 100vw, 610px”><figcaption>A school bus drives down a Vermont country road. Photo by Cate Chant/VTDigger</figcaption></figure>
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The economic fallout from the coronavirus crisis is projected to put considerable pressure on Vermont’s K-12 funding system, and will complicate the process for setting next year’s property tax rates.
With businesses closing their doors and consumers reining in discretionary spending as the coronavirus brings the economy screeching to a halt, non-property tax revenues to the state’s education fund are expected to fall anywhere between $35 million and $45 million, according to an analysis by the Legislature’s Joint Fiscal Office. And that’s just this fiscal year.
The fund pays for the lion’s share of Vermont school spending. About two-thirds of its funding comes from property taxes, and the rest from a mix of sales, meals and rooms, vehicle, and lottery revenues. When non-property tax revenues fall, that puts upward pressure on property taxes.
Before adjournment, legislators traditionally set the so-called “yield” – the number used to calculate property taxes for the following year. But that will be difficult to do, JFO analyst Mark Perrault told lawmakers Wednesday, given the level of uncertainty around revenues for both this year and the next.
At the start of the legislative session in January, the state was projecting it would close the fiscal year with an education fund stabilization reserve of $36.4 million and a surplus of $12.9 million. But the COVID-19 outbreak-related revenue shortfall will completely wipe out that surplus and deplete reserves, putting the state on an unsteady footing to start next year, when the picture could be even bleaker.
Perrault told lawmakers in the House Ways and Means Committee that a revenue forecast for the upcoming fiscal year would be “completely speculative” at this point. But he added that the state’s economist expected shortfalls will be “much more severe than what we’re seeing right now.”
Further complicating the picture is Gov. Phil Scott’s decision to offer businesses and individual Vermonters relief by delaying several tax filing deadlines. Perrault said that could create a cash-flow problem for the fund, which is set to dole out its next installment to schools on April 30.
Doug Farnham, the deputy commissioner of taxes, replied that the department was working on an analysis of sales tax returns to see where they stood. A majority of the state’s sales tax is raised through larger businesses, many of which — particularly in the remote sector — aren’t seeing a downturn in business, he said. If cash flow becomes a concern, the state could ask certain people to pay earlier.
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“I think our next step at the tax department would be to reach out to particularly larger vendors — larger businesses that we believe should still have the capacity to file and remit those taxes — and encourage them to do so,” he said.
Beyond immediate cash-flow concerns, committee chair Rep. Janet Ancel, D-Calais, wondered how many delayed tax payments might ultimately not be paid at all.
“We also have a potentially large loss of revenue, which is basically just going to flow to property taxpayers,” she said.
Farnham acknowledged that that was “a very legitimate concern.”
“While we felt like the deferral was the right thing to do to help Vermonters through this crisis, it does add an increased layer of risk on the financial end for the state,” he said.
The $2 trillion federal economic stimulus package quickly passing through Congress is expected to bring millions in aid to Vermont schools. But Perrault said it’s unclear at this point how much will come, whether it will need to be split with the higher education sector, and what kinds of strings will be attached to the money.
“That’s not in the bank yet,” he said.
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