Public Assets Institute > Policy Areas > Vermont Budget > Money, money everywhere, but not a lot to spend

Money, money everywhere, but not a lot to spend

Vermont’s April revenue collections highlight the absurdity of federal rules restricting the use of the Coronavirus Relief Fund—the $150 billion that Congress appropriated in the CARES Act to help the states. The state’s personal income tax receipts dropped by two-thirds last month. Instead of taking in $184 million, as forecast, the tax department received $63 million. But according to the latest guidance Vermont can’t use its federal relief funds to close that gap—to pay for the programs and services that would have been covered by the $121 million the state didn’t collect.

One of the most critical problems facing states now is the sharp drop in tax revenue because so many people are out of work. We’ve known unemployment is bad. Nearly 90,000 Vermonters have filed initial claims for unemployment benefits, which are reported on a weekly basis. That’s been mostly in the last six weeks, and that number is more than a quarter of the people who were working in February.

Because there is a lag in the collection and reporting of tax receipts, it’s been hard to know the toll unemployment and business closures were having on the state’s finances. We start to get a picture of state revenue decline with the April figures:

  • Personal income tax: down $121.1 million
  • Corporate taxes: down $12.4 million
  • Rooms and meals taxes: down $9.3 million
  • Sales and use taxes: down $10.3 million

And that’s really just a first glimpse. The rooms and meals and sales and use taxes were collected before April 1, but some businesses also took advantage of an option to delay payments because of the pandemic. We’ll need to wait until May and June to see the brunt of the pandemic and stay-at-home orders.

Vermont fared well with the Coronavirus Relief Fund. Thanks to an allocation formula devised many years ago by Sen. George Aiken, Vermont received a small-state minimum of $1.25 billion, which was more than four times the funding it would have gotten through a straight per-capita distribution. It’s a lot of money when compared to the state budget or the revenues the state normally collects on its own.

But we don’t yet know the need. If Congress doesn’t renew the $600-a-week supplemental unemployment benefits, which expire at the end of July, or decides against another round of stimulus payments to individuals, Vermont may need to use some of the Coronavirus Relief Fund for direct income support. People without jobs or income will still need to eat, pay for housing, and, come winter, pay for heat.

The current federal rules have a narrow definition of how this money can be spent. You can use the money to fight the virus and the effects of the pandemic, including helping individuals and business that have been hurt—for example, from stay-at-home orders. But the money can’t be used to backfill state coffers, even though those coffers are running low because people and businesses can’t pay their taxes as a result of the pandemic and subsequent stay-at-home orders.

If these rules are allowed to stand, it poses a dire risk to Vermont’s schoolchildren. The federal government released more specific guidance last week saying the Coronavirus Relief Fund money cannot be used to help people and businesses pay property taxes, even though property taxes need to go up sharply because of the COVID-driven losses of other revenues.

That puts Vermont—and probably most states—in an untenable position: make deep cuts in education or put all of the burden of making up lost revenue on the back of property taxpayers, whose income has shrunk.

The sensible solution is for Congress to either lift restrictions on the use of the Coronavirus Relief Fund or appropriate more direct aid to states that can be used to cover revenue shortfalls. The one thing we can’t do is shortchange Vermonters who happen to be school-aged during this pandemic. Our state depends on the education of those in school today. Protecting their education in this crisis is protecting our future.

Posted by Jack Hoffman on May 12, 2020 at 3:51 pm

2 Responses to “Money, money everywhere, but not a lot to spend”

  1. Bob Zeliff says:

    This is a question about Scott’s budget proposal our a few day ago.

    The proposer filling the short fall with rainy day funds (ok) and using two types of Medicaid money totaling nearly $50million.

    I don’t understand this…. can some one add some info. I’ve asked 4 Addison county legislators and they can not answer and seemed generally un aware

    My concern is robing Medicaid moneys from Hospitals, healthcare providers when they are hurting badly before Covid and have been virtually shut down for several weeks so their income is way down too. This seems to be snaticn money from the wrong source to me Help


  2. Sarah Lyons says:

    Hi Bob,

    Thank you for your question. I’m assuming you’re referring to the $38.2 million in “AHS Federal Enhanced FMAP” and $8.7 million in “AHS Reduced Medicaid Claims” in the proposed FY2020 budget adjustment. Both of these are real reductions in Vermont’s Medicaid costs and not cuts that will reduce funding to Vermont hospitals and health care providers in this pandemic. The federal government is increasing its Medicaid match rate during the crisis. This will allow Vermont to reduce its share of the cost of Medicaid, but the increased federal match will make up the difference, so it should not reduce Medicaid resources overall.

    The $8.7 million also reflects a real reduction in cost. A lot of people are not going to the doctor or seeking other medical care out of fear of the virus. That includes Medicaid recipients. Vermont budgeted a certain amount for Medicaid services, and now the demand will be lower than expected.

    I hope this is helpful. Please let me know if you have further questions.