IT IS THE NATURE of the economy that just as the experts are saying we have begun the "turnaround" from a national recession, states and local budgets are just beginning to feel the full impact of the events that began several years before.

Last year, in the wishful thinking that Vermont's economy might stabilize before the federal bailout money ran out, the legislature override the governor's veto of a budget that would have made deeper cuts than those by the legislature. He had worried that the cliff we faced otherwise for next year was almost certain to be steeper.

It is a chasm we now face for the FY 2011 budget. Our general fund revenue (our state income through taxes) dropped from a high of almost $1.2 billion in 2008 to $1.03 in 2010.

Although it is forecast for a slight increase in the coming fiscal year (2011) to $1.082 billion, that will be with a significant drop in the federal support. That number is at our 2005 revenue level, but up against all the increased cost pressures since then.

To balance the budget, without even discussing property taxes and the losses in the education fund, will require eight percent in new cuts in all state services this coming year, and 12 percent by next year.

Because most human services spending is matched two-to-one by federal funds, the governor's first round draft budget required all such programs to project a 20 percent funding cut.

Now is the time to give your representatives and senators - and your school board - your input on the inevitable struggle between massive cuts in services and tax increases.

Neither option is where anyone wants to go, but the facts will demand decisions.

I am going to plunge into sharing some of the data presented to legislators in a three hour session last week. (Attendance was optional and it was not paid time.)

If it's more than you want to know, you can drop out at any point, but I want to at least offer more detail than what television sound bites or even daily newspaper articles are able to supply.

The spending versus the revenue details, and comments on my own priorities, will be split into two weeks.

Increasing pressure will be on the school budget planning that is currently underway. Through one mechanism or another, and perhaps in multiple ways, the state will almost certainly reduce the amount of the state general fund that goes to towns for schools to supplement the property tax.

At the same time, the grand list - the value of property in Vermont - has dropped for the first time ever.

As a result, if school budgets were all level funded, property taxes will still be likely to go up because the tax rate is likely to increase. In addition, the general fund currently contributes 26 percent of its total revenue to support the education fund.

Two weeks ago, a joint letter was sent by the state's Education Commissioner and Finance and Administration Commissioner to all school boards and administrators. It identified the recommendations that will be made to the legislature in January to cut back general fund contributions to the education fund.

Across the state last year, despite rising costs, most schools ran tight budgets with small increases. This year, if school budgets are not actually reduced, "property taxes will raise to unacceptable levels," the letter predicted, and many budgets will be voted down.

It urged districts to plan tightening budgets now, when planning can be more thoughtful, rather than scrambling for cuts after budgets are rejected.

It is not fair to leave your local school board - volunteer fellow citizens - trying to guess what the priorities should be, and what the tolerance level is between taxes and cuts.

Now is the time to share your perspective directly on how to weather this financial storm in the context of also maintaining quality education.

Reductions forecast from the state general fund will devastate the very infrastructure of parts of what Vermont has built over decades. We have held to a value system of a large community that helps neighbors in need. It has been built, too, on working towards prevention, or early intervention, of crises, saving both harms and higher costs.

Losses now will clearly cause harm, and cost us more in the long term. As a simple example of a dramatic impact that has already occurred: Burlington's police chief is on a crusade to demonstrate why community mental health budgets must be restored and increased.

He says that police incidents, both in numbers and severity, with persons with mental illnesses are increasing dramatically - because they have lost access to the supports they need to stay well.

He fears a tragedy that could propel a reactive change in state policy to return to more institutionalization instead of community support, at a huge financial and human cost.

And the chief hopes for even restored funding after last year's cuts? Not a chance. The issue today is how deep the further cuts will go.

Rebuilding always costs more than maintaining systems in good repair. Yet to raise taxes by the level that would be required to completely prevent this would place more family in crisis and drive more businesses - producers of tax revenue - out of business, with resulting further job loses: a further downward spiral.

Obviously, cuts in government spending create a similar dynamic in a different way. As with most organizations, a budget is about people. Cutting the budget means cutting state jobs, and those losses also hurt people and the economy.

The number of state job cuts in the past few weeks resulting from the budget the legislature passed for the current year has been tiny - 25 jobs - compared to what a 12 percent cut would mean. But already due to tight budgeting, the state workforce has been decreased from 8,397 to 7,761: down to 2002 levels, and thus a contributor to the major reason for lost tax revenues: job losses.

There is also always pressure to cut the state's budget in ways that will hurt "our most vulnerable" the least. So how does the general fund spending budget break down, and where would you recommend that a total of 12 percent in cuts - assuming no tax increases - be made?

Remember, the end result has to change this current total of 100 percent to a total of 88 percent:

K-12 education: 26 percent (which is to reduce the amount paid in property taxes.)

