Let’s back the Challenges promise with reserve funds

If Legislative leaders and the administration believe in Challenges for Change, the government reform plan that promises better services for less money, they should be willing to guarantee that promise with the state’s reserve funds. Many legislators are leery of Challenges because they fear the administration is more interested in cutting the budget than improving services. Therefore, if the administration can develop plans over the next several months and satisfy the Legislature that its strategy will save money and improve services, then the fiscal 2011 budget will be balanced and Vermont can keep its reserves for another rainy day. But if the administration plans simply to do less with less, then the Legislature should hold the administration accountable, block implementation, and use the reserves to make sure Vermonters continue to get the services they need.

Challenges for Change looked good on paper early in the session. The Minnesota consultants who prepared the report said Vermont could improve the delivery of services and save money to boot—$38 million in fiscal 2011 and $72 million the following year. The Legislature—and the administration—promptly booked the savings and left the details to be worked out later.

However, as the administration began outlining implementation plans for Challenges, buyer’s remorse set in. Some questioned whether it was possible to come up with $38 million in efficiency savings in just five or six weeks—especially from an administration that had been in office for nearly eight years and was on its way out the door. Others had doubts that the proposed reforms would really result in better services.

Now the Legislature feels stuck. Many lawmakers don’t like the implementation plans, but the savings have already been booked, and they want to end the session this weekend. If they don’t get all of the efficiency savings they were counting on, they’ll have to make other cuts.

One alternative is to simply tell the administration to find the remaining savings. But that’s a bad idea on two counts. First, it’s an abdication of responsibility and cedes power from the legislative branch to the executive branch. It’s true that the Legislature has done this in the past, but it wasn’t right then, either. Second, the Legislature should have learned by now that the administration will make cuts regardless of the effect on the delivery of services. Last year, the Legislature gave the governor’s office authority to find $14 million in “labor savings.” Now even some budget hawks are saying government services are suffering because the administration cut too many state workers.

A better approach is one that allows the Legislature to maintain leverage over the Challenges for Change process and makes revenue available if the administration falls short of the Challenges promise. The Legislature can give the administration a few more months to develop plans that will result in real efficiency savings. But the Legislature will have the final say in whether the plans are instituted. If the plans simply reduce spending and diminish services, the Legislature can reject them and use General Fund reserves to fill any remaining budget gap.

In a memo to legislative leaders a year ago, state Treasurer Jeb Spaulding laid out what he thought were appropriate uses of the reserve funds. He said it was safe for Vermont to use some of the reserves in 2010—“I would recommend utilizing less than half of the available reserves.” Another appropriate time to use the funds, the treasurer said, was “when revenue declines are close to bottoming out and are predicted to pick up in the near term.”

Vermont did use some of the human services reserves in 2010 and is planning to replenish them next year, but the General Fund reserve is still intact and holds about $55 million. According to the current forecast, General Fund revenues should end their decline in fiscal 2010 and begin to grow again in fiscal 2011. With Spaulding’s memo in hand, the Legislature should commit to using less than half of the General Fund reserves as a backstop to Challenges for Change if they’re doubtful that the administration can find real efficiency savings.

Legislative leaders were probably overly optimistic to think they could institute reforms in time to produce $38 million in savings in fiscal 2011. But there’s no harm in trying as long as they have an alternative and aren’t forced to cut services if things don’t work out.

The governor has opposed spending the reserves. Perhaps pledging them to guarantee the Challenges saving will provide an extra incentive to make sure Vermonters really do get better state government for less money.