M&A activity push February tax revenues 15.4% over targets

Vermont Business Magazine Secretary of Administration Kristin Clouser today released Vermont’s revenue results for February 2023. For the fifth month in a row, both the General Fund and the Transportation Fund ended with revenue above target. The Education Fund bounced back from its prior month miss to surpass the February target by $1.3 million. Year to date, all three funds remain ahead of their respective targets as adopted by the Emergency Board at its January 17, 2023 meeting.

The state’s General Fund, Transportation Fund, and Education Fund receipts in February were a combined $203.6 million, or 15.4%, above monthly consensus expectations.

This continues the trend of the first eight months of the fiscal year, where combined revenues across all three funds were 6.3% above the consensus target set at the July 2022 Emergency Board meeting.

General Fund revenues collected in February totaled $128.1 million, $25.6 million or 25.0% above the monthly consensus cash flow revenue target. Positive receipts activity over the month was mostly concentrated on two sources – corporate income taxes and net interest earnings.

Personal income tax revenues were below targets (-$3.21 million or -9.28%). This time of year there is much tax return and deferred payment activity. It typically takes the entire tax season to play out in order to understand the performance of the PI. To date, the PI is running ahead of expectations by $7.79 million (1.03%).

February saw the results from a significantly higher-than-expected amount of activity related to mergers and acquisitions that propelled corporate income tax receipts $21.6 million (699.3%) beyond its $3.1 million target for total receipts of $24.7 million.

Accompanying this unforeseen level of recent mergers and acquisitions activity was the unanticipated $7.2 million of investment earnings received by the General Fund. This accounted for 48.3% of the $14.9 million of Other Revenues that ended the month $6.4 million over its $8.5 million target.

Significant cash balances, due to better than anticipated state receipts and federal COVID funds, coupled with rising short-term interest rates and adaptive cash management practices, have allowed the General Fund to capitalize on the Federal Reserve’s restrictive monetary policies.

Revenues in the Transportation Fund beat monthly consensus expectations, bringing in $19.4 million in February, $0.4 million or 1.9% above the consensus cash flow estimated target.

Year-to-date, receipts have exceeded consensus expectations by $1.5 million, or 0.8%.

As in prior months, the $0.72 million Motor Vehicle Purchase and Use tax receipts continued to offset the ($0.71) million combined downside losses incurred by the Gasoline and Diesel taxes.

Education Fund revenues last month were $1.3 million, or 2.3%, above the monthly consensus cash flow target, having collected $56.1 million in February. A $0.4 million increase in investment earnings offset the ($0.4) million downside miss in Lottery receipts.

Sales and Use Tax receipts rebounded from last month’s underperformance to post $44.8 million of revenues which exceeded its $44.2 million target by $0.6 million.

Revenue data for the first eight months of the State’s fiscal year continue to show positive results in the aggregate.

According to Secretary Clouser: “The administration is pleased that Vermont continues to meet or exceed its revenue expectations. The unanticipated investment earnings represent a silver lining from the Federal Reserve’s restrictive monetary policies on interest rate levels, but we must still exercise caution should those same policies cause the economy to reverse course. Vermont will continue to monitor its economic position and adapt its fiscal strategies accordingly.”