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COVID-19 Pandemic: 13. Fiscal Impact on the Federal Government

The Informed Vermonter has long wondered when the country would begin to worry about consistent and unsustainable federal deficits and the resulting mountain of debt.

When the country voted in 2016 for Republican majorities in both houses of Congress and a Republican President, it was knowingly voting for increased deficits and more government debt.  These voters were not disappointed.  By cutting taxes AND increasing spending, the deficit has grown from $438 billion in fiscal year 2015 to $984 billion four years later, a 125% increase!

From a pure fiscal perspective, the federal government has never been more poorly prepared to deal with a national crisis. 

As of March 2020, the federal debt held by the public reached $23.2 trillion, representing 107.8% of US Gross Domestic Product (GDP).  This is the highest level of debt both in absolute terms and relative to GDP in the country’s entire history.  The previous high was in the middle of World War II, when debt to GDP hit 106%.

As of March 2020, only six months into fiscal year 2020, the federal deficit stood at $625 billion, or $1.25 trillion on an annualized basis.  Then came coronavirus!

Massive Stimulus Spending

What happens when you combine a national emergency with an election year?  Both parties in both houses of Congress and the President sign into law the largest peacetime spending packages in history.

There have been four major coronavirus spending bills, including the Families First Coronavirus Response Act and the landmark CARES Act, all of which have been reviewed in previous Informed Vermonter articles.  In total, excluding $590 billion of tax cuts included in the CARES Act, these bills call for some $1.7 trillion in new and additional spending.  Most of this money will be spent in the fiscal year ending September 2020, but a fair amount will carry into the next fiscal year as well.

In the months of April and May 2020, federal government outlays were up 30% on a year-over-year basis.  In May alone, Unemployment Insurance Expenditures went from $2 billion in 2019 to $93 billion in 2020.  Small Business Administration outlays went from $98 million to $35 billion.  These are but two examples.

Massive Decline in Tax Revenues

 As noted above, the CARES Act included $590 billion of tax cuts.  Some $290 billion of this paid for the stimulus checks sent to low and middle-income families across the country.  The balance went to businesses and wealthy individuals.

In addition to reducing taxes by changing the tax code, taxes will be going down with incomes.  The personal income tax is the single largest source of revenues for the federal government.  As incomes decline as a result of the COVID-19 shutdowns, tax revenues will decline as well.  During the months of April and May 2020, federal revenues were down 25% on a year-over-year basis.

The Biggest Federal Deficit Ever

So, with expenditures up 30% and revenues down 25%, the federal deficit is exploding.  As of May 2020, the year-to-date deficit stood at $1.88 trillion.  The Congressional Budget Office is forecasting a full fiscal year 2020 deficit of $3.7 trillion and a 2021 deficit exceeding $2 trillion!  All of these deficits will be funded with debt, which was already at its highest level EVER before coronavirus.


 Prior to the COVID-19 crisis, the US government’s fiscal position was already in nosebleed territory.  The debt to GDP ratio was the 11th highest in the world. Of the major economies, only Japan and Italy had higher ratios.  Other countries in the high debt club include Greece, Lebanon, Cape Verde, Angola and Mozambique.  Countries like Jamaica, Congo, Djibouti and Argentina all have lower debt/GDP ratios.  You get the idea.

After COVID-19, the US numbers will be worse…much worse.  The national debt will grow to something like $26 trillion by September 2020, representing almost $80,000 for every man, woman and child in the country!  Unless major changes are made in Washington, deficits will continue to be large and the debt will continue to climb.

Here are a few questions to ponder as you vote this November and in future elections.

  1. Is the USA going broke? How long can we finance ourselves on deficits?
  2. What will happen if COVID-19 (or another pandemic) gets much worse?
  3. Could the USA afford to fight WWII now?
  4. Have we betrayed our children and sold them down the river?

