Tax revenues soar above targets for April

by Timothy McQuiston Vermont Business Magazine As anticipated, Vermont tax revenues have exceeded economists' initial expectations, both overall and in several sub-categories. With two months left in the fiscal year, Vermont is more than $50 million (and over 4 percent) ahead of the projections, which were set in January. Most notably, the Personal Income tax, the most important revenue source, finished the month more than $23 million above its target, a whopping 15.6 percent to the positive. All this is expected to lead to an annual budget surplus of over $40 million.

Secretary of Administration Susanne Young released Vermont’s revenue results today. Preliminary results indicate that the Education Fund also exceeded projections (+6.1 percent), while the Transportation Fund missed slightly (-2.6 percent), as the motor vehicle registration (sales) tax was off by 13.3 percent.

For the year-to-date, all three revenue categories are ahead of projections.

Revenue projections are tricky this time of year because of how tax returns and refunds, both personal and corporate, play out. The Corporate tax also had a good month, ahead nearly 50 percent and all four major categories in the General Fund were positive to expectations.

Last year, after a good March, April revenues cratered, with the Personal Income Tax off more than 15 percent, thus driving monthly revenues down more than 10 percent, with year-to-date revenues falling just below expectations.

Last Monday, May 7, the Emergency Board accepted revised annual revenue projections from economists Jeff Carr and Tom Kavet. The E--Board is comprised of the chairs of the four legislative money committees and the governor.

Economists' revised projections increase General Fund revenues for the year from $1,493.6 million to $1,537.8 million, an increase of $44.2 million. Furthermore, the economists stated that this is not a absolute projection but a minimum, in which, "FY2018 aggregate revenue variance risk remains on the upside."

In other words, things could only get better before the end of the fiscal year on June 30, 2018.

A $44.2 million surplus could be used by legislators to balance the budget or help pay down education-related property taxes. Governor Scott and lawmakers are still at an impasse over education spending, which could lead to another budget veto and resultant legislative overtime (via either a legislative veto session or a gubernatorial special session.) The legislative session was originally scheduled to conclude Saturday, May 12.

As for the cause of the extra revenue, the economists did not believe it is due to a strengthening of the economy.

They wrote: "Most of the current revenue strength can be attributed to unique events that may be unlikely to persist in future periods. Many of these are related to recent federal tax law changes. As you know, we have been analyzing these impacts since January with the Tax Department and will incorporate more complete estimates of these and other revenue events in the upcoming July Economic and Revenue Update."

“The Emergency Board did not take any action (Monday) to upgrade the revenue forecasts for the next budget fiscal year (2019) currently under consideration by the Legislature,” said Secretary Young. “The excess of taxes collected are largely attributed to one-time events, such as mergers and acquisition and capital gains activity, and will not likely be repeated in fiscal year 2019. In fact, the gains in the beginning of this tax year could be offset by greater refunds later in the year.”

At its regular July meeting, the Emergency Board will review a full analysis from the economists and consider a consensus forecast for fiscal years 2019 and 2020.

April marks the 10th month of fiscal year 2018. Monthly and cumulative targets are measured against the revised consensus forecast for this fiscal year adopted by the Emergency Board on January 18, 2018.

General Fund revenues collected for the month of April totaled $242.54 million, $33.33 million above the consensus cash flow expectation for the month. The majority of the surplus revenue occurred in the Personal and Corporate Income Tax, $23.05 million and $7.19 million, respectively.

The Transportation Fund collected $23.62 million, -$0.63 million below its $24.26 million target while the Education Fund collected $18.10 million for the month, $1.04 million ahead of the consensus target of $17.06 million.

Year to date the General Fund is ahead of target by $54.33 million, with Personal Income and Corporate Income each up $30.35 million and $17.91 million respectively. The Transportation Fund is ahead of target by $0.33 million while the Education Fund is ahead by $3.33 million.

Compared to this time in FY 2017, the General Fund revenues are up by $84.28 million ($1,321.73 million vs $1,237.46 million). The Transportation and Education Funds are both ahead of last fiscal year by $7.37 million and $10.27 million, respectively.