By Jack Hoffman
Vermont’s April revenue collections highlight the absurdity of federal rules restricting the use of the Coronavirus Relief Fund—the $150 billion that Congress appropriated in the CARES Act to help the states. The state’s personal income taax receipts dropped by two-thirds last month. Instead of taking in $184 million, as forecast, the tax department received $63 million. But according to the latest guidance Vermont can’t use its federal relief funds to close that gap—to pay for the programs and services that would have been covered by the $121 million the state didn’t collect.
One of the most critical problems facing states now is the sharp drop in tax revenue because so many people are out of work. We’ve known unemployment is bad. About 90,000 Vermonters have filed initial claims for unemployment benefits, which are reported on a weekly basis. That’s been mostly in the last six weeks, and that number is more than a quarter of the people who were working in February.
Because there is a lag in the collection and reporting of tax receipts, it’s been hard to know the toll unemployment and business closures were having on the state’s finances. We start to get a picture of state revenue decline with the April figures:
Personal income tax: down $121.1 million
Corporate taxes: down $12.4 million
Rooms and meals taxes: down $9.3 million
Sales and use taxes: down $10.3 million
And that’s really just a first glimpse. The rooms and meals and sales and use taxes were collected before April 1, but some businesses also took advantage of an option to delay payments because of the pandemic. We’ll need to wait until May and June to see the brunt of the pandemic and stay-at-home orders.
Vermont fared well with the Coronavirus Relief Fund. Thanks to an allocation formula devised many years ago by Sen. George Aiken, Vermont received a small-state minimum of $1.25 billion, which was more than four times the funding it would have gotten through a straight per-capita distribution. It’s a lot of money when compared to the state budget or the revenues the state normally collects on its own.
But we don’t yet know the need. If Congress doesn’t renew the $600-a-week supplemental unemployment benefits, which expire at the end of July, or decides against another round of stimulus payments to individuals, Vermont may need to use some of the Coronavirus Relief Fund for direct income support. People without jobs or income will still need to eat, pay for housing, and, come winter, pay for heat.
The current federal rules have a narrow definition of how this money can be spent. You can use the money to fight the virus and the effects of the pandemic, including helping individuals and business that have been hurt—for example, from stay-at-home orders. But the money can’t be used to backfill state coffers, even though those coffers are running low because people and businesses can’t pay their taxes as a result of the pandemic and subsequent stay-at-home orders.
If these rules are allowed to stand, it poses a dire risk to Vermont’s schoolchildren.
The federal government released more specific guidance last week saying the Coronavirus Relief Fund money cannot be used to help people and businesses pay property taxes, even though property taxes need to go up sharply because of the Covid-driven losses of other revenues.
That puts Vermont—and probably most states—in an untenable position: make deep cuts in education or put all of the burden of making up lost revenue on the back of property taxpayers, whose income has shrunk.
The sensible solution is for Congress to either lift restrictions on the use of the Coronavirus Relief Fund or appropriate more direct aid to states that can be used to cover revenue shortfalls. The one thing we can’t do is shortchange Vermonters who happen to be school-aged during this pandemic. Our state depends on the education of those in school today. Protecting their education in this crisis is protecting our future.
Jack Hoffman is a policy analyst for Public Assets Institute (publicassets.org), a non-partisan, non-profit organization based in Montpelier.