Business & Economy

Dip in personal income tax receipts a concern, lawmakers told

Rep. Martha Heath, D-Westford, and Sen. Jane Kitchel, D-Caledonia, run the Joint Fiscal Committee. Photo by Hilary Niles/VTDigger

Rep. Martha Heath (left), D-Westford, and Sen. Jane Kitchel, D-Caledonia, run the Joint Fiscal Committee. Photo by Hilary Niles/VTDigger

State revenue from personal income taxes continues to disappoint, and the trend is keeping Vermont budget watchers on alert. August collections fell $4.3 million, or almost 10 percent short of their target.

A group of lawmakers heard Friday morning that, two months into the fiscal year, General Fund revenues are $5.4 million below forecast. The update was coupled with a preview of other financial pressures expected to surface in the mid-year budget adjustment and in writing next year’s spending plan.

The news comes on the heels of $31 million in rescissions the Joint Fiscal Committee approved in August. If personal income tax withholdings continue to fall below expectations, it’s possible the state could have to curtail the current year’s budget even more.

“Fiscal Year 2016 is going to be very challenging,” said Jim Reardon, commissioner of finance and management.

But some news is good: Sales taxes and rooms and meals taxes, surpassed their monthly targets. Both are running roughly 4.5 percent ahead of the same period last year.

State economists will be studying the underlying data this fall in an attempt to understand what’s driving the mixed signals, which cast a shadow over some signs of economic recovery.

August’s personal income tax collections fell almost $4.9 million, or almost 10 percent, short of projections — targets that were just reduced in July after low spring revenues caught budget writers off guard.

Secretary of Administration Jeb Spaulding said in his agency’s monthly revenue report that the declining personal withholding trend is concerning and requires ongoing attention.

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“There are likely multiple factors, but, certainly, the underperformance suggests that underlying wage growth may not be as robust as the state’s low unemployment rate would ordinarily indicate,” Spaulding said. “This is a phenomenon that seems to be emerging on a national level.”

Personal income taxes comprise about half of General Fund revenues. Although the fund overall is below projected levels in Fiscal Year 2015, collections are up by $1.69 million, or almost 1 percent, since the same time last year.

The General Fund is facing some spending pressures, too. Reardon said costs for out-of-state inmates, increased Medicaid caseloads, Lake Champlain cleanup and the underutilized Vermont Veterans Home are pushing Fiscal Year 2015 off-balance. He didn’t provide specific numbers, but warned lawmakers all four issues likely would require budget adjustments in January.

The Education Fund in August came in about $420,000, or 2.86 percent, below target for non-property tax sources. Fiscal-year-to-date, the revenues are just above forecast, and compared to this time last year they’ve risen almost 3 percent.

But homestead tax rates are likely to rise again next year, according to Mark Perrault, a senior analyst at the Legislature’s Joint Fiscal Office. He said Grand List values remain depressed and school enrollment continues to fall, while school budgets are expected to keep climbing.

The trends may be leveling off, he said. But parity between education spending and education funding sources is years off, and any reversal of fortunes will be incremental.

The Transportation Fund also fell short in August, finishing $1.73 million, or 7.3 percent, below the goal. Fiscal-year-to-date, the fund is less than $1 million shy of expectations. Compared to the same time last year, Transportation Fund revenues are almost $1 million ahead.

Transportation Secretary Brian Searles highlighted a structural challenge for his agency’s funding: People are driving fewer miles and more fuel efficient cars, thereby generated less state revenue from gasoline taxes. Yet the state’s transportation infrastructure continues to rely on gasoline taxes as its major money source.

“We’re going to have to talk about new ways of funding transportation,” Searles said.

In the meantime, his agency was able to cut about $2 million from the current year’s budget without delaying specific projects, he said. Most of the savings are attributable to inevitable construction delays, he said.

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Hilary Niles

About Hilary

Hilary Niles joined VTDigger in June 2013 as data specialist and business reporter. She returns to New England from the Missouri School of Journalism in Columbia, where she completed her master's coursework. While there, she worked at Investigative Reporters & Editors and covered state and local government for radio, print and the Web. She’s been a researcher-in-residence at American University’s Investigative Reporting Workshop in Washington, D.C.; a reporter and community radio program director in the New Hampshire; and, in Boston, a public radio producer. She studied English at the University of New Hampshire and documentary writing at the Salt Institute for Documentary Studies in Maine.

Email: [email protected]

Follow Hilary on Twitter @nilesmedia

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