Tax Increases Could Be Needed To Deal With Federal Budget Cuts This Fall

Jul 1, 2017

Vermont has a state budget for the new fiscal year that didn't raise any new taxes or fees, but some elected officials – including Gov. Phil Scott – are already thinking ahead to the financial impact that cuts at the federal level could bring to the state.

Scott signed the new state budget earlier this week, and in addition to it not raising taxes or fees, the growth in spending in the General Fund is less than the rate of inflation. Scott says this approach will help put the state on a sustainable spending path for the future.

But there are two things that could have a big impact on Scott's fiscal policies.

The first is the total amount money the state collects in revenue for the fiscal year that just ended. If revenues for June don't meet projections, Scott says he'll probably need to implement some spending reductions in the new budget.

"The last report that we received put us back on track. You know, it's been an up-and-down battle here month to month," said Scott. "We'll see what happens in this month. We'll know in a matter of a week or two whether we meet the targets or not." 

But Scott says possible budget reductions caused by a revenue shortfall pale in comparison to what might happen if Congress cuts spending to a number of state programs this fall.

"The big question mark really is what happens in Washington, and that could have a very detrimental effect on us and so we'll have to react to that accordingly," said Scott. "The reality is we rely so heavily on federal funds in our budget that even a small change could have a drastic effect on us." 

"The reality is we rely so heavily on federal funds in our budget that even a small change could have a drastic effect on us." – Gov. Phil Scott

Scott pledged not to raise taxes during the recent legislative session, but he says he can't make that same promise if the state has to deal with significant federal budget cuts.

"We have to take care of the most vulnerable and that has to be a priority for us," said Scott. "So we together will come up with solutions, I'm sure. And they may not be palatable for some, but again we'll address them as they unfold."   

During the budget debate this session, lawmakers were very aware of the possibility that federal budget cuts could take place in the fall.

House Ways and Means Chairwoman Janet Ancel told her colleagues that it was critical to maintain some of the state's tax capacity in case federal cuts are made.

"So we have not raised taxes and fees in this budget," said Ancel. "We've preserved whatever additional tax capacity we have for a future response to whatever budget cuts come to us." 

If Congress does make major cuts to state programs this fall, it's likely that Vermont lawmakers will return to the Statehouse in October to address these issues.