by Timothy McQuiston, Vermont Business Magazine Secretary of Administration Kristin Clouser released Vermont’s revenue results for June 2023 and fiscal year-end today. June was an underperforming month for the Transportation Fund, however, both the General Fund and the Education Fund exceeded their respective monthly targets. As of the close of the fiscal year, only the General Fund exceeded its cumulative annual target as derived from the annual fiscal year 2023 consensus revenue forecast adopted by the Emergency Board at its January 17, 2023, meeting.
As the state economists enumerated on Monday, at the annual Emergency Board July meeting, the personal income tax has lagged, but the GF has been going full steam ahead because of corporate income tax returns and interest on the state’s cash-on-hand. Interest rates have risen from miniscule to robust, borne along by rising inflation.
Inflation has fallen steeply from last year (9% to about 3% now) but remains well above the 2 percent target the Federal Reserve Board hoped to hit. The Fed has been raising rates for the last year and a half in order to fight off inflation. Vermont economists doubt inflation will fall that low in the near future. Already fuel prices, witnessed by gasoline, is heading back up.
Revenue collections for the month of June 2023 show the state’s General Fund, Transportation Fund, and Education Fund receipts were a combined $304.1 million, exceeding the $294.9 million monthly consensus target by $9.2 million, or +3.1%.
The cumulative fiscal year-end annual results closed $39.3 million, or +1.2%, above the $3,209.2 million consensus target set back in January following the January 2023 Emergency Board meeting.
General Fund revenues for June totaled $210.0 million, $10.9 million, or 5.5%, above the $199.1 million monthly consensus cash flow target.
State revenues show strength despite uncertainty
For the fifth month in a row, Personal Income Tax receipts failed to meet their monthly consensus cash flow target, missing by -$9.0 million in June. Health Care revenues missed their monthly consensus cash flow target by -$2.0 million and there was a combined -$0.9 million miss by the Meals and Rooms Tax, Insurance Tax, Liquor Tax and Net Property Transfer Tax receipts.
The Corporate Income Tax and Other Receipts category, however, exceeded their consensus June targets by $6.5 million and $15.4 million, respectively, as did the Estate Tax, by $0.9 million.
As in previous months, the Other Receipts category was the beneficiary of unprecedented investment earnings due to the state’s cash position and favorable interest rates.
Fiscal year 2023’s General Fund underperformance was concentrated predominantly in the Personal Income and Health Care Tax receipt categories, which ended the year -$52.6 million (or -4.2%) and -$7.5 million (or -2.3%) below target, respectively. The Liquor Tax also failed to achieve its annual target by a marginal -$0.2 million (or -3.2%).
These downside misses were more than offset by the Corporate Income Taxes and Other Receipts Category’s $60.0 million (or +27.1%) and $36.2 million (or +34.6%) above target performance, respectively.
An additional $7.4 million supplemented these results from cumulative above target earnings in the Meals and Rooms Tax, Insurance Tax, Estate Tax and Net Property Transfer Tax receipts. On a net basis, the General Fund ended fiscal year 2023 at $43.3 million (or +2.0%) above its $2,014.6 million target.
Revenues in the Transportation Fund fell short of their $31.1 million June consensus target by -$2.6 million (or -8.2%). The $0.2 million (or +3.2%) above target performance, relative to its $6.0 million target, by the Gasoline Tax was directly offset by a -$0.2 million (or -10.8%) below target performance by the Diesel Tax, relative to its $1.8 million target. Other Fees exceeded their $2.0 million target by less than $0.1 million (or +1.6%) but it was not enough to overcome the -$1.9 million (or -16.7%) downside miss by the Motor Vehicle Purchase and Use Tax relative to its $11.6 million target. Motor Vehicle Fees revenues also missed their $9.6 million target by -$0.6 million (or -6.7%).
The Transportation Fund’s fiscal year 2023 year-end results were -$3.9 million (or -1.3%) below the $299.1 million target. Only the Other Fees category achieved its annual target of $21.1 million exceeding this value by $0.3 million (or +1.4%). Gasoline Taxes were -$0.4 million (or -0.5%) short of their $74.2 million target; Diesel Taxes were -$1.1 million (or -5.8%) short of their $18.7 million target, Motor Vehicle Purchase and Use Taxes were -$2.5 million (or -2.6%) short of their $97.3 million target; and Motor Vehicle Fees were -$0.3 million (or -0.3%) short of their $87.8 million target.
Education Fund revenues exceeded their $64.7 million June consensus target by $0.9 million, or +1.4%. The -$1.0 million (or -16.7%) Motor Vehicle Purchase and Use Tax miss, relative to its $5.8 million target, was offset by above target performances in each of the Education Fund’s other categories except for a less than -$0.1 million (or -0.8%) marginal miss by the Meals & Rooms Tax relative to its $4.1 million target.
The Sales & Use Tax exceeded its $49.4 million target by $0.4 million (or +0.7%); the Lottery Transfer exceeded its $5.4 million target by $0.6 million (or +11.1%); and Interest Earnings exceeded their less than $0.1 million target by $1.0 million.
Fiscal year 2023 year-end results for the Education Fund fell just short of its $728.9 million target by -$0.1 million (or -0.0%). The Sales & Use Tax revenues were -$5.3 million (or -0.9%) below its $589.3 million target; and the Motor Vehicle Purchase & Use Tax was -$1.2 million (or-2.6%) short of its $48.6 million target.
These downside misses were offset by the Meals & Rooms Tax which was $1.4 million (or +2.4%) above its $58.1 million target; the Lottery Transfer was also $1.0 million (or +3.3%) above its $31.1 million target; and Interest Earnings were $4.0 million (or +220.9%) above their $1.8 million target.
According to Secretary Clouser: “June was the only month during the fourth quarter of fiscal year 2023 that the State achieved its combined monthly consensus revenue target. These results were predominantly due to favorable interest rates and the state’s unusually large cash position providing historically high investment earnings.
“Although this short-term windfall is a welcome benefit, it is not a reliable component of long-term future revenue generation. As the Federal Reserve begins easing its monetary policy position and the appropriated pandemic relief funds are disbursed from the State’s treasury, interest earnings will decline. Unanticipated events, such as the recent flood that has devastated homes and businesses in various regions of the State, also present challenges. The State needs to remain focused on these realities in anticipation of the fiscal year 2025 budget cycle.”
Source: Agency of Administration. August 1, 2023 Montpelier, VT