Until Ronald Regan came along, the federal government would only increase deficits to finance wars.  In peacetime, deficits were eliminated or greatly reduced.  Since 1980, increased deficits have been more the norm than the exception.   So, maybe all the politicians that served in Washington for the first 200 years of our history were wrong and these modern guys are geniuses.  Then again, maybe not.




COVID-19 Pandemic: 12. Fiscal Impact on Vermont

The government’s response to the COVID-19 pandemic, both at the state and federal level, required higher spending and will result in lower revenues.  Basically, a fiscal bomb has gone off across the USA.

The impact, particularly for the federal government, is likely to last a very long time.

This article will examine the fiscal consequences of coronavirus in Vermont, beginning with a brief assessment of how well the state was prepared for this crisis.  Increased costs, the impact on revenues and mitigating factors will also be discussed. The next article will do the same for the federal government.

Be Prepared

The state government of Vermont has a long history of fiscal prudence.  As a result, Vermont was well positioned fiscally for the COVID-19 crisis.  It was ready to take one on the chin.

Coming into the first quarter of 2020, Vermont was benefiting from a strong overall economy with growing wages and low unemployment.  State tax revenues were $3.4 billion in the fiscal year ended June 2019, up $167 million over FY 2018.  As of February 2020, Vermont’s tax collections were trending a bit ahead of FY 2019 levels.

Vermont also has a quite modest level of general obligation debt.  Over the prior two fiscal years, Vermont’s debt did not grow at all and interest expense in FY 2019 was a mere $17 million, or just 1.6% of total state income tax revenues.

The single largest expense associated with any kind of economic downturn is unemployment insurance benefits.  Again, Vermont was very well prepared to deal with the next recession.  Unemployment Insurance revenues exceeded outflows by $45.9 million in FY 2019, resulting in an Unemployment Insurance Trust Fund with $516 million of net assets at year-end.  In FY 2019, total Unemployment Compensation paid out was $65.7 million, so the Trust Fund covered normal year claims by a factor of almost eight times.

Soaring Unemployment Insurance Benefit Costs

As indicated above, Vermont paid out $65.7 million in Unemployment Insurance benefits in the fiscal year ended June 30, 2019.  During that year, there were an average monthly number of Continuing Unemployment Insurance claims of 3,665.  Given these numbers, the average weekly Unemployment Insurance benefit in Vermont in FY 2019 was $341 (the maximum allowed is $513).

As outlined in the previous article, the number of Continuing Unemployment Insurance claims in Vermont peaked at 76,457 during the week ending April 18 and stood at 38,335 as of the week ending July 4.  For the fifteen-week period from the week ending March 21 to the week ending July 4, and assuming an average weekly benefit payment of $341, Vermont would have paid out something like $235 million in Unemployment Insurance benefits.

Under the CARES Act, the federal government is adding $600/week to all these benefit payments.  These extra funds do not come out of Vermont’s Unemployment Insurance Trust Fund. This extra $600/week is scheduled to terminate shortly and an extension of extra benefits is now being debated in Washington.

While continuing claims have declined sharply since April, they still remain more than 10x the normal level.  Should unemployment claims continue to fall at a reasonable pace, Vermont’s Unemployment Insurance Trust fund should be able to handle the crisis with room to spare.  However, if the recovery stalls for a period of many months, even Vermont’s very healthy Trust Fund could be challenged.

Declining Tax Revenues

 Vermont’s state tax revenues for the fiscal years ending June 2020 and June 2021 are likely to take a hit as a result of the coronavirus recession.  Mandatory business shutdowns and high unemployment result in lower incomes and lower transactions volumes, both of which drive Vermont’s tax collections lower.

The state government publishes a monthly revenue report that itemizes tax collections for the state.  The most recent report covers the 12-month period ending June 30, 2020.  As of that date, state revenue collections were down $145.6 million compared to the same period one year ago.  At the end of February, state revenues were up on a year over year basis, so this decline occurred entirely in the four-month period ending June 30.

