MONTPELIER — The state Emergency Board approved an upgrade in the state’s revenue forecast for fiscal 2021, as the state’s economists said the massive injection of federal spending during the COVID-19 pandemic had resulted in healthier than expected revenues through the first six months of the fiscal year.
The board unanimously approved revenue projections of $2.44 billion for fiscal 2021, $2.57 billion for fiscal 2022 and $2.62 billion in fiscal 2023.
The projection is based on what economist Tom Kavet called “a steady progression of above target performance on a number of key and very large tax sources,” as well as the change in administrations in Washington likely to result in additional coronavirus relief dollars.
As the Emergency Board learned in an update from the Legislative Joint Fiscal Office, the unexpected surge in revenue already has a significant upside. The projected 9 percent increase in education property taxes has been scaled back to 2.8 percent, JFO Associate Fiscal Officer Catherine Benham said, as the $58 million Education Fund deficit is now projected as an $18.6 million surplus.
The FY 21 projection of $2.44 billion is nearly a full recovery from the $2.47 billion predicted for revenues a year ago — before the pandemic forced businesses to close and led to thousands of furloughs and layoffs. In August, the Emergency Board downgraded the revenue forecast to $2.19 billion, a reduction of 11.2 percent.
“What we’re seeing is the impact of a phenomenal amount of federal deficit spending to offset the pandemic,” Kavet said, “levels of spending that have never in the history of this nation been put into effect.”
“Just to put this in a frame of reference, the state received in 2020 about 20 percent of its entire gross domestic product in federal stimulus payments. That’s just a staggering impact,” Kavet added.
Those dollars have multiplied through the state’s economy in different ways, coming back to the treasury as sales tax revenue — much of it online — and property transfer taxes from the sales of homes. Transfer taxes in 17 Vermont towns, including Dover, Wilmington, Winhall, Stratton, Manchester and Dorset, account for 50 percent of transfer tax revenue growth in calendar 2020.
But Kavet and fellow economist Jeffrey Carr, in a presentation to the board, warned that challenges remain. The recovery, and the distribution of federal funds through the Paycheck Protection Program and the CARES Act, has created winners and losers, as some businesses have been able to adapt while others, such as hospitality and tourism, are more at the mercy of the pandemic.
“When [federal assistance] runs out, we may have a bit of a down stroke in fiscal 2023 in part because that’s the point in time economy will have to start fending for itself again,” Cook said. He also said inflation may become a reality in fiscal 2023-25.
Unemployment also remains a concern. While the state has regained about 42,000 of the 68,000 jobs it lost at the height of the pandemic, it’s still down about 25,800 jobs, Cook said.
“We still have 19,500 fewer Vermonters employed. Under ordinary circumstances I’d be in here talking about a five-alarm fire in the Vermont economy,” Cook said.
When they revised projections in August, Kavet and Carr said, they were working with a lot of bad news and not a lot of hard data.
“We could see declines in job losses, and we knew federal money was coming, but a lot of it hadn’t landed yet,” Kavet said.