State News

State sees unexpected revenue boost after July tax filings

By Xander Landen, VTDigger

The state saw more revenue than expected after residents and businesses filed 2019 tax returns this month, which will help the state as it weathers the economic strain and budget woes from the Covid-19 pandemic.

As of July 28, the state had received $160 million in additional tax revenue in July. Some $51 million of that will be used to close out the fiscal year 2020 budget, which ended June 30.

But the bulk of it, $109 million, will be carried forward to the current fiscal year, and can be harnessed to help cover a projected $219 million deficit in the state’s general fund — the account that pays for most state government operations.

Taxes are typically due April 15, but last spring the state and federal governments effectively pushed back the deadlines until July 15 because of the Covid-19 pandemic.

Adam Greshin, the state’s finance commissioner, said that after the July filings, state revenues came in $25 million higher than officials had projected they would in January, before the pandemic struck. Greshin presented the latest revenue update to the legislative Joint Fiscal Committee on Wednesday, July 29.

The checks are still coming in, and the figure is likely to go up in the next few weeks, he said.

“Either way you look at it, it’s clear that we have significant fund availability here,” Greshin told the Joint Fiscal Committee. “And I don’t think I’m going out on a limb by saying this was most unanticipated.”

But Greshin warned the revenue reflects income taxes from 2019, which was a strong year for the economy, and well before the pandemic set in.

“The receipts that we’re seeing that are being paid in July that should have been paid in April reflect what is unquestionably a very strong 2019 calendar year,” Greshin said.

The revenue still does not come close to covering the deficit the state is facing for fiscal year 2021. Greshin said state government departments will still need to cut their budgets.  “The message is we’re better than our worst fears, but the real impact of Covid on the economy is going to be seen in the year 20,” said Sen. Ann Cummings, D-Washington, who chairs the committee, referring to the current fiscal year.

Tom Kavet, the Legislature’s economist, said that in 2019, the highest earners in the state saw an “extraordinary amount of income” represented by their personal income payments. The state also saw large corporate income payments.

“In a strong year like 2019, those sorts of things, that’s the upside potential we expect, and it’s terrific we could realize some of this in a year that it’s really needed,” Kavet said.

A push for federal budget aid

While revenues have recently performed better than expected, fiscal analysts say the trend will not continue.

In fiscal year 2021, the state is expected to see $330 million in revenue losses across all of its funds, according to the latest estimate from the Joint Fiscal Office.

Vermont officials have been pushing Congress and President Donald Trump to approve additional aid for state governments grappling with budget shortfalls because of the Covid-19 pandemic.

Since the federal government approved a first major round of funding for states in April, elected officials across the country have been asking the federal government for permission to use the dollars to fill holes in their budgets created by cratering state revenues.

They have also been asking lawmakers to approve additional funding to help states weather their anticipated spending shortfalls.

So far, it has done neither.

U.S. lawmakers are working on the next round of Covid-19 aid, and Republican senators in the GOP-controlled Senate unveiled a $1 trillion plan on Monday, July 27, that is backed by President Trump.

Under the new relief plans, states could use 25% of the federal dollars they received through the federal Coronavirus Relief Fund (CRF) in April to fill holes in their budgets. But they could only use the money for this purpose if 25% of the overall CRF dollars were given directly to local governments.

Vermont received $1.25 billion in CRF dollars, but has already spent, or allocated the vast majority of it — just over $1 billion — on a variety of aid packages signed into law by the governor this month. And according to a breakdown of CRF spending, Vermont has directed only $15 million towards local governments.

U.S. Sen. Patrick Leahy, D-Vt., criticized the proposal from Senate Republicans in a statement Monday, saying: “It provides no new funding for state and local fiscal relief to help state and local governments that have been forced to take the reins of pandemic response in the absence of the President… Their budgets are stretched to the breaking point as revenues plummet and they struggle to support their people and the public servants on the front lines of this crisis,” he said.

While the Republicans’ plan does not include additional funding for state and local governments,  the HEROES Act, a Covid-19 relief bill that passed the Democrat-controlled House in May, does.

In an interview on Friday, U.S. Rep. Peter Welch, D-Vt., said, “In the HEROES Act there is $3 billion that would come to the state of Vermont — into our municipalities and towns. That’s absolutely urgent,” Welch said. “Otherwise, our property taxpayers are going to be crushed. We’re going to be having dramatic cuts in services in our schools and our health care system,” he said.

Gov. Phil Scott has said that he expects the federal government will grant states the ability to use some of their federal dollars they have already received to help make their budgets whole.

But even if it doesn’t, he believes that Vermont will be able to work with the revenue it has.“We’ll live within our means,” he said.

“I do believe most Republicans and Democrats alike can see the merits in more flexibility, and I think we’ll see that in the next package,” the governor said.

He is less hopeful that Congress will put additional money on the table to help states fix their budget woes. Scott put those odds at “50/50.”

Without additional revenue, or flexibility from the federal government, it’s likely the state will have to make budget cuts or dig into reserve funds.

The Scott administration proposed an initial round of budget cuts this spring — asking most departments and agencies to cut spending by 2% in the first quarter of the fiscal year, which began July 1.

The budget bill the governor signed last month funds state government only from July to September 2020.

But lawmakers rejected the proposal, and decided to hold off decisions about spending cuts until August, when they will reconvene to pass a budget for the entire year.

Part of the reason lawmakers and the governor agreed to delay the budgeting process until late summer was to wait until the federal government provided more clarity on what kind of additional Covid-19 is coming to the states.

Rep. Kitty Toll, D-Danville, the chair of the House Appropriations Committee, said, “We have seen reduction in the revenue that’s coming in and we’ve got to continue providing some important services to elderly Vermonters, to children, to families that need help, disabled people, businesses that need help getting started up again.”

“We’re going to need that support. And we can’t do it on just our own revenue,” she said.
Grace Elletson and Kit Norton contributed reporting.

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