When Gov. Phil Scott this week said the state would be, again, facing a $70 million to $80 million budget gap next year it was reminiscent of the scene from Butch Cassidy and the Sundance Kid when Etta Place asked Butch why there was never any money, despite robbing bank after bank after bank.
It’s not that there isn’t any money, there is. Revenue for the year is cruising above expectations, as it has, for the last decade. Forecasts were upped $56 million for the next two years last July. When the fiscal year ends June 30, as a state we will have spent more than we spent the year prior. The problem is that we continue to spend money faster than anyone can make it.
Equally repetitive in all this is Mr. Scott’s insistence that the multi-million dollar gap will not be closed by raising taxes or fees. Not on his watch. It’s less than a year before November’s general election.
The governor was quoted by Vermont Public Radio as saying: “I believe we have to do it through structural changes. Thinking outside the box, efficiencies and just coming to grips with again, living within our means.”
The same call is being made to the agencies; Find ways to do more with less.
It’s easy to dismiss the governor’s warning as more of the same, but think how odd it would be to have a governor who stood before the public and announced that there was so much money coming in it was unclear how it could be spent.
It never happens.
It’s actually useful for the machinery of state government to be tasked with reinvention. Repeatedly. It’s important that it be challenged. If it isn’t it gets sloppy. Quickly. It’s easy to invent ways to add staff, and to start new programs. It’s more difficult to figure out how to improve outcomes through efficiencies. But that’s the challenge.
The unknown in the backs of everyone’s mind, however, is the looming uncertainty of the economy ahead. We’re in the 10th year of an economic expansion. Economists are predicting a retreat, and the threat of such makes the budget writers nervous about being too aggressive. For good reason. When the economy tanks the money dries up in a hurry. That $70 million to $80 million gap would explode.
And Vermont’s bond rating could take a hit as well.
There’s is also the old saw that it’s more difficult [and more important] to manage well in good times than in bad times. Bad times take care of themselves and the tough choices are easy to understand and defensible.
There are, however, core issues that can’t be ignored, and king among them is the state pension system, which is underfunded to the tune of several billion dollars. We’ve had to make up for poor decisions years ago, when the money was spent for other things. We’re spending north of a $100 million a year to catch up and we will continue to do so for another two decades. That “catch-up” number is running us an additional $10 million to $12 million a year. That’s almost real money.
What needs to be addressed is the difference between a defined benefit and a defined contribution. The defined benefit, which we have now, is a set return for pensioners. No matter the market’s performance, pensioners are guaranteed a defined number. A defined contribution has no pegged expectation. Pensioners get a return based on the investment. The state doesn’t have to make up the difference if the target isn’t met, which is almost always the case since the state pegs the goal at an unrealistic number.
It’s an issue, obviously, to change the rules in the middle of the game for those already vested in the existing program. That is not the case with future employees. Switching the plan for new employees would put the state’s pension plan on the path to sustainability. It’s irresponsible to do anything less.
If we neglect this challenge, and if the stewardship of the state’s financial circumstances are ignored, then we will continually ask ourselves why we never have any money, even as we rob more and more banks.
By Emerson Lynn