Revenues & Expenditures: 11. How Do Vermont’s Revenue Sources Compare To Other States?

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As discussed in the prior article, state governments tend to spend their money on the same things, with only the amounts spent differing from one state to the next. State government revenue sources, on the other hand, can and do differ widely from one state to the next.

Some states have no personal income taxes or no sales tax, some states have very high royalty revenues from mining or oil extraction activities and some states have significant gambling revenues from casino operations.  However, the revenue sources of all states fall into four basic categories, as follows:

  1. Service Charges: State governments charge fees for a wide variety of activities, such as drivers licenses, vehicle registrations, hunting and fishing licenses, business licenses and the like.  The list tends to be similar from one state to the next with only the level of fees differing materially.
  2. Federal Grants: A large portion of all state government funding is provided by federal grants. In all cases, Medicaid is the largest federal grant, but there are a wide variety of federal grant programs and the total amount received by individual states differs widely.
  3. Misc./Other: This is a small component of funding and typically includes items like interest income on fund balances and tobacco litigation settlement proceeds.
  4. Tax Revenues: All states impose taxes, but the mix of taxes differs across states.

 

Vermont and the New England States

From a revenue perspective, all six New England states are reasonably similar. None have any meaningful coal, oil or gas production, so royalty revenues are zero in all cases (Oklahoma, for example, had $413mm of “Gross Production Taxes” in 2017).  Only Connecticut has any meaningful casino operations, and their gambling tax revenues remain quite small.  Three states (Vermont, New Hampshire and Maine) have state imposed property taxes and the remaining three states do not. Vermont is the only New England state to have fully centralized K-12 education spending and therefore has the largest state property tax.

These differences aside, a comparison of funding sources for Vermont and the other New England states is useful and informative.

Funding Sources as a % of Total State Government Revenues (%)

VT NH Maine RI MASS CONN AVERAGE
Service Charges 13.2 30.9 14.0 21.3 25.2 18.9 20.5
Grants 32.9 34.1 35.5 35.7 23.2 27.3 32.3
Misc. 1.2 1.1 2.3 1.7 2.4 2.4 1.8
Taxes 52.7 33.9 48.2 41.3 44.2 51.4 45.3

Source: Fiscal year 2018 Comprehensive Annual Financial Reports for VT, NH, Maine and RI. Fiscal year 2017 Comprehensive Annual Financial Reports for MASS and CONN.

In the chart above, Vermont appears to be comparatively low in Service Charges, comparatively high in tax revenues and pretty much on par with respect to federal grants.  However, Vermont’s centralized state property tax skews the results relative to these other states.  If you remove property taxes from the equation, Vermont would be 16.0% Service Charges, 39.8% Grants and 42.8% Tax Revenues.

After adjusting Vermont for its unique centralized property tax, it appears Vermont has a very high level of grants, modestly lower Service Charges and modestly higher taxes than the average New England state.  Examining some of these revenues sources on a per capita basis confirms this profile, as follows:

       Selected Per Capita State Government Revenue Sources ($/head)

State Per Capita Grants Per Capita Personal Income Tax Per Capita Service Charges
Vermont 3,235.80 1,327.60 1,298.10
New Hampshire 1,833.80 000 1,662.00
Maine 2,250.90 1,217.30 887.80
Rhode Island 2,832.00 1,269.90 1,686.70
Massachusetts 2,376.30 2,124.80 2,123.20
Connecticut 2,407.30 2,257.50 1,657.90

Source: Fiscal year 2018 Comprehensive Annual Financial Reports for VT, NH, Maine and RI. Fiscal year 2017 Comprehensive Annual Financial Reports for MASS and Conn.  Population estimates from US Census Bureau.

Vermont’s per capita Service Charges, at $1,289.10, are lower than all but one other New England State.  Per capita income tax revenue is a bit higher than Maine and Rhode Island, but materially lower than Massachusetts and Connecticut.

Where Vermont really stands out is in federal grants.  Vermont’s per capita federal grants are a whopping 38% higher than the average of the five other New England states and 14% higher than the next highest state, Rhode Island.  If Vermont’s per capita federal grants were reduced to the average of the five other states, it would loose $561 million of revenue!

Key Observations

Quiet Please: Someone in Washington must be doing a good job.  Don’t tell anyone in the federal government about Vermont’s federal grants!!

Related Articles

1. Vermont’s State Government Service Revenues: https://theinformedvermonter.com/489-2-vt-service-revenues/

2. Vermont’s 2017 Federal Grants: https://theinformedvermonter.com/671-2/

 

 

 

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