Politically Thinking: State faces a daunting fiscal future

Researchers at the Federal Reserve Bank of Boston recently published data on state and local public finances in the six New England states. Vermont’s combined state and local government spending was $8,500 per capita in fiscal 2007, the most recent year for which comparable data is available for all the New England states. This was the highest per capita expenditure in the region. In the same year, Vermont’s median household income was the second lowest in New England, above only Maine, and 20 to 25 percent below that in New Hampshire, Connecticut and Massachusetts.
Vermont’s high spending rate is due primarily to K-12 education, where Vermont spent $2,118 per capita, the second highest amount in New England. The percentage of Vermont’s population under 18 is the second lowest in the region. Vermont’s high education expenditures are a consequence of a relatively small number of school-age children spread across a large number of districts with low-enrollment schools. In Maine, where the population density is lower than in Vermont, the per capita expenditure on K-12 education is 20 percent less than in Vermont. The difference is that Maine’s rural schools tend to be larger than Vermont’s. Maine spreads the fixed costs associated with running a school building across a larger number of students than Vermont.
A second area where Vermont’s per capita expenditures are well above the New England average is transportation. The costs of maintaining the state’s highways, in a more adverse weather environment than in southern New England, are spread across the smallest population of any of the New England states.
Social welfare expenditures in Vermont, while about 5 percent higher than the New England average, are lower on a per capita basis than in both Massachusetts and Maine. One of the most interesting findings of the Boston Fed study is that while 25.4 percent of Vermont’s population was enrolled in Medicaid in 2007, the second-highest percentage in New England, Vermont’s Medicaid spending per enrollee was by far the lowest in New England. In 2007, Vermont spent $5,394 per Medicaid participant, 25 percent less than the New England average of $7,215 per participant. Vermont’s lower per-person Medicaid expenditures are a direct result of the state’s efforts to expand preventive care through initiatives such as the Blueprint for Health over the past decade, and to develop alternatives to nursing home care through the Choices for Care program.
On the revenue side, the Boston Fed’s data show that Vermont received by far the most federal funds per capita of any of the six New England states. More than 26 percent of the dollars spent by state and local governments in Vermont in 2007 were provided by the federal government. The New England average for this measure was 19 percent. Thus, while Vermont spent the most money per capita of any of the six New England states, when it comes to expenditures paid out of state and local revenues, Vermont’s spending was below the average for the New England region.
The Boston Fed report identifies several challenges for Vermont’s policymakers. One is bringing per capita education costs down toward the regional average. This would likely require consolidating some of the state’s small elementary schools. A second challenge is coping with upcoming cuts in the federal budget, especially grants to states for highways, health and social welfare programs. As the New England state most dependent on federal dollars, Vermont faces daunting budget hurdles as federal spending is almost certain to be cut back, perhaps significantly, in the years ahead.
Eric L. Davis is professor emeritus of political science at Middlebury College.

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