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Column: Frugality Falls Out of Fashion in Vermont

Frugality and moderation — these words seem out of style today, certainly in regard to government spending. Yet, frugal people know moderation trumps wastefulness and sloth, and that the day-to-day decisions of a cautious buyer promote long-term financial health. The maxim “a penny saved is a penny earned” has value when applied to life’s choices, ranging from home energy efficiency and car mileage to house sizes and mortgages to the purchase of quality food over junk.

Vermont’s constitution speaks to these virtues. Article 18 reads in part that “a firm adherence to justice, moderation, temperance, industry, and frugality, are absolutely necessary to preserve the blessings of liberty, and keep government free; the people ought, therefore to pay particular attention to these points, in the choice of officers and representatives.”

Vermonters have experienced the unhappy consequences when its officers and representatives stray from theses virtues. Gov. Madeleine Kunin is rightfully recognized for her many strengths during her three terms from 1984 to 1990, but frugality was not among them. In the six years prior to 1991, state general and transportation fund spending grew at an annual rate of 9.2 percent before crashing into the 1990-1991 recession. The damage, lasting over eight years, included the downgrade of Vermont’s bond rating and the undermining of many important state programs. Fiscal stability was restored with the subsequent leadership of Govs. Richard Snelling and Howard Dean. In the eight years following 1991, general and transportation spending grew at the modest rate of 2.6 percent. By 1999, Vermont’s bond rating was repaired and investments in important new initiatives, from health care (Vermont Health Access Program) to land conservation (protection of the Champion forestry lands) were affordable.

Through most of the last decade, our “officers and representatives” acted on the wisdom of frugality and moderation. The practical application of these virtues was called “sustainable spending,” which allows the state budget to grow at rates matching realities in the underlying economy, from which state government extracts its revenues.

More recently, however, our leaders have abandoned sustainable spending. Since 2008, Vermont’s population grew by less than 1 percent, those employed actually dropped by 1 percent, median household incomes were unchanged (though wage growth was up by 7.8 percent), inflation grew by 8.6 percent and the education grand list’s value dropped by 3 percent.

In striking comparison, total state spending grew by over 22 percent (up $909 million) and the two largest cost centers of state government, human services and education, grew respectively by 29.2 percent (up $472 million) and 11.2 percent (up $140 million). The continuing decline in student enrollment (down 6.2 percent) drove education spending per student up by 15.4 percent while property taxes rose by 17.6 percent (up $124 million).

In two ways, our state leaders missed opportunities to avoid the imbalances described above. First, from 2009 to 2011, Vermont received over $930 million in federal “stimulus assistance” to bolster the economy and protect the most vulnerable. But, rather than use these funds in a measured way to maintain existing benefits, programs such as the one offering home heating assistance were expanded. With one-time federal revenues now no longer available, our expanded state budget is now structurally out-of-balance and as proposed for fiscal 2014 relies heavily on high risk revenues such as prior year “carry forwards,” diversions from the transportation fund, the expropriation of Catamount fees assessed on small businesses, diversions from a program benefiting the working poor (the Earned Income Tax Credit) to child care, and revenues from break-open tickets, among others.

Secondly, minimizing a recession’s fallout requires leaders to exercise a firm fiscal hand during a recession consistent with a forward-looking exit strategy. If weak hands prevail, as they have, the grip of the recession hangs on longer. The firm hand must include reforms that make government more fit and prepared to engage the future as the recession recedes. Unfortunately, with millions of one-time federal dollars available, decision-makers sidestepped available choices to better position state government. These choices, including K-12 education reforms and Challenge for Change and Tiger Team reforms, offered tens of millions in savings opportunities.

Our current leaders might hope that their fiscal choices will go unnoticed and without consequence. But, before our eyes we see the state lurch from “budget gap” to “budget gap.” We see no real action, for example, on education reform that puts children and property taxpayers first while yielding savings. Yet, our “officers and representatives” among them Republicans, Democrats and Progressives, can’t run fast enough with Vermont’s checkbook in hand to satisfy special interest lobbyists.

But the day always comes when fiscal imbalance demands resolution, and it’s never pretty. At the end of this legislative session, Gov. Peter Shumlin may be face to face with his fiscal legacy. Let’s hope he can get “tough things done.”

Tom Pelham was finance commissioner for Gov. Howard Dean and tax commissioner for Gov. Jim. Douglas. He served on the Vermont House Appropriations Committee when he was elected as an independent from Arlington. He is a co-founder of Campaign for Vermont, an organization that seeks nonpartisan ways to promote progress and prosperity in Vermont.