Sharing the pain as battle lines are drawn

Dec. 7, 2008, Times Argus
by Paul Cillo

It’s been heartening to hear elected officials, editorial writers, and policy makers talking about Vermonters sharing the pain as we address the state’s massive revenue shortfall.

That’s the right tone. We’re all in this together. We know there will be pain and we agree we should share it.

So what’s the pain and how do we share it?

Elected officials tend to talk about the current budget crisis as a spending problem: spending is too high so we need to cut the budget.

In fact, we have a revenue problem: too few dollars coming into state coffers. An economic recession is sweeping the country. The stock market is down, the real estate market is down, retail sales are down, and people are losing their jobs. All this means less property, sales and income tax revenue to the state – less money available to fund the state services we all depend on. If state revenues had not plummeted, we would not have a budget crisis.

On Nov. 18, state economists revealed the extent of the problem – revenues are expected to be more than $107 million lower this fiscal year than last year. And they will probably remain at least $100 million below fiscal 2008 levels through fiscal 2010. These are big numbers equal to nearly 10 percent of the state’s general fund.

How can we fill this huge revenue hole?

The federal government may help. Gov. James Douglas and other governors met this week with President-elect Barack Obama to ask for more federal money for Medicaid and highway maintenance as part of a federal economic stimulus package. Vermont could get over $100 million a year for two years just for Medicaid from this package, which Congress is expected to approve promptly next year. While the money is likely to be a temporary fix, it’s what we need to get through this immediate crisis.

The state still has more than $100 million in rainy day funds – reserves that can help fill the revenue hole as longer-term solutions are put in place. While these funds should not be swallowed in one gulp, they exist for times like these. The state should not be afraid to use them strategically– and plan to replace them as the economy improves.

Temporary tax rate increases for people in the upper-income brackets also should be part of the solution. Such increases are less of an economic drain in a recession than either general tax increases or budget cuts, according to economists like Barack Obama’s new budget director, Peter Orszag.

Republican Gov. Richard Snelling used this approach during the 1991 recession, and those tax rate increases helped see the state through hard times. In fact, in the two major recessions that occurred during Snelling’s tenure – in 1983 and 1991 – Vermont dealt with its budget problems with a package of cuts, tax rate increases and deficit spending.

Cuts will have to be part of the mix in the current crisis as well. Additional federal funds will help. The rainy day funds will help. Temporary tax rate hikes will help. But there still won’t be enough money to cover the cost of the state’s current services.

The cuts, though, should be made thoughtfully – targeted and not across the board. They should be coordinated with the new economic stimulus plan, which means the state shouldn’t rush to cut services that may be restored with additional federal funding. And, like the tax rate increases, the cuts should not be permanent.

Montpelier needs to set priorities and be sure to protect those Vermonters who cannot afford fuel, health care, food, housing, and other life necessities during these difficult times.

Vermont has gotten through deep recessions in the past, and we did it by sharing the pain. And as in the past, the only way we can share the pain is with a balance of revenue and budget adjustments.

Policy makers should learn from our past successes and use this balanced approach to solve this year’s fiscal problems.