Legislative economist warns Vermont transportation revenues largely flat as construction costs surge

Legislative economist Tom Pivett told the Senate Transportation Committee Thursday that Vermont's core transportation revenue streams are effectively flat while construction costs and one-time federal funds are complicating long-range planning. Committee Chair Rich Westman convened the session.

Pivett said the gas tax and most vehicle-related revenues provide limited growth, leaving the state to rely on a few dollar-linked sources such as the motor vehicle purchase-and-use tax and intermittent federal grants. "Most of the revenue within transportation is flat," Pivett said. He told senators that purchase-and-use receipts are one of the few state-collected taxes that tend to rise with price, but that most other transportation categories show minimal annual growth.

The forecast Pivett presented shows modest real growth of roughly 1 to 1.5 percent annually for the major transportation funds after recent fee increases are factored out, a pace he said is below typical inflation. "You're looking at like between 1 and 1 and a half percent growth a year. And that's below inflation levels," he said.

Pivett warned committee members that construction costs, which drive capital program budgets, have increased markedly: agency reports to the legislature showed roughly 40 percent higher construction costs between 2021 and 2023. "Their construction costs were 40 percent," he said, citing the agency submissions. The mismatch between slow revenue growth and rapidly rising construction prices, Pivett said, is a central challenge for the transportation program.

The session also reviewed a temporary buildup of state cash balances from recent federal stimulus and infrastructure programs. Pivett said the state's cash balance had risen as federal infrastructure, COVID and Inflation Reduction Act funds were deposited, producing significant interest earnings on those balances. He cited $90 million in interest income in the most recent fiscal year and said a seasonal drawdown reduced the balance from about $2.0 billion to about $1.6 billion, a roughly $400 million reduction. Pivett said some of that drawdown was accelerated to avoid rescission of federal funds.

Committee members asked about indexing gas taxes to inflation or other indices as a way to stabilize revenue. Pivett said indexing is technically feasible but adds complexity and would not on its own solve declining per-gallon consumption caused by vehicle efficiency and changes in travel behavior. "You can do whatever you want. If you want the index, I could construct something," he said, but added that any index choice raises timing and policy issues.

Pivett told senators that the motor vehicle purchase-and-use tax stands out in the forecast because vehicle prices continue to rise; that tax is projected to grow faster than other transportation revenue sources and is already shared with other funds, reducing the net benefit to the transportation account. He also emphasized that one-time federal influxes, while large, are vulnerable to inflation and rising construction costs and therefore do not fully substitute for recurring revenue.

Westman and other members asked that joint fiscal staff and agency staff follow up with additional modeling and more specific options for indexation, managed fee adjustments, and other measures the committee could consider. Pivett said he would participate in follow-up work and that Joint Fiscal would review next steps.

The committee did not take formal votes during the presentation; members requested additional analysis and follow-up briefings.