More Bad Budget News

by Art Woolf

I've been assuming that the state's General Fund will have a baseline budget deficit of $88 million for FY11.   That's based on data from August posted on the Legislature's Joint Fiscal Office website.   A month ago, Senator Shumlin said that the deficit would be about $60 million higher than that, or about $150 million.

Now we have more complete data from the JFO that shows the detail.  The state's expenditures will exceed revenues by  $141-$161 million in FY11.  If the deficit is closed by using permanent spending cuts or tax increases, that will bring FY12's deficit down to a "manageable" $99 million. 

If the state uses gimmicks or one-time solutions, the deficit in FY12 will grow to about $250 million and be somewhere around $220 million FY13 and FY14.   And none of this includes tens of millions of dollars needed to shore up the state employee and teacher retirement health care funds or the multi-hundred million dollar hole in the unemployment insurance trust fund.

In short, Vermont has a significant fiscal problem that is worse than anyone thought a few months ago.  What will the legislature do?

Option 1:  Pray (and lobby) for a bailout from Washington.  A second stimulus package could bring $100 million to the state.  There's already talk of this in Washington.  That would leave a $50 million hole in FY11 but do nothing to ease the fiscal problem in FY12.   Of course, FY12 is far in the future in terms of political time (and election cycles).

Option 2:  Cut spending.  The legislature has cut some spending out of the budget.  Governor Douglas tried to cut more.  'Nuff said.

Option 3:  Raise income taxes on the rich.  Following the lead of our elected officials in Washington, they would probably hold the Vermont middle class harmless (after all, they vote and there's a lot of people in the middle class, despite all the talk of its decline).  Let's say they only raise taxes on those earning over $200,000.  The tax increase needed to raise $100 million is 50%.  The "Snelling" tax increase of the early 1990s was about 20%.  There's not going to be much stomach for a 50% tax hike, even on rich people.

Option 4:  Raise income taxes on more rich people, specifically those earning over $100,000.  It would take about a 33% tax increase to generate $100 million.  And there would be a lot of unhappy voters who don't consider themselves rich who would face a tax increase.

Option 5:  Raise the sales tax.  One penny would generate about $40 million.   One problem would be getting Democratic legislators from the Connecticut River Valley on board.   And that still leaves a big hole to fill.

It won't be fun being a legislator this session.  I'd rather be a lame duck governor. 

Comments

[Vermont Woodchuck]

Art, you left out confiscation of all property, bank accounts and business inventory.

Every "successful" Peoples Republic attempted solving their financial death spiral in this manner, why not Vermont.

Show the true colors; hoist the Skull & Bones, put them on a field of red if one likes.

Might as well for there is going to be one hell of a bloodletting in 2010.

[lifelong vermonter]

Woodchuck beat me to mentioning property confiscation. I think the people who voted for the spend and tax legislators should have to contribute on a pro rata basis until the deficit is eliminated.

However, the legislature might get creative and decide to allow VY to be relicensed for a small fee of $160MM per year during the relicense period.

As much as I hate the mess this leftist legislature has driven us into by driving business and economic opportunity out of state and overwhelming the Governor's attempts at fiscal responsibility - I am actually going to enjoy watching them squirm this session.

However, the last laugh might be on me when they drive taxes to the pont where I decide to join the exodus and flee to a more reasonable jurisdiction. There is a lot to like about New Hampshire. Have you ever noticed how much better their roads are?

[Glenn Eno]

If there were a second stimulus and VT received 100 million dollars, would the state be able to use that strictly for deficit reduction or would it be earmarked for certain projects and not affect the deficit at all?

Either way, a second stimulus is throwing bad money after worse money.

[Brattleboro_conservative]

The majority of this state voted for the "supermajority". Try telling any one of them (the majority) that cuts need to be made, they won't listen and blame the governor. I agree with Vermont Woodchuck's comments and that this state has to go into bankruptcy before anything changes around here.

By the way, New Hampshire is currently ruled by a Democratic "supermajority" as well. Between Governor Lynch and the Democrats, the NH legislature is bound and determined to take a wrecking ball to "tax free" New Hampshire. This is what happens when one party dominates the legislature.

[RFC]

This is much too obvious, but might it be a good idea to not vote for any of the Demoratic candidates (with apparently more to come) who want to be our next governor in next year's election?
After all, they're the ones who gave us this mess.

Oh, but you are right: that's much too obvious.

[Mark Shepard]

Ralph,

It was not just Democrats. A whole lot, even a majority, of Republican legislators plus the Republican governor supported Act 68 and Catamount Health.

Those are the real problem that continue to make it so the Republican Party is no more than a default party.

Had Republicans been true to limited government, I believe the Democrats would be in huge trouble.

The reality is that Vermonters are left with having to evaluate each candidate individually because being a member of a party has little meaning anymore.

[Bill]

Who would have believed in 1976 that Ronald Reagan would carry Massachusetts twice, or he would even carry Rhode Island in 1984. True, the GOP isn't what it used to be, but neither are the Democrats. Drunk and arrogant with power, they have become their own worst enemy with little self awareness. Economic stagnation and crushing debt won't end soon. Locally and nationally, opportunity looms. The flaws of the GOP may diminish as the local and national disaster unfolds.

[Vermont Woodchuck]

If you (collectively) have been paying attention to what's going on in DC, you'll have noticed we no longer need Congress. They're letting a collection of unelected bureaucrats determine your tax and energy future, empowered by the Supremes. You got it. the EPA.

Vermont has a cute snow globe of this with the VSC sleeping with the Conservation Law Foundation, from where, oh yeah, MA.
Nationally and in the states, the common thread in this is,"Re-elect us, we didn't have anything to do with that!"

Which bureaucrat did you vote for in what election?

[Larry]

Art,
Isn't it about here that you should start humming that old "Happy days are here again" tune that you were singing on VPR last week. Please! Tell us again how things are getting better....how they're turning around....how in 2013 all of the jobs we've lost are going to come flowing back in from wherever it is that they're hiding.