The largest negative variance was in personal income taxes, which were down $111.5 million.  The major reason for the decline was the government’s decision to postpone the income tax filing deadline from April 15 2020 to July 15 2020.  Vermont received 39,000 fewer tax returns and will need to wait until July ( the first month of FY 2021) to collect these taxes.

It seems highly likely that incomes will generally be lower in 2020, so next year’s income tax collections are likely to be lower as well.  The single largest source of tax revenue for Vermont is likely to be challenged well into FY 2021.

Not surprisingly, Meals & Rooms tax receipts were down $12.6 million on a year-over-year basis.  The recovery in this revenue stream will depend on how fast the tourist industry is allowed to reopen and the extent to which consumer behavior has been affected by the coronavirus pandemic. This will likely remain under pressure for months to come.

Transportation Fund tax revenues (Gas & Diesel, Motor Vehicle Purchase & Use & Motor Vehicle Fees) were down $16.6 million.  This largely reflects lower miles travelled and deferral of major purchases, both very predictable consequences of a business shutdown.

The bad news seems likely to continue past June 2020 and into fiscal year 2021.  The timing and extent of any recovery in the months following June are highly uncertain, but downside scenarios seem more likely near term.  So, fiscal year 2021 may prove challenging as well from a fiscal perspective.

Mitigating Factors

Vermont will benefit from some new revenue sources as a result of federal programs put in place as a direct response to the COVID-19 pandemic.  First and foremost, Vermont received a $1.25 billion grant under the CARES Act. This money is NOT available to cover costs that had been budgeted before March 2020, so it is not going to cover the holes left by the revenue setbacks outlined above.  However, it is available to cover any and all incremental costs arising as a result of the coronavirus outbreak.

As reported in an earlier Informed Vermonter article, the federal government has also agreed to increase its share on Medicaid funding by a full 6.2%, from about 60% to about 66%.  Depending on how long the COVID national emergency is in force, this change should increase federal funding by $50 to $75 million in Vermont.  This will plug a major part of the budget holes in fiscal years 2020 and 2021.

Also, Unemployment Insurance benefits are taxable.  The extra $600/week being funded directly by the federal government becomes taxable income in the state of Vermont.  This will help keep the state’s personal income tax receipts closer to a normal level.

Fiscal year 2021 revenues will also be bolstered by the receipt of income taxes from 39,000 Vermonters that postponed filing from April to July.

Some of the state government’s major expenses should also be going down as a result of this crisis.  COVID-19 has made hospitals a scary place to go and admissions are down across the state, as much as 50% in some health facilities.  As a result, a decline in overall Medicaid expenses seems likely.  Also, education expenses should be lower as well.  With schools shut down, one would think food, transportation, overtime, utility and other variable expenses would all be heading lower until schools reopen in September.


It’s difficult to judge how the mix of lower state tax revenues, potentially lower state expenses and higher federal grants will ultimately affect the State of Vermont’s budgets.  However, assuming the economy recovers at a steady pace and things don’t get worse, the situation appears quite manageable.

A tax revenue shortfall exceeding $145 million has occurred in the fiscal year ended June 2020, entirely in a four month period of time.  While fiscal year 2021 is likely to start off weak, its difficult to forecast or predict full-year results.  To the extent reduced expenses and increased federal grants offset some of the tax revenue weakness, the scale of resulting deficits may be reasonably modest.

Access to the bond market, with historically low interest rates, would be one way to fix any problems.  Sharper reductions in government spending would be another way to address any deficits.  Raising state tax rates in a recession is probably not an alternative that makes sense.



















COVID-19: 11. Economic Impact on Vermont

In April, the unemployment rate in Vermont went from 3.1% to 16.5%. Nothing like this has happened since the Great Depression.

This article will discuss the impact that the COVID-19 shutdown has had on Vermont’s economy including the labor market and key industries within the state.

