Woolf: No bailout this time

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(HOST) Commentator Art Woolf has been thinking about the economy, the recent legislative session, and what lies ahead for the state budget.

(WOOLF) One year ago, the bottom was just beginning to drop out of the economy.  Gas prices were over $4 per gallon and it looked like the big story for the winter would be the skyrocketing price of home heating oil. 

Then, suddenly, that story vanished as energy prices plummeted and our attention turned to a different, and larger, problem-the escalating financial crisis that by October had morphed into a full-blown economic crisis that pulled the nation into a deep recession. 

The recession caused Vermont’s tax revenues to plummet, and it looked like this would be one of the most difficult sessions in anyone’s memory.

And that seemed to be how the 2009 legislative session played out.  The legislature and governor tangled over a budget that the governor eventually vetoed– the first time in the state’s history that had ever happened.  Then the legislature overrode the veto by the narrowest margin possible.  High drama in Montpelier.

Was this as difficult a legislative session as it seemed?  No, not really. 

It was actually pretty easy to balance the state’s budget.   Tax revenues did indeed plummet, and this year’s state tax revenues were $100 million less than last year’s.  In the budget that was vetoed and then overridden – the budget for fiscal year 2010 – tax revenues are projected to be down another $60 million. 

So how did the state balance its budget?  Like in an old Western, the cavalry appeared at the last minute.  But instead of soldiers on horseback, the cavalry was federal money doled out to all the states. 

How much?  Vermont got $75 million federal stimulus money to balance the current year’s budget and $175 million to balance the vetoed and overridden 2010 budget.  Those are huge sums. 

To put that in perspective, if the state had to raise taxes to generate $75 million, it would have to raise the state’s 6% sales tax to 8%.    Or it would have to cut spending on road paving and maintenance by nearly half. 

$175 million would mean raising income taxes by one-third or eliminating all funding for UVM, the State Colleges, VSAC, and one-third of the state’s general fund spending for K-12 education.

Next year’s problem is that the cavalry won’t ride to the rescue when the legislature meets in January.  There will be about $100 million left-over federal stimulus money to help balance the 2011 budget.  But even that will still leave a $70 million budget hole.  And the following year, there won’t be any federal stimulus money at all.  Vermont will be left to find our own solution to the projected $140 million deficit.

To put it mildly, the next three years will most likely be the toughest the Vermont legislature has faced in decades.   That’s going to mean very painful choices:  significantly higher taxes or deep spending cuts or a combination of both. Vermonters, and our elected officials, would be wise to start preparing for that reality sooner rather than later.

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