CRONY CAPITALISM: Gov. Peter Shumlin’s new Enterprise Investment Fund not only raises issues of favoritism, but it also may deplete Vermont’s rainy day fund.
By Bruce Parker | Vermont Watchdog
Gov. Peter Shumlin’s plan to offer IBM $4.5 million to stay in Vermont — along with 4,000 jobs — raises serious issues of favoritism and politicking.
But as Secretary of Administration Jeb Spaulding told Vermont Watchdog, finding ways to allocate that cash has been a difficult balancing act — one with possible consequences for other state funds.
“It’s a little bit complicated,” Spaulding said when asked how the state would appropriate the $4.5 million.
“There may not be sufficient funds to replenish the $5 million in the General Fund Balance Reserve.”
While the General Fund Balance Reserve — Vermont’s rainy day fund where Shumlin’s IBM money is parked — currently holds more than $6 million, lawmakers expect revenue surpluses to replenish money spent on keeping the tech giant in Essex Junction.
In fact, they attempted to ensure it. According to an obscure provision of the 2015 Appropriations Act, surplus funds that would typically to go to the Higher Education Trust Fund must replenish the General Fund Balance Reserve first.
It appears now that neither fund will receive capital.
“What this does say is before you put the money in the Higher Ed Trust Fund, you have to at least ensure there is a balance of $5 million in the General Fund Balance Reserve,” Spaulding said. “So, it was allocating money that could have gone to the Higher Ed Trust Fund. It’s just, the way this worked is the money’s not there for either of those things.”
Although $4.5 million is a drop in the bucket for a multibillion global firm like IBM, it’s a pricy giveaway for Vermont, which has experienced significant revenues misses in recent months and could finish the year in the red.
As Spaulding noted, the lack of a surplus could strain the General Fund Balance Reserve. It’s less certain what a revenues miss would do to the Higher Education Trust Fund.
Tim Donovan, chancellor of Vermont State Colleges, said Spaulding alerted him on June 4 that surpluses might not be available to allow new capital into the Higher Education Trust Fund.
“There are several things that have to be satisfied before money goes into the Vermont Higher Education Trust Fund. The first is estate taxes need to be 125 percent more than projected, and the second is the General Fund Stabilization Reserve (must be) fully funded to its required statutory level,” Donovan told Vermont Watchdog.
While sagging tax revenues signal trouble for Vermont’s rainy day fund, they also may impact student scholarships.
Joyce Judy, president of the Community College of Vermont, said scholarships increasingly are important because colleges receive little state money for higher education. Judy said only about 15 percent of tuition is funded by the state. The rest is paid by the students.
“Any time we can support students with scholarships to help offset the cost of education or offset them taking out loans is a benefit,” she said.
Judy said students pay about $700 per three-credit-hour course at Community College of Vermont. The Higher Education Trust Fund helps students pay those costs, offering nearly $400,000 annually to Vermont State Colleges, the University of Vermont and Vermont Student Assistant Corp.
No matter how the lack of a surplus might affect these funds, Spaulding made one thing clear: Shumlin’s IBM fund is ready to go.
“There’s no doubt about that. That’s a done deal,” he said.
In addition, he clarified that no money is being taken out of the Higher Education Trust Fund. Instead, new funds may not get added to it.
“There’s no guarantee that the Higher Ed Trust Fund was going to get anything this year anyway. But what the Legislature did was say, ‘Ok we realize we need to be aggressive at trying to attract and retain jobs. We agree with the governor that the $4.5 million Vermont Enterprise Investment Fund is compelling and we want to support that.’”
“We’ll take the money out of the rainy day fund, the surplus reserve, and to the extent there are additional surpluses at the end of the fiscal year, the first (goal is) fill that up before it goes to the Vermont Higher Ed Trust Fund. So there’s a connection there. It’s not clear it’s going to happen, though. It may be that the surplus reserve is not going to get replenished.”
Contact Bruce Parker at email@example.com