Background Information

To get sense for the magnitude of the COVID-19 recession, a quick review of what was normal will be very helpful.

Vermont had a civilian labor force of 349,761 people as of April 2020. This is comprised of two general components.  “Non-Farm Payroll”, which represents employees of both private sector and governmental entities, accounts for 310,571.  The remaining 39,190 are made up a self-employed people.  Non-Farm Payroll employees are covered by Unemployment Insurance.  Prior to the COVID-19 crisis, self-employed people were not.

The largest sources of employment in Vermont include health and social care, education,  governments (federal, state & local), food preparation and service, sales and retail, manufacturing and transportation.  Tourism, including restaurants, lodging, ski areas, outdoor recreation and all related sales and services is a key Vermont sector.


 On March 24, Governor Scott effectively shut down all non-essential businesses in Vermont and put in place stay-at-home and work-from home orders.  The impact this had on Vermont’s labor market was both massive and rapid, as outlined in the charts below.

On May 14, the Vermont Department of Labor reported that it had received 90,213 unemployment claims.  Conventional Unemployment Insurance claims accounted for 64,443 claims and the newly instituted Pandemic Unemployment Assistance program accounted for 25,361 claims.  This latter program was put in place by the federal government to provide unemployment benefits to self-employed people who lost their livings owing to the COVID-19 pandemic.

The chart below shows the progression of conventional Unemployment Insurance claims through the shut down.

Vermont Unemployment Insurance Claims (Excludes Pandemic Unemployment Assistance Claims)

Date Weekly Unemployment Insurance Claims Continuing Unemployment Insurance Claims
March 14 659 4,810
March 21 3,784 13,797
March 28 14,663 21,955
April 4 16,474 31,204
April 11 9,662 64,313
April 18 6,598 76,457
April 25 5,117 60,535
May 2 3,875 57,040
May 9 2,913 55,103
May 16 2,199 50,285
May 23 1,552 46,313
May 30 1,564 45,207
June 6 1,650 43,333
June 13 1,859 42,618
June 20 1,389 42,420
June 27 2,163 39,089
July 4 1,876 38,335

Source:  Federal Reserve Bank of St. Louis, Weekly Unemployment Claims in Vermont and Continuing Claims (Insured Unemployment) in Vermont

As outlined above, weekly or initial claims for Unemployment Insurance peaked at 16,474 the week ended April 4, up from a normal level of about 650. The total number of claimants receiving Unemployment Insurance benefits peaked at 76,457 the week ended April 18.   That represents a staggering 24.6% of total non-farm payrolls in Vermont.

Both new initial claims and continuing claims are now in decline, with continuing claims down almost 50% by the end of June..  As the economy has been allowed to reopen, people are going back to work.  However, both Initial Claims and Continuing Claims remain stubbornly high.

The chart below shows where all these job losses occurred on a year-over-year basis.

                    Change in Employment:  April 2019 vs. April 2020

Sector Job Losses
Total Non-Farm Payroll -67,900
Leisure & Hospitality -23,400
Manufacturing -13,100
Retail Trade -10,100
Education and Health Services -10,000
All Other -11,300

Source:  Vermont Department of Labor, Current Employment Statistics, April 2020

With only one exception, every sector of Vermont’s labor force declined in April 2020.  The exception was federal government jobs, which increased by 200.

Remember, all of the tables above exclude self-employed Vermonters, many of whom would have been severely affected by the COVID-19 pandemic. Another 25,362 Vermonters qualified for the federal government’s Pandemic Unemployment Assistance program as of May 14.  So, peak COVID-19 unemployment appears to have been in the 100,000 range!

Business Pain

In a government mandated shut down, the affected businesses loose all or most of their revenues.  With no cash coming in, businesses will attempt to cut their costs as much and as fast as possible.  The rapid rise in unemployment outlined above is the result of businesses cutting their labor costs to the bone.  All other variable costs will also be cut to the maximum.  Restaurants won’t buy food, bars won’t buy beer, hotels won’t launder sheets and towels and manufacturers won’t buy new raw materials unless required to under contract. The bad news spreads from one business to the next rapidly.

