed current services budget would show the cost of funding the services that the state has already committed itself to provide.

A consensus current services estimate would be a nice complement to the consensus revenue estimate. It would show which programs, like the child care subsidy and Reach Up, are falling far short of their statutory obligations. And that would help us all understand how well the state budget is meeting Vermonters’ needs.

Posted by Paul Cillo on March 11, 2016 at 4:40 pm

2 Responses to “What is a budget gap anyway”

  1. Kathy Callaghan says:

    Didn’t SOA Justin Johnson promise to provide a “current services budget” this year? Whatever became of that? Was it done? Was it published? Where can one find it?

  2. Sarah Lyons says:

    Hi, Kathy,
    Administration Secretary Justin Johnson did say that the administration would publish a current services budget with the governor’s budget submission to the Legislature in January. If you look on page 10 of the FY 2017 Executive Budget Summary you’ll see what was submitted: a single-page current services budget that lacks the detail for each budget line item that would make it useful to legislators and citizens. We’re working with Vermont Interfaith Action to more clearly define what a current services budget should look like and to help inform the Legislature and administration. A better example of a useful current services budget is the one produced in Connecticut, which is highlighted on page 4 of this report published by the Center on Budget and Policy Priorities.