Administration economist Jeff Carr, left, and legislative economist Tom Kavet
A new projection by the Vermont legislature's chief economist found the state could lose out on $430 million in tax revenue next fiscal year — or 17.4 percent of what it was counting on collecting.
The analysis, provided to two House committees Wednesday morning by economist Tom Kavet, is the first to look beyond the already grim forecasts for the current fiscal year, which ends in June, and consider the longer-term impact of the coronavirus pandemic.
Kavet warned members of the House Ways and Means Committee and the House Appropriations Committee that it was challenging to peer into the fiscal future given how little is known about the trajectory of the public health crisis.
"There is phenomenal uncertainty right now," he said. "This is not primarily an economic event. This is an epidemiological event with huge economic consequences."
Kavet and executive branch economist Jeff Carr expect the state to bring in $146 million less in the final months of the current fiscal year than they had forecast just months ago. That doesn't include another $166 million in revenue that will arrive later than expected due to delays in tax due dates.
The near-term revenue challenges are driven by a steep drop in consumption taxes — such as those on meals, hotel rooms and gasoline — related to the government's stay-at-home orders. While the gasoline tax could rebound next year as the orders are lifted, other revenue sources, such as personal and corporate income taxes, are likely to take a bigger hit.
"It's not like this is going to be a steep second-quarter drop and things are going to bounce back," Kavet said. "It will be much longer lived and uncertain, pending what happens epidemiologically."
Kavet and Carr are expected to present a more formal, consensus revenue estimate next month, but Kavet presented his own analysis for the 2021 fiscal year during Wednesday's meeting. He found that the state's General Fund would take in $266 million less than expected, while the Education Fund would be down $113 million and the Transportation Fund by $52 million.
According to Kavet's analysis, the state could collect 54 percent less in corporate income taxes next year than it will this year, and 12 percent less in personal income taxes.
Kavet did highlight one bright spot in the otherwise dismal data. As Congress and the Federal Reserve flood the economy with various forms of stimulus, Vermont has pulled in a "disproportionate share," he said. That includes the $1.25 billion the state received through the Coronavirus Relief Fund and the more than $1 billion Vermont businesses have received through the Paycheck Protection Program, which provides low-interest, forgivable loans to small businesses. Both were made by possible by the federal CARES Act.
Still, with unemployment "north of 20 percent," Kavet said, economic recovery could be slow and difficult to predict. "It's not a traditional recession," he said. "It's a planned, temporary shutdown. And then there are going to be lots and lots of knock-on economic effects from this."
Lawmakers are planning to take the unusual step of further amending the current state budget to address the immediate revenue shortfall. Gov. Phil Scott's administration is expected later this week to present the legislature with a proposal to rebalance this year's budget. The House and Senate would then take it up.
Asked at a press conference Wednesday morning to address Kavet's analysis, Scott said it underscored the need to maintain fiscal discipline.
"We need to figure out what the magnitude of the problem is before we start spending money in any area and before we start to contemplate how we're going to fill those holes or what we're going to do without," he said.