E-Board Upgrades Revenue Projections for FY21 & FY22
by Timothy McQuiston, Vermont Business Magazine Led by the personal income and corporate taxes, all three revenue funds substantially exceeded their projections for the month of December 2020 and all three are now ahead of their annual targets.
Meanwhile, the Emergency Board on Wednesday upgraded its forecast for FY21 and FY22, which had been downgraded last August because of the pandemic-caused economic downturn.
The State’s General Fund, Transportation Fund, and Education Fund receipts were a combined $54.33 million, or 30.6% above consensus expectations. On August 12, 2020, the consensus revenue expectations were downgraded for fiscal year 2021 by $278 million across the three major funds because of the COVID-19 pandemic.
The December and fiscal year to date revenues were measured against the August 2020 forecast.
General Fund revenues collected for the month totaled $159.81 million, or $40.0 million above the monthly consensus revenue forecast from August 2020. In this fiscal year, FY 2021, General Fund revenues have exceeded their initial targets by $110.28 million, or 13.03%.
Administration Secretary Susanne Young said: “Halfway through the fiscal year, the General Fund has significantly exceeded expectations. Through December, revenues replaced more than 60% of the August downgrade. Though this is a welcome development, these receipts are still below the pre-pandemic expectations. We remain concerned about the State’s revenue flow as the pandemic continues to surge, though we are encouraged by the ongoing vaccination campaign and the new relief bill passed by Congress at the end of December.”
The Transportation Fund was $4.03 million, or 20.34%, above consensus expectations for the month, bringing in $23.83 million. Though monthly total cash flows in September, October, and November were each positive compared to August 2020 revenue targets, December receipts were above monthly target by the largest margin so far in FY 2021.
Year-to-date, the Transportation Fund revenue was $11.58 million, or 9.15% above the cumulative consensus cash flow target.
The Education Fund was $10.27 million, or 26.83%, above the monthly consensus target, having collected $48.53 million for the month.
The largest portion of this additional revenue came from the Sales and Use Tax, which came in $8.98 million, or 28.50%, above consensus expectations, driven by e-commerce sales and larger household goods.
Year-to-date, the Education Fund is $41.85 million, or 16.20%, above its cumulative consensus forecast target.
In the first six months of the fiscal year, the State’s three major Funds have exceeded cumulative consensus revenue expectations by $163.71 million.
According to Secretary Young, “Income tax receipts and taxable consumption expenditures have been consistently higher than expected due to the unprecedented amount of federal support through the CARES Act, with significant assistance from the State’s targeted approach to individuals and businesses.”
On January 19, 2021, the Emergency Board met and approved the consensus recommendation from the Administration’s and Legislature’s economists, which upgraded the State’s revenue forecasts for the remainder of fiscal year 2021, fiscal year 2022 and fiscal year 2023.
A mid-year adjustment to general fund revenues expected in the current fiscal year increased by $159.8 million compared to the August 2020 forecast; the Transportation fund forecast was increased by $16.4 million; and the Education Fund was increased by $78.2 million.
“This mid-fiscal year upgrade is welcome and driven primarily by increased personal and corporate income taxes and consumption tax activity,” stated Secretary Young. “This one-time money will be carefully considered in the development of the FY22 Budget that will be submitted to the Legislature next week. The Governor’s proposal will recommend strategic investments that will continue to grow our economy, so we are fiscally sound when federal stimulus dollars are no longer available,” Secretary Young added
Additionally, the Emergency Board approved an upgrade, or increase, to the revenues expected in fiscal year 2022 that begins on July 1, 2021.
Compared to the August 2020 forecast, the General Fund revenue forecast was increased by $155.7 million, the Transportation Fund by $9.4 million and the Education Fund by $70.2 million.
“The updated estimates are again primarily due to the federal stimulus coupled with optimism that the federal government will provide additional stimulus and emergency relief under the Biden administration,” stated Secretary Young. “This forecast will inform decisions made in final development of the FY22 budget and will be available to use in our base operations budget in lieu of one-time money. Put in the context of pre-pandemic expectations that were adopted in January of 2020, the Education Fund is $31.5 million ahead of the January target, the General Fund is $51.8 million ahead, and the Transportation Fund still lags by $6.1 million.”
Legislative Economist Tom Kavet wrote on Tuesday as part of the consensus revenue report presented to the Emergency Board:
The Vermont and US economies continue to be driven by two dominant phenomena: the epidemiological path of the pandemic and the colossal federal fiscal and monetary policy responses to it.
Both are without precedent in the past century, leaving little historical basis for current projections.
As a result, the forecasts herein remain highly uncertain, pending further developments associated with each of these causal factors, and are best understood as order of magnitude estimates.
Revenue data from the first half of FY21, however, appear to indicate that if federal deficit spending is sufficiently massive, it can offset almost any recessionary event – including a pandemic.
With nearly $7 billion in federal transfer payments to Vermont already in progress and as much as $3 billion more likely to come, economic “winners” are now more than offsetting “losers” and tax revenue expectations for both FY21 and FY22 have been radically upgraded from prior August projections.
In fact, per the chart (below), total revenues in all funds are now expected to be only $20M below pre-pandemic FY21 estimates and $77M above FY22 estimates.
Source: Montpelier, VT – Administration Secretary 1.20.2021