Pay attention because today’s post is going to provide exclusive answers to one of the great unresolved questions bedeviling the people of this fair state: Why Is Vermont’s State Government Facing a Budget Shortfall?

Ready for the answer? Brace yourself for shock. Make sure you’re seated and have not just partaken of a large meal (though recent imbibement of a cocktail or two might not hurt).

OK, here it is: Because Vermont is Part of the United States of America.

Almost all of which is in deep recession, even if it has been declared officially over. The unemployed and under-employed don’t pay much in the way of taxes. The newly foreclosed don’t buy much. The businesses who used to sell to them aren’t expanding.

Not here in Vermont. But hardly anywhere else, either. Most state economies are in worse shape, and most of their governments are facing worse budget shortfalls.

This does not mean Vermont has no budget problem. It does seem to mean that though state policy-makers may have made some mistakes in the past that rendered the state more vulnerable to the ravages of recession, they didn’t make any more – and possible not as many – as their counterparts elsewhere.

In a report titled, Beyond California: States in Fiscal Peril, The Pew Center on the States counts nine other states facing deep budget crises in addition that big one on the left coast.

Vermont is not among them. In fact, Vermont was rated among the fiscally less troubled states.

Even more pessimistically, a report from the Kaiser Family Foundation finds that only two states – Montana and North Dakota – are not “facing budget shortfalls.”

From the statistics alone, it was impossible to determine the source of the good fortune of these two states, though it’s reasonable to suspect that it has some connection with the coal, oil, and natural gas underneath them. Under the circumstances, all the rest of us help pay their taxes every time we start our cars or turn on a light. If only maple syrup were a necessity instead of a mere delight, Vermont’s budget might be easily balanced.

(Objection One: Isn’t there a lot of oil under California? Yes, but California is so huge, its economy so diverse, that the petroleum revenue adds up to a paltry percentage).

(Objection Two: Isn’t it sad to deride a delight, which in a sane world would be treasured more than a “mere” necessity? Yes).

Both the Pew and the Kaiser studies show why Vermont is not as hard-pressed as some other states. The root cause of the problem in all states is the Recession, which stemmed from what the Pew study called “the bursting of the housing bubble.” That’s why, the study noted, three of the nine states in almost as much trouble as California are its neighbors – Arizona, Nevada, and Oregon – into which some of the California housing boom (and unsustainable lending practices) spilled.

For several reasons, the bubble in Vermont never expanded as recklessly as it did in some states, so the “burst” was less damaging. Vermont’s foreclosure rate is the lowest in the country.

Why? Well, tighter regulations may be one factor; mortgage prepayment penalties are illegal here, for instance. But the figures indicate that the state’s economy generally sat on a relatively strong foundation. The report by the Kaiser Family Foundation shows that since the Recession began, Vermont’s unemployment rate has gone up less than the nation’s as a whole (1.6 percentage points compared to 3.6).

It even seems possible, reluctant though we may all be to find anything good to say about political office-holders, that Vermont’s leaders were more responsible – or at least less irresponsible – than their counterparts elsewhere.

“Virtually every state had to make tough decisions this year about where to cut and how to raise additional revenues,” the Pew report said. “But in some states, lawmakers punted the responsibility,” refusing to cut spending or raise taxes. Vermont did both. It may not have been pretty to watch or pleasing to any political faction, but as a result the state has a smaller budget shortfall than most others.

The Pew report gives Vermont a “score” of 13 (lower is better), tied with Virginia, and better than all but nine other states. The Kaiser Family Foundation report also finds that only ten states have less serious budget problems than Vermont.

(Most, though, not all, ten are the same in the two studies, which were taken at different times and used somewhat different criteria. Their basic conclusions, though, seem consistent).

Still, Vermont has a rather substantial looming budget deficit which is likely to dominate the Legislative session beginning next month. The exact size of the extent to which likely revenues for Fiscal Year 2011 (starting next July 1) will fall short of projected expenses is unclear, but should add up to roughly $100 million.

That’s a lot of money, and the early indications are that the Legislature is going to “find” it by cutting spending. Both legislative leaders, Senate President Peter Shumlin of Putney and House Speaker Shap Smith of Morristown, have come out against any new or higher taxes. Considering that they’re both Democrats, the party less resistant to raising taxes, it’s unlikely that taxes will go up.

Unlikely but not certain. There is at least one dissenter, State Sen. Doug Racine of Richmond (check the December 7 post here), who favors a temporary tax increase to avoid deep cuts in social programs. And wait until the advocates of those social programs get television news footage showing the impoverished, disabled children whose lives would be further impoverished by some of the cuts that would no doubt be proposed.

People don’t want to pay taxes. Neither do they want to abandon needy children. That Vermont may have to abandon fewer of them than most other states is not likely to make the decision much easier.

(Note: This is obviously the first of several examinations of the state’s budget situation; Wednesday’s post will be on a different topic, but we’ll return to this one next Monday

What happened to Friday? As indicated earlier, on the assumption that almost no one will be reading this kind of stuff on Christmas and New Years Days, there will be no new postings the next two Fridays.)

Tags: Doug Racine, Kaiser Foundation, Peter Shumlin, Pew Center, Shap Smith

This entry was posted on Monday, December 21st, 2009 at 12:20 am and is filed under Business & Economy, Taxes, The Legislature. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.