Consensus revenue forecast edges up by about $60 million; officials flag childcare payroll tax shortfall and new-tax uncertainty

A joint meeting of the Vermont House and Senate Appropriations committees on Jan. 22 heard a presentation from legislative economist Tom Cabot, who said the twice-yearly consensus revenue forecast approved by the emergency board shows a modest upgrade of roughly $60 million across the state’s three major funds compared with the July numbers.

"It's not an earth‑shaking forecast, but it's a little to the good," Cabot said, summarizing the January estimates and an across‑the‑board upgrade of about 1.8 percent relative to July. He said stronger-than-expected economic activity through the first half of the fiscal year—including continued job gains and easing inflation measured by the PCE index—helped drive the revision.

The nut of the discussion focused on which receipts are driving the revision and where uncertainty remains. Cabot told the committees that several recently enacted taxes are yielding less than originally projected in July. He cited the new "cloud" sales tax and a short‑term rental surcharge as examples of bases that often take time to reach full compliance or to be fully understood by filers. "When you tax an area that hasn't been taxed before, you have to communicate with all the potential payers," he said, adding that these items appear to be phasing in more gradually than forecast.

A central point of concern raised by representatives was the new childcare payroll tax. Rep. Amy Maricchi (minute citation: question during the hearing) asked about lower-than-expected collections to date. Cabot said first‑half receipts tied to the payroll tax totaled about $18 million, while his model’s expectation for that period was roughly $23 million—a shortfall of about $5 million. He attributed much of the gap to compliance timing and filing lags: quarterly filings and true‑ups, plus self‑employed filers who often pay later in the tax cycle, can push recognition of revenue into later months.

Cabot described the forecast's practical approach: the two‑year statutory forecast used for budgeting is supplemented with a five‑year view in the packet, but the five‑year numbers are more assumption‑driven and thus treated separately from the statutory figures that the legislature votes on. He told the committees the next meaningful true‑up would likely be after the October filing extensions and that the forecast should be cleaner in fiscal 2026. He also noted the administration placed $8 million of general fund into the new special childcare fund last year as a cushion.

Committee members asked about other drivers and risks. Cabot emphasized national and regional economic indicators: job growth for 48 consecutive months, a 4.1 percent unemployment rate, a PCE inflation rate of 2.4 percent, and significant stock market gains in 2024. He cautioned that federal policy changes—tariffs, trade measures, or other legislation—could affect inflation, interest‑rate paths and longer‑term revenue projections, and said his office retains a ‘‘wait and see’’ posture until concrete federal actions are implemented.

The hearing also included discussion about demographic factors and migration’s role in long‑range forecasts. Cabot said demographic components are among the more reliable drivers of multi‑year forecasts (for example, birth cohorts and school enrollments) but that short‑term revenue swings are often driven by prices, tax‑base changes, or one‑time adjustments.

No formal votes or directives were recorded during the hearing. Cabot and committee members agreed staff will continue to monitor receipts and report updates; Cabot said the emergency board had already approved the January estimates presented to the committees.

The committees scheduled further meetings: the House Appropriations Committee said it will reconvene tomorrow morning and members planned to go live on the floor at 3:45 p.m. the same day to continue related business.

Ending: The presentation provided the committees with a modestly improved revenue baseline but highlighted collection uncertainty around newly implemented taxes—particularly the childcare payroll tax—so legislators and staff signaled they will watch upcoming filings and October extension data before making treatment decisions for unexpected surpluses or shortfalls.