Sullivan: The danger in found money

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The central question before the Legislature this week was what do we do with this $1.3 billion Vermont has been given to address pandemic costs through the federal CARES Act. Some of my colleagues have viewed this unexpected cash infusion (and the expected additional federal dollars to come) as a windfall of sorts, and the conversation the last few weeks has strayed at times towards how we can use these funds to address projects or needs only indirectly related to the current health and economic crisis. Some monies are likely going to be directed by the legislature to rescue the state college system. Other conversations, however, have centered on using funds to address climate change initiatives and even public pension program reform. The "wish list" is long.

It's only natural — as we have seen over the years with respect to other federal program monies (such as Medicaid) — for both the legislature and administration to construct arguments as to why ordinary and recurring budget expenses ought be subsumed within federal appropriations. That sort of cost shifting makes more "General Fund" revenue dollars available to be spent on the rest of the budget, a need particularly acute this year given that our tax revenues will unquestionably plummet.

But under the CARES Act, spending for costs not sufficiently related to the pandemic in order to lessen general budgetary pressures is not legal, and the likelihood that we are going to make mistakes as to how we spend these pandemic dollars — or worse, be too cute or creative in constructing arguments to support the spending — presents a direct threat to taxpayers in Vermont.

Under the CARES Act passed by Congress weeks ago, Vermont is allowed only to spend dollars to address "necessary expenditures" caused by the coronavirus crisis. Expressly baked into the appropriation to Vermont is the further direction that the dollars cannot be used to cover costs already approved in the state budget. That means no budgetary sleights of hand are allowed. And, in the same section of the law, states are warned that the Inspector General of the Department of the Treasury (the home of our friends at the IRS) will be watching and that violations will be booked as a Vermont debt to the government. That, in turn, could conceivably be used to reduce future emergency appropriations that we may desperately need later in the year.

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So there's danger ahead. If arguments are too aggressively advanced to support the current legislative plan as to how we spend this "found money," the monies will eventually be spent on programs under the cloud of a potential "claw back" of the funds by the Feds. I believe it imperative that both the legislature and the administration be conservative as to approved expenditures.

Substantial questions remain as to what lies ahead of us in the fall and winter months, and we certainly cannot afford incorrectly to spend today in a way that will cause the U.S. Treasury to impose a debt on us. I suspect many share the concern that the current administration in Washington is not going to benevolently overlook spending errors. And, if we are subject to a clawback, there's not likely an easy way for us to recoup monies from the beneficiaries of our programs. That means the obligation caused by spending errors will practically shift to all Vermonters, as taxpayers.

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So, how do we address this issue? One option — something that is not likely to occur for practical and political reasons — is for the administration to veto the legislature plan if it contains program expenditures that are questionable under the CARES Act "necessary expenditure" test. I'm not seeing Gov. Phil Scott doing this, as there is not a "line item" veto provision that would allow the Governor to table more extreme measures. Vetoing the entire bill would be political suicide and, in the current circumstances, entirely inappropriate.

Having said that, it is a basic principle in our federal scheme of government that federal law runs supreme, and I would think — and this would apply whatever the political leanings of any current governor — that a state's executive branch would as a matter of law be constrained from spending federal dollars in a way that violates federal law, no matter what direction it is given by its legislature. That's baked into the constitutional scheme of government we are all sworn to uphold, and I would think Gov. Scott would have the right to make individual determinations of whether Vermont was in compliance with federal law before spending federal monies. (Some state governors are not even recognizing their legislatures right to direct pandemic spending, a path Gov. Scott wisely chose not to take).

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A decision by the administration not to spend dollars the General Assembly directs to be spent, of course, would likely cause in this election year ugly political disagreements and posturing, plainly the last thing anyone needs.

My inclination, as I have said before in other contexts, is towards direct and intense collaboration between the General Assembly, the Governor and, in this instance, the Treasurer. If we constructed a "certification" system, whereby acting together these three players would act as a gatekeeper of sorts, formally papering how the expenditure was both "necessary" and not a disallowed budgetary cost shift, we would be far ahead in terms, first, of ensuring that we are in fact in compliance with the law and, second, of being able to defend against a potentially devastating claw back.

There is no planned creation of such a certification system in the law we have been working on these last few weeks. But that doesn't mean that the Legislature, administration and treasury could not simply agree to do so among themselves. It would not slow much needed legitimate expenditures, it would protect individual Vermonters from even more tax increases caused by spending mistakes. Ultimately, it's the "good government" thing to do.

Linda Joy Sullivan (D-Dorset) represents the Bennington-Rutland district in the Vermont House of Representatives, including the communities of Danby, Dorset, Landgrove, Mount Tabor and Peru.


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