The panel that sets Vermont’s official economic forecasts moved Thursday to increase the state’s projected tax revenue by $44 million over the next two years.
The state’s Emergency Board, a panel composed of the lawmakers who chair the Legislature’s budget and tax committees and Gov. Phil Scott, adjusted the state’s revenue forecast after economists advising the panel said that Vermont tax revenues are up as the state, and the U.S., continue to see growth.
Thursday’s update was not surprising; Vermont has seen as its revenue outpacing expectations in recent years, and the country has experienced the longest period of economic recovery on record.
“This update is not particularly momentous,” the Vermont Legislature’s economist, Tom Kavet, told the Emergency Board. “It’s just not earthshaking. It’s not like there have been huge changes in the economic externals.”
General fund revenue is up by $18.4 million this year, and $15.5 million in the next fiscal year.
A boost in personal income tax receipts largely drove the increase in the general fund this year. Personal income revenues came in $15.5 million higher than the last revenue forecast in July, according to Kavet’s report.
Education fund revenues are also up — by $4.7 million this year and $5.7 million in the 2021 fiscal year.
The state has seen an increase in sales and use tax revenue, in part because it is now collecting additional sales tax from online retailers.
Since a U.S. Supreme Court decision paved the way for states to collect taxes on internet sales from businesses that do not have a brick-and-mortar presence within their borders, there are nearly 2,000 new e-commerce vendors in Vermont’s base.
Kavet and the governor’s economist, Jeffrey Carr, also said that while they do not expect there will be a recession in the next two years, a downturn in the near future could be in the offing.
“A national-State economic downturn sometime within the next five years cannot and should not be completely discounted,” according Carr’s report.
“[It] is simply not clear at this point whether or not the recent brightening in the economic outlook is sustainable going forward—or if it merely reflects the last hoorah of a U.S. expansion that has endured well past the average.”
In addition, Carr highlighted that the state’s labor force has hit its lowest point since November 2015, hovering around 343,000 workers.
While the state’s labor force had seen some modest growth over the past five years, data from the economists show the number of workers dipped in the last year.
The governor said Thursday that the report highlights that policymakers need to focus on encouraging businesses to stay in Vermont and attract more residents to the state.
Last week, in his State of the State address, Scott pointed out that only three of the state’s counties, including Chittenden County, have added workers, while the other 11 have lost about 18,000 workers since 2008.
“Good news in some respects, revenues are up. But we suffer from our demographics,” Scott said after the Emergency Board’s meeting Thursday.
“I think we all have come to the conclusion that we have to change the trajectory. The demographics are affecting us in so many different ways,” he said.
Rep. Kitty Toll, D-Danville, the chair of the House Appropriations Committee, said that the House would be using the additional tax revenue for flexibility as it crafts next year’s budget.
“There hasn’t been a stellar increase, but at least it’s been in the positive direction for a lot of years,” Toll said of the revenue projections.
“So we just have to be very prudent in our work and continue to stick with our principles of not using one-time money for ongoing expenses, and … prioritizing what we can afford to spend money on,” she said.
The governor estimates that there will be a $70 million budget gap to contend with this year, as the state sees spending pressures including naturally rising state employee salaries, growing demands on social services, and Vermont’s massive teacher pension debt.
Sen. Ann Cummings, D-Washington, chair of the Senate Finance Committee, said the additional revenue is beneficial, but not enough to meet the state’s rising needs in its prisons, mental health systems and elsewhere.
“I think we’re going in the right direction and everyone is happy about that,” Cummings said of the revenue projections.
“But I don’t think we’re going fast enough,” she said. “We’re not growing as fast as the need is.”
Kit Norton contributed reporting.
