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Q&A: Basics Of The Vermont State Budget

Vermont lawmakers face a number of critical decisions in 2018, related to clean water funding, property tax reform, and whether to raise the minimum wage.
Angela Evancie
VPR file
Vermont has a reported state budget gap of around $100 million. How is the budget structured, and how is such a large gap possible with a steady economy?

There has been talk for months that the state budget has a projected shortfall of around $100 million. To close the budget gap, lawmakers and officials will look at ways to increase revenue through taxes and fees, as well as cut back spending and state services.

But what is our total state budget and how does a $100 million gap happen? VPR’s Statehouse Reporter Peter Hirschfeld, who looks at these numbers on a daily basis, explains the basics of the state budget.

Jane Lindholm: How big is the state budget?

Peter Hirschfeld: It’s quite big. As it turns out, the all-in number is $5,661,825,290. They actually break it down like that – to the dollar. That’s the proposal for the fiscal year 2016 budget that the governor laid out in his proposal a few weeks ago. It is a difficult number to wrap your brain around, but it’s a number that reminds you just how significant a role government plays in the lives of the people that created it. And that $5.6 billion figure translates into $9,041 for every man, woman and child in the state of Vermont.

JL: That $5.6 billion, is some of it state-raised revenue and some of it federal spending?

PH: Very broadly speaking, there’s state money and federal money, and the split is a little more than $3 billion on the state side, $2 billion on the federal side.

JL: The state budget isn't one big bucket; it's actually a handful of buckets. How is it structured?

PH: The state segregates its money into three funds: the general fund, the education fund and the transportation fund.

  • The general fund is biggest of the three – it’s about $1.4 billion this year, and it’s spent on what’s known as "general government." The biggest cost driver here is the Agency of Human Services, where we have all these programs for people who qualify for state and federal assistance.
  • The education fund is right behind, with a little over $1.2 billion. This is the money that funds public schools and the teachers and staff that work at them.
  • The transportation fund has close to $300 million and this is all the money we use to keep our roads paved and our bridges strong.

The $2 billion in federal money finds its way into each of these funds, depending on what it’s been earmarked for.
JL: How are certain revenue sources tied to specific expenses?

PH: Theoretically, there is a method to this bureaucratic madness. Each fund is supposed to be supported by revenues that would make sense to support that specific public purpose. The money from the education fund comes primarily from property tax and the general fund comes mostly from revenue generated from tax on personal income, sales and use, and rooms and meals. Transportation dollars come from taxes on gasoline, diesel and motor vehicle fees such as registrations and licenses.

JL: Is there borrowing from the fund?

PH: Yes, to the unending frustration of many lawmakers, there is a lot of sharing that goes on between funds. The biggest one is what is known as the general fund transfer. This refers to the approximately $300 million in general fund money that will be sent over to support the education fund. This happens on an annual basis.

The transportation fund sends about $20 million per year to the general fund to support the state police. It’s a practice that has a lot of legitimate reasons for being there, but it has also created opportunities to solve shortfalls in one line item with funds from somewhere else. And while you can resolve immediate budget pressures pretty easily by increasing or decreasing these transfers, it also serves to siphon money away from the things that money was originally supposed to support.

JL: The budget gap is about $100 million right now. How does a gap like that develop in an economy that is fairly steady?

PH: We’re several years into our post-recession recovery. How is it that we keep finding ourselves with these big budget gaps? It’s because increases in revenues are not keeping pace with the increase in the costs of government. Key economic variables aren’t coming back as quickly as they have historically. The best example is personal income. Because so much of our revenue base relies on the personal income tax, we’re not seeing that increase at the rate we would need to support the cost drivers in state government, including health care costs, union salaries and all these things that are going up faster than personal income is. So, when it comes time to reconcile the budget, there’s this major shortfall.

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