Vt. Lawmakers Face Bleak (But Better Than Projected) Revenue Forecast

Dec 3, 2020

About a month from now, Vermont lawmakers will kick off the 2021 legislative session, and incoming legislators are facing what might be the most volatile fiscal landscape the state has ever seen.

Thursday morning, members and members-elect of the House and Senate got an overview of the economic forces that they'll be contending with.

VPR’s Henry Epp and Peter Hirschfeld discussed the legislative briefing. Their conversation below has been edited and condensed for clarity.

Henry Epp: So at the outset of the pandemic, Pete, the state economists were projecting massive reductions in the revenues that fund state government. Is that shortfall as dire as they predicted back in the spring?

Peter Hirschfeld: Well, I'll give you the good news first, Henry. Things are not nearly as bad as economists thought they were going to be. Revenue projections for the coming fiscal year are up by $100 million over estimates from just five months ago. $100 million is a substantial amount of money in a small state like Vermont, and it's given lawmakers at least a little hope and optimism in what is otherwise a bleak fiscal landscape.

Here's the bad-news part of this: Revenues are still going to be down by more than $175 million from what we would have expected pre-pandemic. And it's really unclear at this point what role the federal government is going to play in helping plug that gap.

There's a guy named Tom Kavet, who's the economist for the Legislature, and he explained to lawmakers today that the national economy, and Vermont's economy by extension, is being driven by two things right now: The epidemiological path of the pandemic is one thing, and the second thing is the federal government's monetary response to that pandemic. He told lawmakers that it's tough to know what that monetary response is going to look like in the coming months:

"Control of the [U.S.] Senate is still up in the air with the two pending Georgia Senate runoff races," Kavet said. "And it's really difficult to forecast and guess exactly what may be coming."

It’s federal interventions, Henry, that have kept the economy from tanking worse than it has up until this point. Tom Kavet says it's going to be the scale of federal intervention in the next few months that's going to be the primary determinant for what we see from an economic standpoint in Vermont. And that means that the budget challenges Vermont lawmakers are going to face in the next session are going to hinge largely on policy decisions that have yet to be made in Washington, D.C.

More from VPR: Legislature Wraps Up Historic COVID Session With $1 Billion Spending Plan

OK, so a lot of question marks still there. But in the absence of more federal aid, what do those budget challenges look like right now?

They're intimidating. Vermont's budget is full of fixed costs that you can't really cut, let alone zero out. And there are line items like pension obligations, debt service, Medicaid, that are going to put close to $100 million in upward pressure on the state budget next year. That upward pressure, of course, comes amid the revenue decline that we touched on earlier.

And right now, Henry, analysts say there's a $120 million or so gap between what it'll cost to run state government and the revenues that are going to be available to pay for it. That budget gap does not include additional money for state colleges, for instance, which are going to need a significant infusion in order to avoid a disruption in their services. And that budget also doesn't include any new spending initiatives to help Vermonters who are struggling financially as a result of the pandemic.

We haven't even mentioned public education yet, Henry. And that's another area where lawmakers are going to be facing some really serious financial issues.

Well, let's touch on education a little bit more. The Tax Commissioner, Craig Bolio, is now projecting a 9% increase in statewide property tax rates next year. And he says that's due to rising costs in the public schools and declining education revenues. So do lawmakers have any plans to address that, this big 9% projected tax increase?

There's nothing solid or definitive on the table right now, Henry. You can be certain, though, that Gov. Phil Scott is going to have a lot to say about this issue in the coming weeks and months. That 9% tax increase you mentioned is based on a couple variables that may change. It assumes a 3.8% increase in school budgets, for example. It also uses revenue estimates that may be upgraded between now and January.

But the bottom line is that property taxes are slated to rise substantially at a time when many Vermonters are experiencing pandemic-induced financial stress. And we may well be on the cusp of yet another high profile policy dispute between the Republican governor and the Democratically-controlled Legislature over the issue of education spending.

Have questions, comments or tips? Send us a message or get in touch with reporters Henry Epp @TheHenryEpp and Peter Hirschfeld @PeteHirschfeld.

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