Legislative economists warn long-term strain on Vermont transportation fund despite short-term gains

Tom Kavett, the legislature’s legislative economist, told the House Transportation Committee on Jan. 23 that midyear revenue estimates show only modest changes since July but that the transportation fund faces structural pressures from declining gasoline purchases, continued remote work, and growing shares of vehicle value-based revenue being routed elsewhere.

Kavett said the board that sets revenue assumptions adopted updated tables that show very small net changes since the July forecast. "The bottom line is the difference in all 3 funds, you know, between January [and] July is $60,000,000," he told the committee. He added that, for the transportation fund specifically, the January adjustment was about $3 million higher than the July forecast and that much of the near-term strength comes from motor-vehicle purchase-and-use receipts.

Why it matters: the committee heard that the mix of revenue sources matters more than short-term headline gains. Fuel taxes are declining both on a per-gallon and a volume basis because vehicles are becoming more efficient, electric vehicles are growing (still a small share of the fleet), and remote work has permanently reduced some driving since the pandemic. "You're not getting rescued with price and you're not getting rescued with volume," Kavett said when discussing gasoline taxes and gallons sold.

Key details from the hearing: - Motor-vehicle purchase-and-use tax: This category is the strongest growth source in the forecast — Kavett cited a 5% increase in the current year and projected 3–4% growth in subsequent years — and is the main reason the transportation fund showed a modest uptick in the January revision. He noted advanced purchasing tied to tariff risks as one factor boosting recent receipts. - Fuel taxes and gallonage: West Texas Intermediate oil prices are lower than some prior periods (Kavett referenced a real-dollar price near $70 a barrel). But the committee was told that lower prices do not offset the long-term decline in gasoline gallons purchased, a key driver of traditional fuel-tax revenue. - Transfers and fund shifts: Committee members asked about a long-standing transfer of motor-vehicle related revenue into the education fund. Kavett said the transfer reduces the transportation fund’s net revenue and that an estimated roughly $70 million will be directed to education by fiscal 2029. He characterized the proliferation of small, dedicated funds and interfund swaps as complicating oversight of available money. - Federal funds and cash balances: Kavett said the state has drawn down roughly $400 million of federal COVID and infrastructure-related funds earlier than expected to accelerate projects, and that drawdown reduces interest income on state cash balances. He encouraged the committee to keep maximizing federal highway dollars but noted strings attached to federal grants can raise local project costs. - Local project costs and compliance: Several legislators raised concerns that accepting federal funds often requires processes such as NEPA review and other federal compliance steps that add time and cost, disproportionately affecting rural municipalities with limited capacity. "If you are accepting federal dollars to build a sidewalk or whatever, you have to go through NEPA review because that's a requirement," said Representative White.

Committee members discussed policy levers: indexing fees to inflation, rethinking the composition of funds and transfers, and considering mileage-based user fees (a longer-term option discussed as a way to capture EV travel). Kavett and members noted tradeoffs: federal funds produce substantial scale and leverage but may constrain state flexibility and drive up upfront planning and compliance costs for local projects.

The committee did not take formal votes during the hearing. Members signaled plans to press the topic in a forthcoming, more detailed transportation study and in ongoing committee work this session.

Ending: The committee scheduled follow-up work on a longer-term transportation study to evaluate revenue options, fund structure, and the costs of federal compliance for municipal projects. Kavett offered to provide detailed data and follow-up to members through the legislature’s fiscal staff.