Vermont’s revenues fell shy of expectations in May, state officials announced Friday in the monthly revenue report. All major funds are now slightly below year-to-date targets.
The letdown is primarily due to underperforming personal income taxes — by far the General Fund’s largest source of money. But some other streams in the state’s revenue matrix are strong.
Overall, officials say they’re watching closely, but they are not discouraged. It’s likely the state will be able to avoid tapping into reserve funds, even if revenue targets are lower than anticipated on June 30, the end of the 2014 fiscal year.
Legislative economist Tom Kavet emphasized that although monthly forecasts are necessary, it’s year-over-year comparisons and aggregate figures that matter.
Kavet said the shallow haul is related to volatility within a few specific revenue sources, and not an indication of economic weakness.
“It’s not like the world’s crumbling, and we’re seeing some downward spiral in the economy,” Kavet said.
A year ago, Kavet warned lawmakers and the Shumlin administration that recent changes to the state’s tax mix have heightened volatility — especially in personal, corporate and gasoline tax revenues.
The new tax structure offers more growth potential, but its trajectory is unpredictable, he said.
Gas taxes are now tied to gas prices, and market fluctuations result in uneven collections. Increased reliance on personal and corporate income taxes have also become less predictable, he said, because those revenues have become dominated by fewer — and higher — payers.
“As a result of this, a single event or change in the fortunes of a relatively small number of taxpayers could have revenue effects in excess of $10M or more,” Kavet wrote in his 2013 economic review and revenue forecast update to the Legislature.
“In terms of fairness and equity, that’s a positive thing, but … we’re seeing some of that volatility,” he said Friday. “Underlying economic conditions are still improving. It’s not like the economy’s roaring, but it’s coming back up toward full potential.”
Property transfer taxes are low because of limited activity, but some consumption revenues were up, indicating there have been gains in consumer demand.
Secretary of Administration Jeb Spaulding struck an optimistic tone.
“Foreclosures and personal bankruptcies are down. Large development permit applications are up,” Spaulding said. “There’s a lot of positive indications out there. We just really need to keep an eye on the personal income tax.”
In the meantime, Commissioner of Finance and Management Jim Reardon said that although the year’s revenues may not meet the forecasts on which the budget was based, it’s unlikely the state will need to tap into reserve funds to close the period in the black.
Most of the work-arounds, especially in the Education and Transportation funds, will come from lower than expected spending. Taxes on financial services have exceeded expectations in recent years, Reardon added, and he’s hoping that trend will continue. In addition, the Secretary of State’s office no longer receives an appropriation; it is now self-funded through fees on services.
“I’m comfortable we can balance out the year without going to the rainy day fund and certainly not the budget stabilization fund,” Reardon said. “Unless June was to be a really bad month. I might feel differently then, but I don’t have any reason to believe June will be a bad month.”
“I expect economists will be closely analyzing recent revenue results for trends as they prepare for the revenue forecast update scheduled for mid-July,” Spaulding said in a press release announcing May’s numbers.
The data visualizations below detail major fund revenues back to July 2011. To use, select the year or years to compare and hover over any point in the graphs to see detailed numbers.
