Scott delivers tight budget with small bore initiatives

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There are no “bells and whistles” in Gov. Phil Scott’s 2019 budget. As expected, there are also no new taxes and no new fees.

Nor have any big initiatives been proposed in the budget. Instead, the governor’s office gave the Legislature a menu of options for solving the state’s $80 million education fund gap last week in the form of a memo. A $150 million prison plan was presented as a report last week, but wasn’t mentioned in the governor’s budget address.

Scott has exerted fiscal discipline as promised. For the second time in a row, the governor has balanced the budget without raising taxes and in an unusual move he’s decided to “hit the pause button” on environmental fees.

The increase in general fund spending will go up from $1.49 billion to $1.56 billion, for an increase of 2.33 percent. The total budget, including federal spending, transportation and education, will go up from $5.8 billion to $5.9 billion.

In his speech, the governor reiterated his pledge to rebuild the state’s long lagging economy in large part by reducing the tax burden on Vermonters. His vision for the future, he told the Legislature in his budget speech Tuesday, is “filled with endless potential, a growing workforce, a stronger economy and where no Vermonter must look elsewhere for prosperity.”

“Success is dependent upon restoring our fiscal foundation, having the courage to confront the challenges we face and spending only what Vermonters can afford,” Scott said.

The affordability calculation for the state budget, Scott says, is a percentage increase that matches the 2.36 percent growth in wages this year. The annual budget growth rate under Scott’s predecessor, Democrat Peter Shumlin ranged between 3.5 percent and 5 percent. During that period, the state’s recovery from the Great Recession was slow and expenditures outpaced tax receipts. The state’s economy continues to grow at about 2 percent.

Scott described a precarious economic future for the state that can only be safeguarded with prudent, fiscally conservative budgeting and hammered home his success in bringing spending in line with revenues. “The truth is, for decades, the cost of state government has been designed to grow about 5 percent each year,” Scott said. “So, balancing this budget without raising taxes was not easy. It took careful, diligent and difficult work.”

The low growth budget Scott has proposed supports about a dozen small bore pilot projects funded with a few hundred thousand dollars at a pop. The largest initiative is a $3.18 million investment in Think Vermont, an economic development program aimed at persuading working-age tourists to make their short-term stays a long-term proposition.

Scott also wants to bring retired Vermonters home, and said about 26,000 native-born Vermonters live in Florida and another 27,000 live in New Hampshire. “It isn’t just the weather,” Scott said. “Many folks on fixed incomes want to stay here in Vermont and can’t afford that second home elsewhere. They deserve, as much as anyone, to live with the dignity in retirement they earned through a lifetime of work.” The governor proposes to eliminate state taxes on Social Security benefits for single retirees whose overall income is under $55,000. Vermont is one of only five states that fully tax Social Security retirement benefits, according to the administration.

What wasn’t mentioned in the speech, or highlighted in the budget narrative, is a $16.8 million reduction in human services spending.

‘Programmatic’ changes, reprioritization

Susanne Young, the secretary of the Agency of Administration, told reporters that the budget meets the governor’s three main goals of making the state more affordable, growing the economy and protecting the most vulnerable.

The budget prioritizes investments in the economy and focuses on measuring Scott’s economic growth strategy. Young said the governor’s office will use metrics to keep track of the size of the workforce as a percentage of population, employer growth, wage increases, homelessness, the percentage of people who have access to health care and kindergarten readiness.

Scott’s overarching goal is to attract more workers and improve the state’s business climate. That’s no surprise. The governor ran on a campaign of economic prosperity.

But there will be surprises in the governor’s budget that will be unveiled in the days and weeks ahead as it is vetted by lawmakers.

While the Scott administration has proposed what looks like a steady state budget, there are a number of internal “programmatic” changes that were not included in the governor’s speech. Nor were they explained in any detail at a press briefing on the budget.

Questions about the big changes — elimination of positions and whole programs as part of the “reprioritization” — were deflected and went unanswered.

