State Spending: Totally Unsustainable 
By John McClaughry

Accentuated by the recession, the state's recent economic news and fiscal projections inescapably suggest that Vermonters simply cannot sustain their present level of government spending.

The Emergency Board met November 12 and heard its economists report that it should not be necessary to downgrade the General Fund revenue projections again this quarter. That suggests the economy may have bottomed out. The governor and other members of the board seized upon this as a thin ray of hope breaking through desolate economic clouds.

But that thin ray of hope cannot be allowed to divert attention from what is rapidly becoming the most serious fiscal situation in the state's history.

Projected General Fund revenues have dropped 14% over the past two years. This year's projected revenue will be lower than the revenue that the fund took in five years ago.

The Unemployment Fund faces an ever-deepening shortfall, heading toward $400 million by 2013. Somewhere big money has to be found to fill that hole - beginning with higher taxes on employers - and then accumulate an additional $300 million in anticipation of a future recession.

Projected general fund shortfalls in fiscal years 2011-2014 total an astonishing $470 million, starting with $82 million in the fiscal year beginning next July. The federal stimulus money will have disappeared by then.

There is no agreed plan in place for coping with the Federally decertified Vermont State Hospital. The Feds are not putting any money into its operation, so Vermont taxpayers are shouldering the full burden.

David Coates, the retired partner of the Burlington accounting firm KPMG, informed legislators last spring that as of June 30, 2008 the state's unfunded pension liabilities, as computed by the state actuary, were $466 million. This is just about a three-fold increase in liabilities in just five years.

When it comes to the other post-retirement benefits (i.e. medical insurance), Coates reported, the situation is even more alarming: "The state actuary has calculated the unfunded liability for both plans [teachers and state employees] at June 30, 2008 to be $1.6 billion. This is projected to increase to over $4 billion in thirty years, if we continue to fund these plans as we have in the past."

Coates concluded: "Vermont is currently on a path that is not financially sustainable."

Then there's the Education Fund. In the years 2004-2009 the boom in real estate assessments brought in tons of money for the educrats to spend - and even allowed the legislature to lower the two state property tax rates by a penny each in 2009. The year over year percentage increase in the education grand lists was 11.1% in 2004, 13.5% in 2005, 12.4% in 2006, 9.7% in 2008, and 2.6% in 2009.

But with the national housing market crash the state's education grand lists are now trending negative: -0.9% this year, -3.0% in 2011, and -0.5% in 2012. That means the current tax rates will raise fewer education dollars. Tax commissioner Rich Westman ruefully admits that he will be the first occupant of that office ever to recommend that the legislature increase the education property tax rates, after four reductions.

The Vermont Economy Newsletter observes that the Education Fund is likely to show a $70 million hole this year. One final dose of federal stimulus money will cover $40 million of that. There is not enough in the education reserve fund to cover the $30 million remainder.

Writes VEN, "The legislature will either have to send more money to the Education Fund to keep property taxes down and raise income taxes to do so, or transfer less money to the Education Fund to avoid an income tax increase, but see school property taxes soar. Either way, get your checkbook out."

The Transportation Fund, despite the federal stimulus injection, suddenly faces an enormous expenditure in replacing the condemned Champlain Bridge in West Addison.

What's the way out - if declaring bankruptcy is not an option? That's hard to say, but any realistic analysis must begin with the stark realization that forty years of Vermont's liberal politics has created a government spending machine that is now far outstripping the capacity of already overburdened Vermont taxpayers to keep it running.

John McClaughry is Vice President of the Ethan Allen Institute (www.ethanallen.org)