This commentary is by Tom Pelham, a finance commissioner in the Dean administration and tax commissioner in the Douglas administration. He also served on the Vermont House Appropriations Committee as an independent. He lives in Berlin.
In June, legislators will gather to make the final decision regarding Gov. Scott’s veto of the Legislature’s 2024 state budget.
It’s rare that Vermont voters statewide have the opportunity at a single point in time to provide guidance to those they’ve elected. Yet, Vermont’s fiscal history over the past 20 years as well as the recent wisdom of Vermont’s economists indicate we may be at a critical fork in the road, with debilitating consequences should the governor’s veto not be sustained.
Tom Pelham
Within the state budget there are two major funds, the General Fund and the Transportation Fund. These funds are supported mostly by revenue coming directly out of Vermonters’ pockets, including state taxes on personal income, corporations, the sales tax, meals and rooms, gasoline, diesel fuel, motor vehicle purchase and use and motor vehicle fees, among others.
In 1986, the then-governor and Legislature authorized $480.3 million in expenditures from these two funds. Four years later, they had grown these expenditures to $715.8 million. Thus, from 1986 to 1990, general and transportation fund expenditures increased at the annual rate of 10.5%, a rate far exceeding the 4.1% underlying growth of Vermont’s economy.
Then came the 1990-91 recession and Vermont’s economy and state budget hit the recessionary wall.
In a VPR story, economist Art Woolf described the fallout.
“How bad was it?” he asks rhetorically. “Vermont’s unemployment rate stood at a record low level of 3% in the summer of 1988. By the spring of 1991, it had risen to 7.7%, and it stayed above 7% for a full year. Vermont lost 15,000 jobs between 1989 and 1991, a job loss of more than 6 percent — the worst job loss in Vermont since the Great Depression and four times the national rate.
“Declining state revenues led to a huge budget deficit, which took Governors Snelling and Dean four years to pay off. State government spending remained virtually unchanged for several years, and sales and income taxes were raised to help retire the deficit.”
Further, Vermont’s bond rating was cut, and did not recover until 1998, while general and transportation fund expenditures were limited to a growth rate of just 2.24% from FY 1991 to FY 1995, including negative growth in 1993 at -2.16%.
It’s not hard to make the case that Vermont’s Legislature is about to repeat the above history.
Last January, legislative leaders and the governor were briefed by the current state economist regarding current fiscal risks. They were advised:
- The pandemic has resulted in a clash of opposing macro forces.
– On one side has been a set of “foot on the accelerator” expansionary federal fiscal and monetary policies that has provided the state with more than $10 billion in federal financial aid.
– On the other side is the recent implementation of a set of restrictive federal monetary policies.
- The shift in monetary policy has come about as the U.S. economy experiences a run-up in inflation — unlike any that the economy has experienced in the last 40 years.
- As such, the chief questions going forward as part of this consensus forecast update is understanding when the dynamics of this policy clash may change, and potentially even be reversed, and what that transition away from those expansionary policies and back to the economy’s underlying fundamentals might look like.
- What does seem clear at this point is that there will be a time in the not-too distant future when this epic and unprecedented amount of federal fiscal pandemic assistance, which has been so instrumental to supporting the economy and state revenues, will eventually run its course. They cannot be relied upon to continue to undergird state revenues much more beyond the near-term time horizon.
- Therefore, the state’s economic and revenue outlook continues to be highly uncertain and volatile.
The facts on the ground today and the observations of the state economist are much in line with the realities of the 1990-91 fiscal crisis. Like that fiscal crisis, the annual rate of general and transportation fund spending over the past four years has been 9.49%, growing from $1.84 billion in FY 2018 to $2.64 billion in FY 2022.
Further, the Legislature’s proposed FY 2024 general and transportation budget at $2.71 billion is a 12.1% increase over the current FY 2023 budget of $2.42 billion.
These growth rates do not align with the underlying Vermont economy, leaving Vermonters exposed and vulnerable to economic trauma of the likes profiled by Art Woolf above. Vermonters can do themselves a favor and ask their state House representatives to sustain Gov. Scott’s veto and come back with a more modest and affordable budget proposal.
Thanks, Tom Pelham! Thanks Gov. Scott for your veto!
Here’s another comparison that shows the extravagance of Vermont’s legislature.
I winter in Arizona, a state with 7.4 million people whose 2024 budget was approved at $18 billion.
Vermont has ~648,000 people with a proposed budget of $8.5 billion. This is totally out of whack and deserved the Governor’s veto.
When both state and federal spending are included, in FY22, VT spent $13,140 per person. Arizona spent $8,157. Arizona has mandatory spending constraints tied to personal income that can only be exceeded by a super majority legislative vote or a popular vote. Vermont has no compararable legal restraints.