Unfortunately, most businesses also have fixed costs that are difficult or impossible to get rid of.  Rent and mortgage expenses fall in this category.  Most utility bills have fixed charge components even if consumption goes to zero. With no revenues coming in to offset these types of costs, a business needs to use cash reserves to meet these obligations.  The kind of cash reserves that most small businesses have in these circumstances is measured in weeks or months, but certainly not in years.

So, what started as a big problem for businesses that were shut down rapidly became a problem for businesses that were not.  As cash reserves dwindle, rent doesn’t get paid to landlords or mortgage payments to banks are missed.  Credit card debts go in arrears.  Banks start to take reserves for loan losses and cut their dividends.  The recession spreads fast!

How Does Vermont Compare to the USA

If you were to rank state’s COVID-19 responses on a grid ranging from very focused on health to very focused on the economy, Vermont would lie on the health side of the equation.  So, has Vermont’s COVID-19 response hurt its economy more than average?

Using Continuing Unemployment Insurance Claims as a proxy for economic health paints an interesting picture.  From March 14 to its peak on May 9, Continuing Unemployment Insurance Claims increased 14x in the USA as a whole.  In Vermont, the maximum Continuing Unemployment Insurance Claims were reached on April 18 and were 16x the March 14 level.  So, Vermont had both a larger and faster rise in unemployment than the USA as a whole. You would expect to see this in strong lockdown states like Vermont.

Since peaking on May 9, the USA has seen Continuing Unemployment Insurance Claims fall by 27% as of June 27.  In Vermont, these Claims are down by 49% from the peak. While the initial impact on unemployment was worse in Vermont, the recovery of employment is much stronger.  The perception that COVID is under control in Vermont may be benefitting the economic recovery.

The Unemployment Rate of the USA and Vermont paint a similar picture, as outlined in the chart below:

                               USA and Vermont Unemployment Rates 2020

Month USA Vermont Vermont Better or Worse
March 4.4% 3.1% Better
April 14.7% 16.5% Worse
May 13.3% 12.7% Better
June 11.1% 9.4% Better

Source:  Federal Reserve Bank of St. Louis Economic Data

Mitigating Factors

In previous Informed Vermonter articles, the many government programs put in place as a result of the COVID-19 pandemic have been reviewed in some detail and won’t be repeated here.  In summary, the federal government made a rapid and massive response that greatly mitigated the impact of the coronavirus shutdown on both individuals and businesses.

Most individual taxpayers received economic stimulus checks and unemployed individuals also received unemployment benefits that were increased by $600/week by the federal government.

Over 10,000 small businesses in Vermont took Payroll Protection Loans and businesses large and small are benefiting from a variety of temporary tax code changes.

In total, The Informed Vermonter estimates that some $3.8 billion is additional federal money flowed into Vermont under a variety of new programs.


When the entire “non-essential” private sector is ordered to shut its doors, the economic impact is going to be devastating.  Our government officials knew this would be the case.

There is no doubt that all the incremental government support made a terrible situation bearable for many affected Vermonters. There is also little doubt that there were both individuals and businesses that fell between the cracks and suffered greatly as a result of the coronavirus shutdown.

The underlying assumption in both Washington and Montpelier supporting the COVID-19 response is that the crisis will end soon and things will return to normal.  All the new government programs are designed to be short-term solutions to what is hopefully a short-term problem.  So far that appears to be the case in Vermont, but there remains a high level of uncertainty.

In other parts of the country, where the initial shutdowns were lenient and short-lived, the coronavirus is still spreading out of control.  Vermont’s focus on fixing the health issue may well prove to have been best for the economy as well.  The data thus far supports this view.

