The Crippling of State Government

As Vermont turns toward winter, cold winds blow over more than just our beloved landscape.  The holes in our state budget are now open windows not easily shut against cold realities. Despite last year’s $30 million general fund tax increase, we once again face another year of general fund over-budgeting ranging from $90 million to $130 million. By the time we get to January and the start of the next legislative session, both those who rely upon government services and taxpayers who fund government services will feel the chilling squeeze of the fiscal vice our statehouse leaders have crafted.

The Medicaid/global-commitment budget alone has grown (with more to come) by $310 million to $1.38 billion since 2011, equaling an annual growth rate of 5.2 percent. However, as one-time federal stimulus funds totaling over $110 million used to support this growth diminished, state general funds increased 187 percent from $72.5 to $208.7 million to fill the gap along with rapid growth in other state funding sources such as Special funds and State Healthcare Resources Funds. But it gets worse; we now learn even more money is needed. The Joint Fiscal Office (JFO) reports looming Medicaid shortfalls of $105.8 million ($38.1 million in general funds) in the current year and $133.2 million ($58.2 million in general funds) in fiscal 2017.

Inclusive of the projected 2016 shortfall, the Medicaid/global-commitment spending since 2011 tracks at a deeply troubling 6.8 percent annual growth rate.

Further, the VtDigger article linked below profiles the management chaos at Vermont’s rapidly expanded Medicaid program. Vermont’s top fiscal officers reveal that, “Medicaid has been auto-re-enrolling folks because of the difficulties of the exchange. It makes the forecasting really difficult.” says JFO’s Stephanie Barrett. Barrett reports that exchange difficulties resulted in a federal waiver that keeps more people on Medicaid without confirming whether they were qualified.

In return for such fiscal largesse and management chaos, what have Vermonters gained? Well, the needle tracking the number of insured Vermonters has moved slightly favorable from 93.2 percent in 2012 (1st in the nation) to 96.3 percent, now 2nd in the nation. But, along with this slight improvement came the 46.5 percent growth in state sponsored health care plan enrollments from 139,900 in 2011 to 205,000 or one-third of all Vermonters today, in part because certain private insurance plans were outlawed by statehouse leaders in favor of taxpayer funded plans.

Such fiscal uncertainty was avoidable if Governor Shumlin, Speaker Smith and other legislative leaders had taken their fiduciary responsibilities seriously. As an example of being responsible, during the 1995 legislative session Governor Dean recommended and the Legislature passed the Vermont Health Access Program (VHAP), Vermont’s first major expansion of Medicaid. Then, unlike today, fiscal accountability was a paramount concern. We included in the VHAP law this “manage to the money” requirement to prevent revenue shortfalls.


(a) Enrollment in the health access program shall be limited by the amount of money available for that purpose in the Vermont Health Access Trust Fund established in Sec. 9 of this act. The office of Vermont health access shall track enrollment on a monthly basis to assure that enrollment does not exceed either appropriations or the capacity of the health plan to serve enrollees.

(b) The oversight committee shall monitor the implementation of the health access program as required in Sec. 13 of this act. “

Given the sad shape of our state budget and the fiscal tourniquets on areas less favored than healthcare like Higher Education, the Judiciary and Commerce and Community Development, among others, it’s time for state house leaders to give healthcare expansion a rest and maybe, of necessity, take a step or two back. These days there is little appreciation under the Golden Dome that taxpayer dollars are a precious and scarce resource. Their credit card approach to expanding taxpayer funded health care is crippling state government.

A step back might include the following. During the 2004 state budget process, Representative Patti O’Donnell (R-Vernon) and I (I-Calais) sponsored legislation to revamp the co-pay and premium system for Medicaid. Our proposal was to make the system more progressive with premiums based on the ability to pay while diminishing regressive co-pays. Premiums were to be paid prospectively rather than retrospectively. This proposal received broad bi-partisan support in the House and Senate and was signed by Governor Douglas. In a thank you note, then lobbyist for the Council of Vermont Elders and now State Senator Michael Sirotkin recognized the progressive benefits of the new law. He wrote, “We’ve been trying to raise that point for a long time, but this was the first time through this premium model that it was expressly noted.” You can read this legislation here starting in Section 146 (d).

As the last recession took hold, the Douglas Administration established Tiger Teams, one of which focused on Medicaid. ”A Path to Medicaid Savings” was published in December, 2009. The members of this Tiger Team, an accomplished bunch including key managers of the Medicaid EDS system at the Agency of Human Services, a representative from Blue Cross Blue Shield, and Sarah Clark, a rising fiscal star recently appointed Chief Financial Officer at the Agency of Human Services, among others. One area the Report explored was whether the premium system established in 2004 had been updated for inflation and program expansion over time. They found that it had not and therefore offered an opportunity for enhanced revenues to support Medicaid. Their easy- to-read report can be found here:

The Executive Summary reads in part:

“The original goal of the EDS/Medicaid Tiger Team was to identify expense reductions or revenue enhancements that save 5% ($50 million) of the $1 billion total spending in FY09. We believe this paper identifies options of this order of magnitude. While substantial and specific amounts of savings have been identified, more importantly the EDS Tiger Team has developed an approach that will help guide Medicaid’s programmatic and financial managers towards reaching fundamental fiscal goals and contribute to resolving Vermont’s current economic crisis while sustaining as best as possible Vermont’s relatively high standing among states in the health care arena.”

Unfortunately, with the “easy money” of one-time federal stimulus funds in hand, Governor Shumlin and the Legislature abandoned this Tiger Team effort and other budget reform opportunities like Challenges for Change, a legislative initiative. To abate the fiscal pneumonia now threatening state government, maybe it’s time to put away the credit card and revisit some of these cast aside reform opportunities.  

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.

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