In a departure from past administrations, the budget books were not immediately made available to reporters. The books, which are traditionally embargoed and passed out at an annual press briefing before the speech, were withheld for more than an hour. Only when reporters together insisted that the administration make copies available were they distributed.

The budget books, however, provided little detailed information. The executive summary, which typically outlines significant changes to the way the state spends money, was devoid of any explanation about the ways in which staff and resources have been redeployed as part of a new program-based budget system.

The budget spreadsheets feature a number of changes to human services policy — changes that will result in spending reductions. There was no overarching explanation, in the briefing, the speech or a hearing with the House Appropriations Committee, of how the agency has been reorganized to achieve that savings.

Adam Greshin, commissioner of the Department of Finance and Management, gave two examples of changes that are part of an effort to make state government more efficient. One of those changes is the elimination of six operations directors for 12 field offices at the Department for Children and Families. “We thought it would be more efficient not to have a director at each office,” Greshin said.

In the Department of Vermont Health Access, officials have realigned the coordination of care for Medicaid patients with chronic diseases who have been served by several state programs with similar objectives. Part of the savings, about $650,000, will be reinvested in mental health and child protection. A loan repayment program for doctors through the Vermont Department of Health that was designed to ensure physicians are placed in rural, underserved areas will be eliminated because, Greshin says, “there was no evidence it worked.” That $300,000 can be “redeployed” elsewhere, he said.

The governor and his staff did not explain other realignments. Nor was a list of program changes provided. Instead, the briefing hour was spent highlighting pilot projects.

“We’ve just started down this road,” Greshin said. “What we hope to do over the course of the next two years is move entirely to programmatic budgeting.”

Very few positions have been eliminated as a result of the changes, the finance commissioner said. Greshin said he wouldn’t use the term savings to characterize reductions in spending in any given area. “I’d use [the word] realignment,” he said. “We’re putting it to work in areas where it’s most effective.”

It’s the second year in which lawmakers may be faced with charting their own course. The outstanding issues in this round include a revamp of the mental health and prison systems, reforms to the education funding system and general fund budget initiatives.

Last Friday, the Scott administration unveiled a laundry list of ways to cut $75 million to $94 million in K-12 public education spending. The governor’s office has not made a specific proposal for filling a $75 million gap in the statewide education fund.

“Our plan is to work with the Legislature to solve this challenge,” Young said. “It is everybody’s challenge.”

Reporters questioned why the Scott administration was not providing leadership on the issue.

Young said after the Legislature rebuffed the governor’s education proposal last year, which included moving teacher retirement to the education fund, changing the date for school budget votes to May and shifting money from K-12 public education system to early childhood and higher education, the administration has shied away from presenting specific proposals. Late last session, the governor proposed a statewide teachers contract for health care benefits that also fell flat. Lawmakers and Scott finally reached a deal in June during a special session.

“The governor’s plan is to work with the Legislature to achieve the solution to this problem,” Young said. “Last year we had a plan — and we were told to come back with plan B, plan C and plan D.”

By offering a list of options for lawmakers to consider, Young said the administration is attempting to achieve a give and take with the Legislature and develop a “true working” relationship.

New initiatives

The Scott administration is proposing small increases to existing programs and a half dozen pilot projects across state government.

Here are a few of the highlights:

  • Eliminates Social Security taxes on single retirees who earn $55,000 a year or less. The program would be rolled out over three years and would cost the state $1.9 million this year and by year three would cost about $6 million.
  • Doubles the Down Payment Assistance Program, which helps working families buy homes. The Scott administration proposes an increase of $125,000. Last year 30 families were given grants through the program.
  • Adds $250,000 to the National Guard scholarship programs.
  • Exempts military retirement pay from the state income tax.
  • A $250,000 increase to the historic tax credit program for downtowns and village centers.
  • Sets aside $625,000 for rehabbing of aging housing stock.
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