Medicaid/ Catamount Health: 24 percent (including the backbone of our health care reform.)

Corrections: 10 percent (any significant reduction will require early releases and lower prison sentencing from our current public policies.)

Public safety: 7 percent (including state police, state's attorneys, courts.)

Children and families: 7 percent (child abuse and foster care; and "welfare" - in other words, for those believing we need to reduce supports for families in poverty, the reality is that there are no huge savings available there.)

Higher education: 6 percent (we support our state colleges, including UVM, at one of the lowest rates in the country.)

Those total 80 percent of the general fund. The rest:

Debt service: 5 percent (a nonnegotiable: this is payment on interest for our capital construction loans; that is what is already spent, meaning it doesn't include the $35 million backlog we already promised local towns when they built schools, nor replacement of the Vermont State Hospital.)

Everything else: 15 percent (that includes general government, and all other agencies, such as Natural Resources, Economic Development, Labor and Industry, which would nearly have to be abolished wholesale to get 12 percent only from here.)

Remember - this is only the general fund portion, which is 1.09 billion, or 33 percent, of our actual, current year state spending. Our total state budget in 2010 (the current fiscal year), with all overlapping portions eliminated, is $4.6 billion.

The general fund was $1.09 billion of that; the education fund, $1.07 billion; we received $1.44 billion in federal funds (much of that in matching funds for Medicaid; this is why, when the general fund is cut, we lose that revenue, automatically, at a rate of two additional dollars cut for every one dollar cut in general fund) plus the special "bailout/ rescue" funds from the federal government of $373 million, which will drop out of the picture by next year.

The transportation fund adds $215 million - which also has a shortfall - and all other special funds add up to $450 million.

Among the cuts already made last year, over many public protests, were the closing of four rest areas, the closing of the courts one day each week, higher pharmacy co-pays for seniors and persons with disabilities, and a cut in the reimbursement to Medicaid providers (whom we already underpay; hospitals balance budgets by charging private insurance more, and that drives insurance costs for everyone else up [business, schools, state employees], basically just a tax shift.)

So what about property taxes and the education fund?

We base our grand list on a three-year rolling average. That means property value losses show up on a delayed basis.

Vermont began seeing housing value drops behind the rest of the country: growth hit 0 percent nationally in 2008; Vermont just this year.

However, values are not predicted to grow again until 2011, and new growth is projected to be much slower in Vermont: only one percent in 2012, compared to 5 percent nationally.

(Our boom was greater than the national rate when it peaked in 2005 at a 15 percent annual growth rate in value, compared to the national annual rate of 12 percent. The losses in value are projected to bottom out next summer - at a further loss of 11 percent since the year before, nationally; but only a little more than three percent for Vermont. We are lucky.)

Yet the impact on the property tax income to the education fund was a two percent drop this year (made up from reserves) and is a projected loss of 4.6 percent next year, 2.5 percent the year after, and still a .7 percent loss in 2013.

This comes after years of constant growth in the fund (ranging from 4.6 percent to almost 10 percent annually between 2002 to 2008) due to rising property values.

If combined with a loss in the general fund contribution, is becomes clear how dramatic an impact this will have on property taxes, even if budgets were held at zero increases.

Perhaps most important to realizes is that our budget deficits are not due to the national economic crisis alone. In general terms, our cost pressures have been exceeding revenue growth to the point that if all things were "normal," we would be facing deficits.

The expenditure growth in our schools is presenting the same problem, hidden up to this point because property values kept rising.

If this is not addressed, even when revenues do return to "normal," we will have an ongoing deficit problem in our state's general fund.

This is what the state's fiscal analysts call our "systemic" problem beyond the current crisis.

Our corrections costs have been rising at an average of eight percent per year for the past 10 years.

The increase in the "caseload" for Medicaid (something we have been intentionally building to get more folks insured as the core of health care reform), teacher's retirement funding, and the unemployment fund have all been increasing at a rate far faster than revenue growth for years, and that is projected to continue.

What about federal health care reform, if a bill does pass?

States in general don't yet know if it will hurt or help their budgets: there could be more Medicaid support, or there could be more of the cost burden placed on the states.

Medicare providers would definitely be hurt, particularly those who depend to the greatest degree to those funds: our nursing homes, and the home health provider systems that keep folks out of nursing homes.

Vermont, in particular, could be more disproportionally hurt, or disproportionately helped.

The changes we have already made could mean we actually lose out on increased supports for Medicaid expansion; even penalized from a budget perspective.

On the other hand, we could be first in line for new money to build further, given the reforms we already have underway, such as the "Blueprint for Health" that focuses on prevention and integration of health care for chronic conditions.

We simply won't know until, and if, it happens.