Federal money tough to pin down
By PETER HIRSCHFELD
Vermont Press Bureau | July 24,2013
MONTPELIER — Economists for the state can forecast with surprising accuracy the tax revenues expected to flow into the treasury over the next fiscal year.
But predicting one of the largest sources of funds to Vermont’s $5.2 billion budget — federal revenues — has proven a more difficult task. And despite a recent analysis done by experts for the Legislature, pinning down the federal funds on which the state so heavily relies is still something of a guessing game.
“There are just so many unknowns at this point,” said Steve Klein, chief fiscal officer at the Legislature’s Joint Fiscal Office. “And there are a lot of political choices that are going to get made that are totally outside our control.”
Official state revenue forecasts, the most recent of which arrived Tuesday, are historically reliable, deviating by only about 2 percent on average over actual revenues.
That record of success gives lawmakers a high degree of confidence in the $1.56 billion in general fund revenues forecast to flow into Montpelier over the next 12 months.
Getting similarly reliable estimates for money flowing from the federal government is more difficult. But Klein said one thing is clear: risk for Vermont is to the downside.
In a report titled “Federal Funds — Reductions Today and Tomorrow,” Klein surveyed the federal landscape in an attempt to divine how decisions in Washington, D.C., will affect Vermont. From health care and transportation to grants that support human services, Klein said Tuesday that federal funds coming into Vermont will likely shrink in the coming years.
“And one area where that could be extremely noticeable is in transportation,” Klein said.
The reauthorization of the five-year federal transportation bill will likely overhaul a state-by-state allocation formula that has until now been favorable for the state. Vermont gets $2.85 cents from the feds for every $1 in gas tax it sends to the federal treasury, a ratio Klein said he expects will narrow in the next five-year bill.
Projected declines in federal discretionary spending, according to Klein, also imperil some of the federal dollars coming into Vermont. Non-defense discretionary spending supports everything from assistance for low-income populations and energy investments to public safety grants and environmental protection.
As a share of gross domestic product, according to Klein’s report, non-defense discretionary spending is expected to drop by a third over the next 10 years, from 8.3 percent to 5.5 percent.
The reductions will come at a time when Vermont is more reliant on federal funding than at anytime in recent memory; federal funds now account for 46 percent of Vermont’s non-education budget.
At a meeting of the Joint Fiscal Committee on Tuesday, lawmakers said uncertainty around federal funds exposes Vermont taxpayers to volatile budgetary swings. The issue surfaced during a discussion about whether to accept a $42.7 million federal grant for the new health insurance exchange.
Senate President Pro Tem John Campbell said the receipt of federal funds — and the creation of positions to which some of the money will be allocated — threatens to leave Vermonters holding the bag when the federal funds run out. He said after the meeting that he has the same concerns about federal funds drying up elsewhere in the state budget.
“Any time the federal government wants to offer us money we’re all licking our lips and drooling,” Campbell said. “But we need to start thinking about what we’re going to do two or three or four years down the road when that money isn’t there any more.”
Preserving programs that sprouted with federal money, Campbell said, could put undue pressure on Vermont taxpayers when Congress withdraws support. But ending those programs, he said, could pull the rug out from under people that have come to rely on them.
“The fact is that we have to beware federal agencies bearing gifts,” Campbell said. “Like my father said, ‘ain’t nothing free in this life.’”
A $6.5 million reserve set aside by lawmakers earlier this year is designed to offset declines in federal funding between now and next July. Asked whether that would be sufficient to cushion coming blows, Klein said it’s impossible to say.
“We just don’t know,” said Klein, noting that diminished federal heating assistance alone could deliver a $5 million hit to the state.