[G]ov. Phil Scott’s administration projects that Vermont will see revenue increases topping $30 million in fiscal year 2020, but all of it— and likely more—will go toward covering accumulating debts, including an increased payment to the state’s massive teacher pension liabilities.
The state will need to spend roughly $40 million more on debt payments in the next fiscal year than it will this year, according to Adam Greshin, commissioner of the Department of Finance and Management.
“For all this new revenue coming in, all of it, and more, is already spoken for,” Greshin told legislators Thursday at a meeting of the Joint Fiscal Committee in Montpelier.
About half of the increased debt burden stems from a scheduled $20 million boost in the state’s annual payment towards retired teacher pension liabilities, which were at the heart of Moody’s decision last month to drop Vermont’s triple A bond rating.
The state will also need to spend an additional $6 million on medical benefits for retired teachers, $6 million on state employee pensions, and $7 million on debt service payments, Greshin said.
These pension liabilities have ballooned in recent years, which Greshin said was the result of bad decisions years ago “that have come back to bite us.”
In July, factors including a soaring economy and increased corporate tax income following federal tax changes enacted last year, led the state’s Emergency Board, the body that sets official revenue forecasts, to adjust projections from January to reflect an additional $18 million in revenue in fiscal year 2020.
The Scott administration says it is also expecting an additional $14 to $15 million in surplus from “normal budgetary processes” like increased income from business licensing and dealer fees.
“So in the good times things are happening as they normally do,” Greshin said. “But our liabilities are also increasing at a rate that is eating up, substantially, all of our additional revenue.”
Next year’s debt obligations are on the minds of Scott administration officials as they craft their budget proposal for fiscal year 2020, which they will present to lawmakers in January.
The increased teacher pension liability payment doesn’t come as a surprise to state budget writers, who have been prioritizing the debt in recent years.
“It’s a pressure, but we knew the pressure was coming and it was a plan that was put in place and it’s going to use a lot of available revenue,” Rep. Kitty Toll, D-Danville, chair of the House Appropriations committee, said following the meeting.
In the 1990s and early 2000s, former governors and the Legislature failed to address the debt head on, which has caused it to swell. While it was less than $400 million in 2008, it grew rapidly to $1.5 billion by 2017.
“I wish that we didn’t have that obligation and they had put in the money back in the nineties and early 2000s, that they had paid the obligation and kept it up to date, but they didn’t,” Toll said. “So we’re paying the burden now, but we’ve got to do it.”
Last year’s budget fight between the governor and the Democratically controlled Legislature centered on the issue of the pension debt.
While the Legislature hoped to put much of a large surplus towards paying down more of the debt, and eliminate some of the interest taxpayers would pay down the road, the administration wanted to use the money to buy down property tax rates.
The budget that ultimately passed was a compromise, dividing the surplus for both purposes.
The discussion about how Vermont should address its debts going forward will likely stay on the frontburner in Montpelier, and come up frequently in the next legislative session.
“This whole debate over how we’re going to deal with the liabilities is going to be a big deal,” Greshin said.
Correction: A previous version of this article incorrectly attributed the projected $7 million in additional debt service payments to the state’s credit rating downgrade. The two are unrelated.