Gov. Phil Scott won’t unveil his proposal for next year’s state budget until January, but he’s already told members of his cabinet that he wants to keep spending increases below the rate of inflation.
In a memorandum that went out to secretaries, commissioners and department heads earlier this month, Scott’s Commissioner of Finance, Adam Greshin, said the government needs to “moderate” a spending trajectory that’s risen sharply since the beginning of the COVID-19 pandemic.
He said the Republican governor has determined that process will begin in the next fiscal year, by limiting year-over-year increases at all government agencies to no more than 3%.
Since that figure is less than the rate of inflation, Greshin said in an interview with Vermont Public Tuesday, the directive will likely require cuts to existing programs and services.
“What we have to do is look at all the programs we deliver and decide which are more important than others,” he said.
Vergennes Rep. Diane Lanpher, the Democratic chair of the House Committee on Appropriations, said adhering to a 3% spending cap would be “extremely difficult” due to inflationary pressures alone. Factor in a housing shortage, a health care system under duress and summer floods for which economic losses have yet to be fully tabulated, and Lanpher said the governor’s spending target could become even more untenable.
“Most if not all state government is struggling to keep up with the … increasing demands on them to respond to the needs that Vermonters want us to respond to,” Lanpher told Vermont Public. “So I am very concerned with Vermont being able to be up to date with the true costs of what it cost to run state government.”
Greshin said the governor understands the difficulty of the task he’s presented to agency heads.
“We acknowledge in the budget instructions that this is going to be a challenge. I mean, we don’t sugarcoat that,” he said. “We’re aware that inflation and wage gains and program costs are moving up.”
Greshin said Vermont has also reached the upper limits of what taxpayers have the capacity to support. Over the last four fiscal years, Vermont’s total state budget has jumped from less than $6 billion to more than $8 billion. In May, lawmakers overrode Scott’s veto of a fiscal year 2024 spending plan that relied on a 13% increase in general-fund spending.
Greshin said the federal stimulus bills and accompanying spike in state revenues that supported those budgets are no longer in play. And he said Montpelier needs to recalibrate accordingly.
“We’ve been able to choose Door A and Door B and Door C in some cases. But I think we’re reverting back to a budget cycle that is very much in keeping with historical trends, and that is we have limited growth and resources and we have to focus on what our priorities are,” Greshin said.
We acknowledge in the budget instructions that this is going to be a challenge. I mean, we don’t sugarcoat that. We’re aware that inflation and wage gains and program costs are moving up.Adam Greshin, Commissioner of Finance
Asked whether the Scott administration has identified existing programs or services that aren’t central to the core mission of government, Greshin said that’ll be a choice that secretaries and commissioners have to make.
“I’m not prepared to go and tell you where we’re going to emphasize and where we’re going to de-emphasize,” he said. “I think that’s something that’ll come out in the budget cycle.”
Greshin said the governor has also made it clear to agency heads that he won’t entertain an increase in taxes or fees to bring revenues in line with expenditures.
“I think we always have the issue of resource confinement, and it always makes budgeting difficult,” he said. “But … we believe we have ample resources to carry out the necessary functions of government and to achieve the priorities the governor set on the table. We don’t need new resources.”
During the last legislative session, the Democratically controlled Legislature raised both fees and taxes — including a new payroll tax — to support increases in Medicaid reimbursements for community health providers, and a boost in subsidies for child care.
Lanpher said increasing revenue streams via new taxes and fees, while never a first resort, can be an important tool for elected officials to deploy. A preemptive strike against that approach by the governor, she said, “is definitely putting a limit in the creativity of his own staff and employees of the state to say … 'How could things be addressed?'”
Lanpher said Vermonters know that services like child care, health care, climate action and housing are expensive propositions. But she said they’ve also demonstrated a willingness to pay for them.
“You ask Vermonters, ‘What would you like?’ They told us loud and clear — ‘We want child care … We want housing. We want a better health care system,’” Lanpher said. “We get our desire for these things from the people we serve. They tell us what they want.”
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