Vermont’s General Fund could finish the month a little richer than expected, but perhaps not enough to banish red from the forecast.
Secretary of Administration Jeb Spaulding expressed optimism about the state’s economy, but cautioned against reading too much into some higher than expected tax revenues from April and May. The General Fund is currently $31.88 million above its year-to-date forecast, although corporate tax refunds yet to be paid out could diminish any surplus from personal income tax receipts.
“I think we are seeing an earlier turnaround” than expected last year, Spaulding said. Personal income tax receipts were one-third above projections for May, and year-to-date earnings from corporate, inheritance and estate, and real estate transfer taxes are solidly higher now than they were last year at this time.
“So there’s a lot of good stuff,” Spaulding acknowledged.
On the other hand, public confidence is “not as strong as we’d like to see it” judging by only a 1 percent uptick in the sales and use tax receipts from last year, he said.
Sen. Tim Ashe, D/P-Burlington, also downplayed the brightness he sees in a potential general fund surplus. “(U)nexpected revenues are a plus, but they don’t come close to resolving the longer term sustainability of the state budget,” he said by email. Ashe sits on the state’s Emergency Board, which adopted the Fiscal Year 2013 Consensus Revenue Forecast at their Jan. 23 meeting.
Ashe said the revenue news is good, but may not mean much. “Given the volatile state of the national economy this may be a one-time blip on the radar. In addition, this revenue uptick is small beans compared to a $1.3 billion general fund.”
Commissioner Jim Reardon of the Department of Finance & Management said the state’s economists attribute much of the personal income tax increases to tax strategies from 2012.
“Remember the federal taxes were expected to go up in January,” Reardon said, recalling the so-called Bush-era tax cuts that were set to expire at the end of 2012. On Jan. 2, those cuts were extended to all but the highest earners, but not before fear of a tax hike compelled many people to cash in more of their assets than they normally would have before New Year’s Eve.
“So a lot of people, rather than defer income from calendar year 2012, accelerated their income because they thought the tax rates were going to go up,” Reardon said. He added that the ripple effect on state income tax receipts is likely to carry over into June.
Uncertainty from world markets and federal policy also temper optimism about Vermont’s budget. House Speaker Shap Smith, D-Morrisville, said the surplus reflects an improving economy, but “we’re still in a fragile place.”
“You can see the markets reacting to (Ben) Bernanke saying we might remove our accommodative easing at the end of the year — all of a sudden the markets are losing a couple hundred points,” Smith said. Bernanke, the Federal Reserve Board chairman, announced Thursday that the central bank would begin phasing out the monetary policy this year.
“Next year we face yet another huge budget gap,” Ashe warned. “But we will not have the luxury of falling back on reserves, one-time monies or federal largesse. So unexpected revenues are a plus, but they don’t come close to resolving the longer term sustainability of the state budget.”
The potential deficit for the fiscal year 2015 General Fund could be as high as $50 million, according to projections from the Joint Fiscal Office.
“It’s been a long time since I can remember when the revenues were either the same or better than expenditures,” Smith joked. “But I’m optimistic we’re getting closer to the point where revenues will be in line with expenditures.”
State law requires one-quarter of any surplus funds to be directed to the Budget Stabilization Fund (or Rainy Day Fund) and one-quarter to a reserve to buffer against federal budget cuts.
The other half goes toward property tax relief, but that wouldn’t be felt until next year. Smith said current estimates show the reduction to the statewide property tax would be about a penny in the rate.
By the numbers
Vermonters paid about $37.92 million in personal income tax in May — $5.1 million more than was forecast for the month. April personal income tax revenues had come in high, as well. Personal income taxes comprise nearly half of the General Fund.
Earnings from corporate taxes in May were $3.88 million below forecast, and monthly sales and use, insurance premium and inheritance and estate taxes all dipped slightly. Nonetheless, almost all components of the General Fund showed solid gains above the same month’s year-to-date earnings from last year.
While the General Fund appears in good shape for the fiscal year ending June 30, the Transportation Fund has traveled a somewhat bumpier road: May revenues were up, but overall the fund remains about $1 million short of its projected $203.58 million. However, the new gas tax increase, which took effect in May, could boost June receipts and help the fund meet its target in the end.
The Education Fund’s non-property tax revenues are about $1.8 million short of year-to-date projections, but Spaulding said he expects the fund will be close to its target once the property tax revenues are added.