Vermont Budget Adjusted Using Medicaid Funds Following Revenue Downgrade

Jul 27, 2016

Less than a month after Vermont’s fiscal year 2017 budget went into effect, state economists told administration and legislative leaders a downgrade would be necessary.  While the adjustment is described as minor, critics say it’s another example of the state’s overspending.

Vermont receives revenue forecasts from its state economists in January and July.  The state budget is based on the January forecast and adjustments are made based on the July report.

The Joint Fiscal Committee is charged with making any changes in the budget if there is an upgrade or downgrade of 1 percent or more.

State Economist and Principal Economic Advisor to the Legislature Tom Kavet’s July report shows General Fund revenues down 1.5 percent, the Transportation Fund down 1.2 percent and the Education Fund down 1.8 percent.  “There's really not a serious problem with the economy. This is not a major change in the budget or the economic outlook. It's about a one percent adjustment. And we review the budget and the state economy on a regular basis so that we can make these kinds of corrections. But there's nothing seismic happening in the economy that's negative. It's been a very slow steady upward progression. It's just that the trajectory is a little bit lower than we had expected six months ago.  It’s a relatively minor adjustment but this is a prudent adjustment we feel at this point in time.”

The Joint Fiscal Committee met Monday to determine how to close the budget shortfall in the General Fund of $21 million.   Committee member Democratic Senator Dick Sears explains that they were able to close the gap using unspent Medicaid money.  “What happened was we spent less than we anticipated in Medicaid in 2016. That allowed us to keep the fund alive for the fifty third week and also to make up for the twenty one million.”

Democratic Representative Janet Ancel, the Ways and Means Committee chair, says they were able to use Medicaid funds without compromising the program.  “Our pharmacy benefit manager was able to get additional rebates. The higher rebates is money that we get back from the manufacturers that goes into our Medicaid program and so that was a chunk of money. The other things in Medicaid were that we made conservative estimates about how much we were going to spend in Medicaid and so you know spending a little bit less still amounts to some real money.”

Critics point to the downgrade and need for a budget rescission as an example of the state’s brash out-of control spending.  House Republican Leader Don Turner says the state’s spending has continually outpaced revenues.  “Even before the end of the last fiscal year when we were voting on the budget for this year I had projected, based on data from everyone, that the revenues were going to be downgraded and that we shouldn't be spending as much. We should be you know leaving a little money in reserve. We can't lose sight of Vermont’s spending problem and that's what's going on here. You know the last biennium the majority under Governor Shumlin raised 95.3 million in new taxes and yet we are still finding ourselves in a place where we're spending far more than the revenue will produce. We have to rein in the spending. It's not a revenue problem. It's a spending problem.”

But Representative Janet Ancel disagrees with that interpretation of the downgrade.  “The summary they gave us is that we're continuing to recover, the economy's continuing to grow but it's doing it slowly. Good news that we're spending less. I think that's lost in some of the news reports. Actually spending will be less and revenues will be less.”

The governor’s administration can make its own budget adjustment if a revenue downgrade is below 1 percent.