2015 Pre-Session Fiscal Update

Last week the legislature was presented with a budget forecast for 2015 along with updates on healthcare reform efforts and the challenges and opportunities in education finance and delivery. All of the information can be viewed here: [http://www.leg.state.vt.us/jfo/reports.aspx] As many already know, we are facing the potential for an upcoming $100 million gap between revenues and expenses. General Fund revenues are almost 3% below previous estimates as personal income and estate tax receipts lagged, while consumption taxes (sales, purchase & use, vehicle registration, meals & rooms) have been strong. One theory for lower-than-expected personal income tax revenues is the use of certain tax strategies for maximizing refunds and minimizing liabilities. Corporate income tax receipts remain stable and our unemployment rate ranks among the ten lowest in the country. However, since revenues haven’t matched spending growth the administration and legislature will be forced to do some serious trimming of programs and services to avoid raising taxes. The governor has tasked all departments to submit level-funded and 5%-reduced budget proposals, and the money committees will no doubt have their hands full vetting and tweaking these numbers in the months ahead before actionable proposals are presented to the legislature and the people. Some of these cuts will be painful. While the “Reach Up” caseload (support for working families) has been declining, the DCF caseload of children in need has increased alarmingly. While the opiate crisis has contributed to this, so has poverty. According to the Vermont Dept. of Taxes, the percent change in adjusted gross income between 2009-2012 for those earning poverty-level incomes has declined while growth for those earning up to $75,000 a year has been in the low single digits. In stark contrast, income classes above $75-$100K per year saw much higher income growth during this three-year span, with dramatic increases of 43.5%, 51.8% and 73% for the top three income classes. According to the US Census Bureau, similar trends appear in household income growth percentages since 1980. Apparently, record stock market gains haven’t trickled down just yet. In the meantime, government spending simply can’t outpace revenue generation to the extent it has over the past couple decades with our state budget doubling while our population stagnates. The macro and micro economies do not appear to be sustainable by any reasonable analysis and state and federal lawmakers have to get their respective houses in order for everyone’s sake.

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