By Xander Landen/VTDigger
State economists had good news Tuesday, Jan. 19, for Gov. Phil Scott and lawmakers who set Vermont’s revenue forecasts. Tax revenues in the state are expected to come in $254 million higher this year than fiscal analysts had projected in August. The boost is thanks, in large part, to the massive infusion of federal dollars since the Covid-19 pandemic hit last March, the economists said.
“What we’re seeing is the impact of a phenomenal amount of federal deficit spending to offset the pandemic — levels of spending that have never in the history of this nation been put into effect,” said Tom Kavet, the Vermont Legislature’s economist, who detailed the latest revenue projections to Vermont’s Emergency Board on Tuesday.
The Emergency Board, a panel that includes the governor and legislative leaders, adopted the economists’ recommendations.
The board, which meets twice a year to assess state finances, hiked state revenue projections across all funds by $254 million in fiscal year 2021, which runs through June, and $235 million in fiscal year 2022.
Kavet had outlined a dire financial outlook in August. Fiscal analysts projected “massive” revenue losses for Vermont over the next two fiscal years under the strain of the pandemic.
At the time, the board adjusted economic forecasts to reflect an estimated loss of $182.4 million in the state’s general fund, and $62.7 million in the education fund in fiscal year 2021.
Jeffrey Carr, an economist for the Scott administration, said Tuesday that in August the state’s financial experts “knew about all the negatives” of the pandemic, including a breathtaking economic decline. But they didn’t know how the moneyfrom the federal CARES Act would affect different sectors of Vermont’s economy.
Vermont got $1.25 billion from the CARES Act to cover pandemic-related expenses. Much of the money helped offset businesses losses during the Covid-19 crisis.
In all, Kavet estimates that Vermont has received $5 billion in federal aid since the pandemic hit — and that’s before the latest round of Covid relief that passed last month. That total includes the Paycheck Protection Program (PPP), which provided business loans during the pandemic, and the first round of stimulus payments that taxpayers received last spring.
Kavet’s report states: “Massive federal intervention has created flows of income and spending that permeate every aspect of the Vermont economy,” adding that corporate income tax, personal income tax and sales and use tax revenues are all up.
According to the report, the education fund is now expected to gain $70 million in additional revenue in fiscal year 2021 — $15.4 million more than the economists had projected a year ago, before the pandemic hit. In fiscal year 2022, the economists expect it will have $31.5 million more in tax dollars than had been expected last January.
That’s in part because an increase in online sales has boosted sales tax revenue for the state.
Vermont also began collecting more revenue from e-commerce sales in 2018, after the U.S. Supreme Court ruling in the case South Dakota v. Wayfair, which cleared the way for states to collect taxes on internet sales from companies that do not have a physical presence in the state.
“The Wayfair decision was obviously something that was instrumental here in our recovery,” the governor said. “Had we not had that, and not taken action, we wouldn’t be in the position we’re in today, I don’t believe.”
As the governor and legislators work to put together a budget for fiscal year 2022, they will have more revenue in the general fund than expected. The general fund covers the majority of state government spending.
The emergency board hiked projected revenues in the fund next year by $156 million — $52 million more to work with in the next fiscal year than economists forecast last January.
However, the general fund is still expected to take in $23 million less in the current fiscal year than analysts had predicted it would a year ago.
While the state’s revenue picture looks better than previously expected, the state’s economy is still reeling from the pandemic. Carr said Vermont has permanently lost nearly 26,000 jobs and there are 20,000 fewer Vermonters employed now than a year ago.
“I think it points to the work that still has to go on… to get all parts of the economy back on their feet,” Carr said.