MONTPELIER — Unprecedented levels of federal stimulus spending approved in the wake of the pandemic continue to bring sunny economic news to Vermont.
The state’s economists now predict general fund revenues will exceed expectations by $190 million this fiscal year and $199 million more the year after. The previous fiscal year, which closed June 30, ended with a $200 million general fund surplus.
“I want to apologize, at the outset, for the overuse of superlatives,” Jeff Carr, state economist for Gov. Phil Scott’s administration, told the state’s Emergency Board by way of introduction Friday. The panel, which includes the governor and the chairs of the Legislature’s money committees, meets twice a year and adopts “consensus” revenue forecasts prepared by the state’s economists.
The rosy revenue picture extends across basically all of the state’s coffers. Nearly all of the state’s taxes and fees are performing above expectations, but the corporate tax was “extraordinarily robust” last year, according to the economists’ report, and personal income tax receipts topped $1 billion for the first time ever.
The Education Fund closed the last year with a nearly $29 million surplus and is expected to end the fiscal year next June 30 with a nearly $67 million surplus. The Transportation Fund, too, is expected to collect $13 million more in receipts than initially anticipated this year.
“This disaster essentially ended up being this gigantic financial windfall,” said Tom Kavet, the state’s economist for the Legislature. “Who would have guessed? But that’s what happens when you get deficit spending on the level that we’re seeing.”
The amount of federal cash flowing into the state has nearly doubled since the economists prepared their most recent forecast in January. With the results of the Georgia runoffs clinching the Senate for the Democrats, still even higher levels of federal aid were approved than Vermont’s number-crunchers had contemplated possible.
Including all pandemic-related federal aid that has flowed to businesses, residents and state government, a whopping $10 billion in extra federal cash has now found its way to Vermont.
Federal spending has been a boon to most states, but Vermont has been particularly well-positioned to reap its rewards. That’s in large part because of small-state minimums, which meant the state received more than it would have been entitled to based on population alone. (Some red states also declined some federal cash — most notably unemployment assistance.)
All told, Vermont received about $15,778 per capita in federal aid. That’s the third-highest in the country, behind only the District of Columbia and New York.
Even federal pandemic-related spending outside Vermont has had positive downstream effects for the Green Mountain State. With the stock market soaring, the state’s ailing pensions, for example, saw eye-popping investment returns of 24% in the last fiscal year. Assets under management grew by roughly $1 billion.
But labor force participation is still depressed, as employees quit their jobs in record numbers and still others stay out of the workforce because of child care or health concerns. And the economists expressed worries about the economic boom’s inflationary impact.
And what the pandemic giveth, it can taketh away. Both Carr and Kavet stressed that the ever-evolving virus could easily imperil the state’s current financial outlook. Kavet noted that, while a speedy vaccine rollout had boosted the state’s meals and rooms taxes, viral variants might spell trouble.
“I do think people and businesses are more used to how to operate with some degree of risk. But that’s a really big concern, and that, at any point in time, this could flatten,” he said.
The economists issued their warning, incidentally, at nearly the same time as the Vermont Department of Health reported 55 new COVID-19 cases — the highest daily case count in 2½ months.
Still, the money now at the state’s disposal presents Vermont with a once-in-generation opportunity to make investments in long-deferred priorities. Lawmakers and the governor have already started, with $150 million earmarked for broadband in the last legislative session.
On Thursday, anticipating the news to come, the Vermont-National Education Association, the state’s largest union, made its own pitch: paying down the unfunded liability for teachers pensions instead of cutting benefits.