I write to you because legislation dealing with state spending and taxes are first considered by the House of Representatives. Truth be told, the current fiscal dysfunction of state government has been a tri-partisan affair. All republicans and democrats on the House and Senate Appropriations Committees voted favorably for the current 2016 budget. Now, near halfway through the fiscal year, that budget appears seriously out of balance by about $40 million. Similarly, the school consolidation bill, now Act 46 and driving school boards nuts, was supported favorably by all House and Senate Education Committee members on a tri-partisan basis.

During the Dean administration, we worked very hard to successfully build centrist support for the Governor's common sense positions on state spending and education funding. Now that the public sees the fumbled roll-out of the 2016 budget and Act 46, hopefully these matters can be revisited in the coming legislative session and that you can organize a "coalition of the sensible", including corralling your own caucus as well as moderate democrats and mindful progressives, to unwind the poor choices recently enacted.


In addition to the budget and Act 46, the accumulation of credit authority and interfund borrowing from the state's cash flows is another risky fiscal adventure, especially as the 2016 budget adjustment and the 2017 budget seem on track to further Vermont's fiscal train wreck. You might consider a provision in the 2016 budget adjustment that walks back the use of these newly created lending authorities and requires that any unused authority allowed the Treasurer pursuant to Act 199 of 2014 be rescinded.

Vermont's budget stabilization reserves were established to better accommodate annual fluctuations in state revenues as well as buffer general, transportation and education fund appropriations during revenue shortfalls. They are especially important to Vermont's most vulnerable as a stabilizing resource supporting program appropriations. These supposedly undesignated reserves are embedded in the cash flows of their respective funds. At their origin, it was never conceived that these reserves be utilized as pools of cash for loans to fund expansions of state programs. Unfortunately, over recent years the legislature and administration now obligate these funds for terms up to 10 – 12 years. Thus, should an economic downturn or revenue short fall squeeze the state's cash flows, rather than cash available to underpin appropriations, Treasurer Pearce now holds loan receivables that are not useful to that purpose.

First, Act 179 of 2014 allowed the Treasurer to execute an interfund loan to the Retired Teachers' Health and Medical Benefits fund (RTHMBF) in an amount up to $30 million. Here's a link to this statutory provision (see Sec. E.514.1) and a power point slide profiling the associated cash flows on page 12.

Further, Act 87 of 2013 Section 8 as amended by Act 199 of 2014 Sections 23-25 allows the Treasurer, in addition to that authorized above for the RTHMBF, to create credit facilities equaling 10 percent of average monthly cash flows. The calculation of this percentage equates to about $35 million.

Given the above, the loan authorizations from cash flow amount to $65 million. Keeping in mind that the general fund budget stabilization reserve target is just over $70 million for fiscal 2016, one can see that authorized interfund loan and credit facilities relative to this target are sizable.

A few observations.

First, as noted above, budget stabilization reserves are not available for their intended purposes when they are simultaneously committed to interfund loans and credit facilities.

Second, state government already sponsors and funds programmatic areas such as affordable housing and energy efficiency, among the targets for these new "credit facilities". The establishment of another layer of effort in these areas at the Treasurer's Office is an unnecessary and duplicative expansion of state bureaucracy that end runs the appropriations process.

Thirdly, the interfund loan to the RTHMBF is specific to the general fund while the 10 percent provision of Act 199 is more generally stated at "10 percent of average cash balance". However, given that the "average cash balance" intermingles cash from restricted/dedicated funds such as Federal Funds, Special Funds, Transportation Funds, Education Funds, Fish and Wildlife Funds, among all others, such restrictions may limit the interim use of these funds for loans beyond their statutorily established purposes. Thus, should the state's cash flow get squeezed, the burden of these loans from cash flow will primarily diminish the general fund stabilization reserve.

Hopefully you can bring together a "coalition of the sensible" so that legislation leaving the House for the Senate in areas such as those profiled above gets Vermont back on a sensible, less risky fiscal track.

This commentary is by Tom Pelham, formerly finance commissioner in the Dean administration, tax commissioner in the Douglas administration, a state representative elected as an independent and who served on the Appropriations Committee, and now a co-founder of Campaign for Vermont.