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Vermont’s finances are better equipped than most to weather the economic stress of the Covid-19 crisis, according to an analysis by Moody’s Analytics.
The state is expected to lose about $170 million in revenue by July because of the economic downturn spurred by the pandemic, and even more in the next fiscal year.
But Moody’s estimates that because of the amount state officials have placed in reserve funds over the past decade, Vermont has positioned itself well to handle a financial crisis.
The ratings agency “stress-tested” all 50 states in its report, and examined how the crisis will impact their general fund revenues.
Moody’s found that Vermont is one of 12 states that could withstand the stress of the Covid-19 crisis while facing no more than a 5% general fund budget shortfall.
That’s because of the amount it has put away in reserve funds in recent years, which amounts to 13% of its roughly $1.6 billion general fund: about $200 million.
“You’re already head and shoulders above a lot of other folks who are out there by having done that in the past decade or so,” Dan White, Moody’s director of government consulting and fiscal policy research, told lawmakers on the House Appropriations Committee Wednesday. “And it should make the next year or two a lot easier for you than it is relative to other folks.”
The report assumes Vermont will use up its general fund reserves over the remainder of this fiscal year and into the next fiscal year.
White explained that according to Moody’s report, if budget writers choose to spend all of the state’s reserves over the next 15 months, there would be a maximum gap of 5% of the budget that policymakers would need to make up for either with cuts to spending or with tax increases.
Even having to make up 5% of the state’s $1.64 billion general fund budget would cost the state and or taxpayers a combined $82 million.
The analysis did not address lost revenue in the education and transportation funds — the two biggest pockets of money that support state spending.
Moody’s found that 10 states will likely face budget gaps between 5% and 10%, and 21 states will face gaps of 10% or more.
“The glimmer of good news is that our work as a Legislature has positioned us in a better place than we could have been if we had not made some of these challenging decisions,” said Rep. Kitty Toll, D-Danville, chair of the House Appropriations Committee.
The latest projections from state analysts show that Vermont’s general fund is expected to lose $61 million by the end of the current fiscal year on June 30 because of diminished economic activity.
The state education fund is expected to lose $69 million and the transportation fund will lose $42 million.
In addition to the revenue losses, there is also $200 million taxes that had been due in April, but that state won’t see until the next fiscal year begins in July, because many filing deadlines were pushed during the pandemic.
Because of these factors, Vermont is facing a budget hole of nearly $400 million in the current fiscal year.
Lawmakers and Gov. Phil Scott are expected to begin working on a budget adjustment to address the giant revenue gap in the coming weeks.
Budget writers and the governor are hoping that the federal government will soon give states the ability to use federal Covid-19 stimulus dollars to address the budget gaps that have been brought on by measures to reduce the spread of the virus.
Vermont has received $1.25 billion from the federal government that it has authority to use to cover expenses related to the pandemic.
But at this point, Vermont and other states can’t use federal money to replace the billions of dollars in tax revenue they are expecting to lose because of the crisis.
State officials are still hopeful that lawmakers in Congress will change the law so that states can use federal aid to close their budget gaps.
This would help states avoid relying heavily on reserves, or making budget cuts.
In an interview Tuesday, Toll said her committee would still be committed to passing a balanced budget, even with less revenue to work with because of the pandemic.
“It would take a lot of pressure off if we had more flexibility with the dollars,” Toll said.
