Budget to see $44M boost from surplus
Legislative economist Tom Kavet and administration economist Jeff Carr told the board that at a minimum, the state can expect money available in the general fund to be $44.2 million higher than previously predicted. The number will likely be even larger, they said.
But the increase in tax revenue is being viewed as a one-time boon which the economists say was brought on by unique events that aren't expected to continue.
Kavet and Carr said the surplus was in large part spurred by events related to the federal tax changes.
One driving factor is corporations that are repatriating money: bringing funds held overseas back to the United States and paying a tax on that transfer.
The federal tax law, passed in December, temporarily offers a lower tax rate for companies to move their money back home.
"That's the source of a good chunk of this upside," Kavet said.
Other variables include a good year for the stock market and some taxpayers making significant payments related to mergers and acquisitions of companies both inside and outside of the state, according to Carr.
Typically, the state's economists meet with the Emergency Board twice a year — in January and July. The end-of-session update was an unusual event, driven by unusual circumstances: The first state surplus of any significance since the end of the Great Recession.
Last week, Stephen Klein, JFO's chief fiscal officer, told the House Ways and Means Committee that the state was reporting $55 million in surplus tax revenue — about $30 million of which was driven by an uptick in personal income taxes and more than $18 million by a corporate tax increase.
In a unanimous vote, the Emergency Board, which is comprised of Gov. Phil Scott and the chairs of House Appropriations, Senate Appropriations, House Ways and Means and Senate Finance committees, moved to increase the state revenue estimate by $44.2 million.
With more money on the table, Scott is vying to use $20 million of the surplus to fund his plan to plug a $58 million hole in the education fund using one-time money.
Scott's 11th-hour plan, which was introduced last week, aims to keep property tax rates level for five years and reverse deficits in the education fund over a five year period through three major cost-cutting initiatives including a statewide teacher health care benefit, block grants for special education and a threshold for teaching staff to student ratios.
Sen. Jane Kitchel, who chairs Senate Appropriations Committee, told reporters Monday that she is not interested in allocating $20 million of the surplus to pay for Scott's education funding proposal.
Instead, she said budget writers want to pay down the debts that have accrued since the Legislature decided to underfund retirement benefits for teachers.
"We have not made final decisions, but I will say that I think that our general view has been let's get our debts paid down and that's what should be our top priority," she said.
The Senate budget would already allocate $10 million of the one-time dollars from a tobacco settlement to help pay off the state's teacher pension liability and $5.5 million of one-time money into paying off a $27 million loan for retired teachers' health care costs.
Kitchel added that the state should not be using one-time dollars to attempt to solve "ongoing issues."
Scott said that harnessing the one-time money for his plan would be making an important investment.
"I think that Vermonters would appreciate knowing that their property tax rates won't fluctuate over the next five years," he said after the meeting.
The Senate already accounted for a revenue surplus of $24 million in its budget.
Under the proposal, $7 million would cover a Medicaid shortfall, more than $8 million would cover a fiscal year 2018 shortfall in the education fund reserves and another $8 million would pay for corporate tax refunds.
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