Vermont could lose $430 million in revenue next year, economist says
The Vermont Legislature’s economist projects revenue losses from the COVID-19 crisis will triple in the upcoming fiscal year and that the state could see tax receipts drop by $430 million.
Lawmakers are already contending with a massive budget gap in the current fiscal year, with the state expected to lose $144 million in revenue across all of its funds by the end of June.
But the economic strain from the virus is only expected to deepen in fiscal year 2021, which begins July 1, according to an initial forecast.
Tom Kavet, the Legislature’s economist, this week said that state revenues and economic activity will be tied to how the COVID-19 pandemic develops in the coming months.
However, he anticipates that even if businesses reopen soon, consumer activity won’t immediately return to pre-pandemic levels.
“It’s not like that will be a quick bounce back,” Kavet told the House Appropriations Committee Wednesday.
Kavet said he expects consumers will be reluctant to use services even after public health restrictions are lifted. He pointed to Georgia, where salons, gyms, theaters and restaurants have opened up in recent days and “customers aren’t just flocking back in.”
He expects the Vermont’s tourism industry will be particularly hard hit in fiscal year 2021, dealing a blow to meals and rooms tax revenues.
“A lot of spending on tourism and travel is done by older age cohorts and that is the group that’s most affected by the virus and probably will be the most fearful about coming back,” he said.
And because “corporate profitability has turned on a dime,” he expects corporate taxes, which were soaring before the pandemic set in, will fall as well.
The state’s general fund, which relies on personal income and corporate taxes is expected to lose $266 million, while the education fund, which is funded by sources including sales and use, meals and rooms, and property taxes is expected to take a $113 million hit.
Vermont’s transportation fund will see a $48 million revenue loss, according to the forecast.
RISING PROPERTY TAXES?
Mark Perrault, an analyst with the Joint Fiscal Office, told the House Appropriations Committee that under Kavet’s forecast, if lawmakers don’t find another source to replace the lost revenue in the education fund, property taxes would have to go up dramatically in the next fiscal year.
To pay for K-12 education and replace revenue that will have depleted the education fund’s reserves, property tax rates would go up by 17 cents — or $149 million total.
Rep. Janet Ancel, D-Calais, the chair of the House Ways and Means Committee, made it clear that lawmakers do not plan to hike tax rates by that much.
“I want to be clear to the world that this is not a proposal. We’re not proposing to raise education property tax rates by 17 cents,” Ancel said.
Lawmakers are exploring ways to fill the revenue gaps in fiscal year 2021, as well as the current fiscal year.
They are looking to $1.25 billion that the state has received federal dollars to cover costs incurred by the COVID-19 crisis as a possible source.
One option legislators are considering is using part of the federal funding from the CARES Act to finance property tax credits to shield Vermonters from increased tax burdens.
However, guidelines currently say federal CARES Act money can’t be used to fill gaps in state budgets.
State leaders around the country are pressuring President Donald Trump and Congress to offer more flexibility with the funds or send state governments additional money to fill budget gaps.
Sen. Jane Kitchel, D-Caledonia, the chair of the Senate Appropriations Committee, said Kavet’s latest forecast highlights “the enormity of the fiscal impact on this state.”
“People who think that this budget is going to be able to fund everything as we’ve experienced it in recent years,” she said of next year’s spending bill. “It’s not going to be the case.”
FEDERAL FUNDS NEEDED
But the extent to which the state will have to cut spending will depend on the availability of additional federal funding, or the easing of the guidelines on federal dollars the state has already received.
Kitchel said she’s got her “fingers crossed” that flexibility will be provided.
“That would help us really stabilize things,’ she said.
Kitchel said she’s not as concerned about the shortfall the state is facing in the current fiscal year, which is much smaller.
The general fund is facing a $48 million hole which Kitchel believes lawmakers will be able to close with existing funds, and reserves, if needed.
“That is an amount that we can figure out how to cover,” she said.
But with the $430 million revenue gap Vermont may have to grapple with next year, Kitchel said the fiscal 2021 budget is “looming over us like a storm cloud.”
In light of the state’s anticipated revenue losses, Gov. Phil Scott has asked his cabinet to “look from within” and “prioritize what our needs are, what we can do without.” His administration was expected to present a budget adjustment for the current fiscal year on Friday.
Scott said that the “vast deficit” highlights the importance of sending people back to work, and trying to “get the economy rolling again.”
“All the things we’re doing today, even the tracing and testing, is going to be important so we can measure as we move along, how can we continue to put people back to work without creating harm to others,” Scott said during his Wednesday press conference.
Kavet’s latest forecast is not an official revenue update. A “consensus” forecast, reached between the Legislature’s economists and Scott’s, will be released in the coming weeks.
In a document explaining Wednesday’s forecast Kavet said that official update would come “following the release of the April tax data and a clearer understanding of the end of the lockdown period on May 15.”