'Troubling' trend for personal income tax revenues

by Timothy McQuiston, Vermont Business Magazine Secretary of Administration Kristin Clouser issued a loud note of caution today as all three major tax revenue funds failed to meet expectations in the month of April. Clouser said the under-performance of the personal income tax by over $40 million is particularly "troubling."

For the first time this fiscal year, the General Fund, Transportation Fund and Education Fund have all failed to achieve their monthly consensus revenue expectations. Year to date, only the General Fund is exceeding the target adopted by the Emergency Board at its January 17, 2023 meeting.

The State’s General Fund, Transportation Fund, and Education Fund receipts were a combined $443.0 million, missing the $458.6 million monthly consensus target by -$15.6 million, or (3.4%). Cumulative results through April 2023, however, remain $32.0 million, or 1.8%, above the $2,714.9 million consensus target set back in January.

General Fund revenues for April totaled $357.9 million, -$12.6 million, or (3.4%), below the $370.4 million monthly consensus cash flow target. For the third month in a row, Personal Income Tax receipts failed to meet their consensus target, missing by -$42.8 million in April.

Health Care taxes missed their monthly consensus cash flow target by -$3.5 million and there was a combined -$0.3 million miss by the Liquor and Net Property Transfer Tax receipts. Corporate Income Tax receipts, however, bounced back from the prior month exceeding their target by $24.1 million.

Reinforcing this positive performance were the Meals and Rooms Tax, Insurance Tax, Estate Tax and Other receipts category each exceeding their monthly targets by $0.7 million, $0.7 million, $3.3 million and $5.3 million respectively.

Unlike the previous three months, however, investment gains and excess receipts across multiple targets were not enough to overcome the substantial downside miss in Personal Income Tax receipts.

Revenues in the Transportation Fund also missed their $26.2 million April consensus target by -$3.0 million, or (11.4%), ending the month at $23.2 million. Year to date, cumulative receipts have fallen below consensus expectations by -$1.4 million, or (0.6%) through the tenth month of fiscal year 2023.

The month of April was also the first month since the January 2023 consensus revenue forecast, where receipts in the Motor Vehicle Purchase and Use tax failed to meet its consensus target, missing on the downside by -$1.2 million.

Education Fund revenues were slightly ($30,000) below target for April. The -$0.6 million Motor Vehicle Purchase and Use Tax and -$0.3 million Sales and Use Tax misses were almost completely offset by $0.6 million of higher-than-expected net interest revenues and a $0.3 million better than expected performance by the Meals and Rooms Tax.

According to Secretary Clouser: “April represents the second month in a row the State has failed to achieve its combined revenue target and the first month that all three funds have simultaneously failed to achieve their individual consensus cash flow targets. The significant downside miss for April by the Personal Income Tax in the G-Fund was troubling. The downside miss in the Motor Vehicle Purchase and Use Tax was also concerning because it has been the anchor offsetting many of the previous months’ categorical misses in both the Transportation and Education Funds. The State’s unprecedented investment earnings are impressive but are also highly susceptible to interest rate and bank balance fluctuations—especially as COVID funds are spent down. The Administration has consistently stated the need to exercise caution and due diligence with regard to how we spend the public’s resources and, given what may be the first indicators of an economic return to a post-pandemic baseline, it is with these lenses that the recent actions of the General Assembly must be scrutinized over the coming weeks.”

Source: 5.24.2023. Montpelier, VT - Secretary of Administration