Tax revenues finish year nearly $60 million above targets

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Tax revenues finish year nearly $60 million above targets

Thu, 07/25/2019 - 10:11am -- tim

Vermont Business Magazine The personal income tax, the state's most important revenue source, once again pushed Vermont's General Fund tax revenues well ahead of economists projections, for both the month and the fiscal year. Revenue collections for the month of June 2019, the final month of Fiscal Year 2019, indicate that General Fund tax revenues collected for the month totaled $130.06 million, or $8.34 million above the June consensus cash flow expectations. For the year, General Fund revenue collections exceeded expectations by $58.37 million, or 4.55%.

“These results were driven by collections in the personal income tax and corporate income tax components. Both finished the year significantly above consensus expectations for the second year in a row, and more than offset underperformance in other areas, most notably the estate tax,” noted Secretary Young. “Pending final transfers and accounting required to close out the books on the fiscal year, a substantial General Fund surplus is expected for Fiscal Year 2019. The Legislature directed the year-end surplus to various uses including the General Fund Balance Reserve (Rainy Day Fund) and the State Employees’ Retiree Health Benefit Trust Fund, bringing us another step forward on the path to paying down our unfunded liabilities.”

However, the revenue statements continue to show underlying problems with revenue sources outside of the General Fund in general and personal income in particular.

All of the Transportation Fund revenue sources failed to meet projections for the fiscal year. While the fuel taxes can be explained by more fuel-efficient vehicles and more electric vehicles, the vehicle sales tax numbers suggest changing consumer behavior. This could be do to an increase in used car versus new car sales or frugality. In any case, vehicle sales numbers have been consistently down. The slump in diesel tax numbers might indicate a change in business activity.

The issue with declining fuel taxes is not unique to Vermont. States are struggling with how to pay to fix roads and bridges as the traditional fuel taxes have not been bringing in the money they once did. Connecticut, for instance, may introduce electronic highway tolls, similar to Massachusetts, to raise upwards of $800 million a year, and other states have increased toll charges. Vermont has no highway tolls and would be the last New England state not to employ them.

Also consistently down is the general sales tax, now entirely dedicated to the Education Fund. While online sales are more and more paying into the state's sales and use tax, most notably Amazon, the sales tax for several years has lagged behind targets, even as those targets have been modified.

The Transportation Fund collected $28.03 million for the month of June, or -$2.64 million below target. For the year, Transportation Fund collections were -$3.4 million, or -1.2%, below expectations. For the year, all Transportation Fund sources, including fuel taxes and fees, ended below their respective cumulative consensus targets.

The Education Fund collected $47.38 million for the month, or $0.56 million above target. For the year, Education Fund collections were -$2.15 million, or -0.41%, below the cumulative consensus forecast. The largest factor in the Education Fund performance is sales and use tax, which ended -$2.57 million below target for the fiscal year. Other Education Fund sources, including Lottery transfer and Meals and Rooms tax, ended above expectations individually but did not fully offset the sales and use tax under-performance.

On a year-over-year basis, after adjusting for legislative changes noted below, all three funds ended higher than the prior year. Adjusting for these legislative changes, for comparison purposes only, the year-to-date fiscal 2019 revenues represent increases of 6.63%, 0.61%, and 4.01% for the General Fund, Transportation Fund, and Education Fund, respectively, compared to fiscal 2018.

Secretary Young stated, “The revenue growth above our expectations for FY19 is encouraging. We must build on the progress made in growing our economy. Critical to sustaining that growth is a continued focus on making Vermont more affordable for families and businesses, revitalization of our economic centers throughout the State, and meeting our demographic challenge by attracting more people to Vermont.”

The Emergency Board will meet on Monday, July 29, 2019 to receive the consensus revenue forecasts for Fiscal years 2020 and 2021 from the State and Legislative economists.

Note: Act 11 of 2018 made several key changes to existing State revenue and expenditure distributions effective July 1 and implemented in the current fiscal year. The most significant changes were the shift of the entirety of the Sales and Use tax and 25% of the Meals and Rooms tax from the General Fund to the Education Fund, offset by the elimination of a lump sum annual transfer of General Fund dollars to the Education Fund.

Source: Administration 7.25.2019