Thanks, Tom Pelham! Thanks Gov. Scott for your veto!
Here’s another comparison that shows the extravagance of Vermont’s legislature.
I winter in Arizona, a state with 7.4 million people whose 2024 budget was approved at $18 billion.
Vermont has ~648,000 people with a proposed budget of $8.5 billion. This is totally out of whack and deserved the Governor’s veto.
When both state and federal spending are included, in FY22, VT spent $13,140 per person. Arizona spent $8,157. Arizona has mandatory spending constraints tied to personal income that can only be exceeded by a super majority legislative vote or a popular vote. Vermont has no comparable restraints.
Just one of the many reasons your dollar is worth almost nothing. Break a $100.00 dollar bill and see how long it lasts. Now, Here’s a challenge: Try to make a list of all the things you can buy or do in Vermont that the state doesn’t get a tax, fee or penalty from? Excluded are most foods and clothes. Okay, go! We are all getting screwed without getting kissed first!
I believe the syndicate running Vermont is solving insolvency with more insolvency. What’s another billion or two or three going to do anyway? The same practice (scam) operates in DC. The national deficit is at $31 trillion and the new proposal would add another trillion or two, or three, or four….a trillion here or trillion there. Add more digitis at will…it doesn’t matter as it’s all an illusion and we are all broke, regardless.
None of this matters. Who cares if VT miraculously rejects the budget and approve it later with a $150 million reduction, or something. BIG DEAL A reduction won’t happen, so get over it. Even if there was a reduction, it won’t matter The Dem-o-Progs own VT. FOCUS the BIG picture. VT is still toast and will face a severe fiscal crisis…only solved by raising taxes bigly, again. But 20% of the higher incomes already PAY about 65% of all VT taxes. What if they start to leave? I think it is already starting!
Compare: NH has a population of 1.38 million. VT population has 643,000. NH is more than double population. But the annual NH budget is about $6.7 billion vs VT at $8.5 billion. And NH does this with NO income tax and NO sales tax! A VT fiscal crisis is inevitable. NH spends almost $2 billion LESS – while serving less than half the population! So until VT is willing to cut a minimum $1 BILLION of spending, the s***will still hit the VT Progressive fan. Don’t forget that VT still has a $5 BILLION unfunded Union health & retirement liability – UNFUNDED…and VT’s population is one of the oldest of any state… they pay less in taxes – but take more in services….in total, 42% of VT’s population is under 19 or over 65. The under 19’s pay little in taxes….and neither do the over 65’s for the most part (some well-to-do’s out there tho’) VT has some of the worst demographics in all the USA.
Correction..it is important:
“NH spends almost $2 billion LESS – while serving less than half the population!
Forgpt to add in….” I meant to say:
NH spends almost $2 billion LESS – while serving “more than DOUBLE the Vermont population!
Correction..it is important:
I meant to say:
“NH spends almost $2 billion LESS – while serving more than DOUBLE the Vermont population!
VT is still…..GON
Thank you Tom Pelham for this thoughtful commentary that puts where we are in a perspective grounded in past experience. Governor Scott has been right on target all along on how we should use these one-time funds. He has spoken clearly and has acted decisively.
It is unfortunate that we seem so wrapped up in extremism on what Vermont government can actually do on the left and hyping culture wars extremism on the right that many have lost sight of the practical reality of our situation.
When you look at what is going on with Bud Light, and now Target and Kohl’s.. these people cramming their left wing agenda’s down the throats of normal Americans that want no part of what they are forcing on us against our Will, this has just woken up massive numbers of people that are now saying NO- very loudly by shutting their wallet to these agendas.
Target and Bud Light are not going to recover from this- and now Kohl’s is going to feel this pain as well. The dominoes are going to really start falling now..because what they’ve been up to is really becoming clear to the masses.
So when you have a state like Vermont that is sooooo built upon a framework that is being rejected by the masses– and when you’ve become dependent upon that- this is not a good thing at all to have done to yourselves..
Vermont has too many eggs in the Left Wing basket..
Yes we undoubtedly will now or next year until the leftist commies are removed from power. The imbecile flatlander baruth was on countering Scotts Veto saying we must increase spending even if we can’t afford it. The brain dead professor needs to be beaten over the head until some common sense is driven into his noggin. Or better yet kick his azz back to where he came from along with the other flatlander intruders.
The dictators will do exactly what they want. The taxpayer don’t count.
“…ask their state House representatives to sustain Gov. Scott’s veto and come back with a more modest and affordable budget proposal.” But they won’t. Vermonters can’t afford this budget yet the legislature will make it stick with an override. I hope voters remember this next year but I’m sure that’s a dream, too.