[T]he state’s “emergency board,” a panel of senior policymakers that adjusts Vermont’s official revenue projections, moved Tuesday to increase this year’s General Fund revenue forecast by $11.2 million and next year’s by $1.6 million.
State economists advising the panel said that like in July, when the board hiked the fiscal year 2019 forecast by $33 million, Vermont continues to benefit from a large boost in corporate tax revenue spurred by federal tax reforms enacted in 2017.
But they once again cautioned the panel, made up of Gov. Phil Scott and four legislative committee chairs, that the trend of increased tax revenue could soon turn.
Jeffrey Carr, the Scott administration’s economist, and Tom Kavet, the Legislature’s economist, said a vibrant economy and recent tax reforms have supported the additional revenues, which are likely to continue through fiscal year 2020.
However, the economists were less hopeful about fiscal year 2021, when the nation’s economic trends could be reversing, and revenue could start to be squeezed.
“In Fiscal Year 2021, the combination of Fed tightening, receding fiscal stimulus and potential trade conflict could leave the…General Fund with virtually no more revenue in Fiscal Year 2021 than Fiscal Year 2020,” Kavet wrote in a report for the E-Board.
For fiscal year 2020, the E-Board increased the General Fund revenue forecast by $1.6 million. This comes after the panel hiked the 2020 forecast by $18 million in July.
The economists warned that the soaring U.S. economy will likely see a downturn in the coming years.
“We’re at the high end of a cycle, and generally speaking the only direction you go from the high end is down,” Kavet said.
The economists pointed to the fact that in the last year alone, the Federal Reserve has raised interest rates on four occasions. The Fed raises interest rates to slow economic growth to sustainable levels and prevent inflation, but Kavet also wrote that “primary recessionary threat” stems from “excessive Federal Reserve monetary tightening.”
The increase in tax revenue the state will see this year can once again be largely attributed to corporate repatriation— companies bringing funds held overseas back to the U.S. and paying a tax on that transfer.
The federal tax law, passed in December of 2017, temporarily offers a lower tax rate for corporations moving their money back home. States receive a portion of the repatriation dollars.
Members of the E-Board noted Tuesday that the revenue increases will not serve as ongoing sources of state funding.
“I think it’s important for all of us to just look at this as positive news, but at the same time, just be cautious,” Scott told reporters after the meeting.
In crafting their budget for fiscal year 2020, the Scott administration has said that all of the revenue increases projected for the year will be needed to cover accumulating debts, including an increased payment to the state’s massive teacher pension liabilities.
The state will need to spend roughly $40 million more on debt payments in the next fiscal year than it will this year, according to Adam Greshin, commissioner of the Department of Finance and Management.
The E-Board also increased revenue projections for Vermont’s education fund, mainly because the state is now collecting a new internet sales tax.
Vermont and other states started collecting the tax when the Supreme Court voted in June to overturn a decades-old case which had barred states from reaping sales taxes from businesses unless they had a local, “bricks and mortar” presence.
Last year, legislators moved sales and use tax revenues into the Education Fund.
