State revenue forecast shows modest gains but officials warn of volatility

A staff presenter told the Finance committee that the state’s revenue forecast is modestly higher than the July projection but remains exposed to volatility from asset prices, the timing of new-tax compliance and ongoing expenditure pressures.

The presenter (identified in the transcript as Speaker 4, a staff member) said the “economy is doing really well by any aggregate metric,” noting “48 consecutive months of employment growth,” an unemployment rate “at 4.1%” and inflation “down to 2.4% on a PCE basis.” He cautioned, however, that gains were uneven and that several revenue sources remained “lumpy” and difficult to forecast.

Why it matters: modest upward revisions to the forecast could free limited one-time funds now or later, but the presenter and committee members warned that reliance on volatile sources — capital-gains-driven income, property transfer receipts and recent taxes such as short-term rentals and a cloud-services tax — creates uncertainty for sustaining ongoing programs and budgets.

Most important facts

- The presenter described modest upward adjustments to revenue since the July forecast but characterized the change as small relative to total funds. He said the change compared with July is “not seismic.”

- He identified multiple specific risk drivers: asset-price volatility (which affects capital gains, estate taxes and corporate returns), uncertain compliance and phase-in rates for newly enacted taxes (he cited the cloud tax as particularly hard to estimate) and timing issues for the childcare payments accounting.

- The transcript records a statement that $70,000,000 in one-time money was used from the general fund to start the fiscal year; the presenter said that practice reduced available one-time resources going forward.

- Officials discussed differences between “source” forecasts (the economy-level drivers) and “available” general fund projections. The presenter said tables in the packet show five-year fund levels and year-over-year percentage changes and noted that the Emergency Board looks at the available general fund figures.

Details from the meeting

The presenter walked the committee through the packet and said some of the largest near-term increases in revenue stem from recent tax changes, not from steady base growth. He said new taxes have produced growth in some categories but that collection timing and taxpayer behavior make realization uncertain. On short-term rentals, the presenter said compliance tracking by payer looks “good” but that volume has flattened after pandemic-era spikes.

On the cloud tax, the presenter said it is “quite complicated” and that it will likely take time for tax professionals and payers to identify liabilities and for the state to phase in revenue. He described the cloud tax as an example of a new-area levy where the state cannot yet identify the full universe of liable payers and where revenue may phase in slowly rather than appear immediately.

Committee members asked how to read the differences between percentage changes (year over year) and the packet’s change relative to the July forecast; the presenter clarified that the packet shows the change versus the prior July estimate and that other tables show year-over-year percentage changes by fund.

The presenter also flagged an accounting/timing issue tied to childcare payments: he said some scheduled payments were smaller than expected (one figure cited in the transcript was a difference of $5,000,000), and that will take time to reconcile; however, he added that by year end the general fund would likely net out to reflect the actual liabilities, leaving the political choice of whether to move dollars between funds.

What the committee will do next

Committee members asked for follow-up briefings from tax and fiscal staff. The presenter said staff will continue coordinating with the tax department and the Green Mountain Care Board and that additional clarifications — particularly on cloud-tax implementation and childcare payment timing — will inform the next forecast.

Ending

The presenter closed by urging members to review the five-year tables in the packet for fund-level detail and said staff will provide updates as compliance data and timing issues resolve. No formal votes or motions were recorded on the revenue forecast during the portion of the transcript provided.