If the short-term problem becomes a long-term problem, things could become quite challenging. Short or long, one thing is certain:  COVID-19 has created a fiscal imbalance of historic proportions.  The next two articles in The Informed Vermonter will take a look at this.





COVID-19 Pandemic: 10. Vermont’s Public Health Impact

Vermont’s response to the coronavirus pandemic was decisive in the lockdown phase and cautious in the reopening.  From a pure public health perspective, this would appear to have been the right course of action for the State to take.

One of the key challenges faced by the State of Vermont was its location in the northeast.  This article will discuss COVID-19 infection rates and death rates in Vermont, the states and provinces that surround Vermont and the states with the lowest rates in the country.  As will be clearly demonstrated, Vermont is surrounded by territories with some of the highest COVID-19 infection rates in North America.

Despite its high risk of exposure from neighboring states and provinces, Vermont has had one of the lower COVID-19 infection rates in the country.  The decisive actions taken by the State government, with the broad support of the population, must bear much of the credit for this outcome.

A Dangerous Neighborhood

As of July 11, Vermont had experienced 1,283 confirmed cases of coronavirus and 56 deaths.  As sad as this is for the individuals involved, it’s a good outcome for the population as a whole relative to most other states in the country.

The chart below compares Vermont with all the other New England states, New York State and the Province of Quebec with respect to coronavirus cases and deaths.

         Coronavirus Cases & Deaths per 100,000 People as of July 11 

Area Coronavirus Cases per 100,000 People Coronavirus Deaths per 100,000 People
USA 1003 42
Vermont 206 9
New York 2,087 165
Massachusetts 1,610 121
Rhode Island 1,633 92
Connecticut 1,326 122
Quebec, Canada 689 69
New Hampshire 443 29
Maine 263 8

Source:  Wikipedia and US Census Bureau

As indicated above, Vermont’s infection and death rates from coronavirus were only 21% a of the USA averages.  However, the states bordering or in close proximity to Vermont all had significantly higher infection and death rates.  New York, on Vermont’s western border, had 10x the infection rate and 18x the death rate of Vermont.   Even New Hampshire, with no urban centers the size of New York, Boston or Montreal, had 2.2x the infection rate and 3.22x the death rate.

Vermont’s experience with COVID-19 was more in line with those states with the lowest coronavirus infection rates, as follows:

                 States with Low Coronavirus Infection Rates July 11

State Coronavirus Cases per 100,000 People Coronavirus Deaths per 100,000 People
Vermont 206 8.8
Hawaii 83 1.3
Montana 157 2.7
Alaska 227 2.1
Wyoming 318 3.6

Source:  Wikipedia and US Census Bureau

How Bad is COVID-19?

USAFacts recently published a report on the causes of death in the USA (https://usafacts.org/articles/top-causes-death-united-states-heart-disease-cancer-and-covid-19/).  Over the full calendar year 2018, heart disease was the number one cause of death with a death rate of 163.6 per 100,000 people.  Cancer was number two at 149.1 per 100,000.  Accidents, including drug overdoses, was a distant number three at 48 per 100,000.  Flu and pneumonia on a combined basis were way down the list at 14.9 per 100,000.

The death rates for COVID-19 are only based on the last five months since the disease found its way to the USA.  The average USA death rate of 42 per 100,000 would already be the fourth highest cause of death, and this number will be much higher over a full twelve month period.  New York’s death rate of 164.6 per 100,000 would be the number one cause of death!  This number is also going higher over a full twelve month period.

So, in a very short period of time COVID-19 became a new and major cause of death in the USA despite massive government efforts to mitigate the spread.  Imagine COVID-19 unchecked by the government.

Big Regional Differences Within Vermont

While every county in Vermont experienced COVID-19 cases, the brunt of the damage was done in the Northwestern part of the state.  Chittenden County alone accounted for 51% of total cases and 70% of total deaths. When combined with Franklin County, these numbers go to 60% and 81%, respectively.

As of July 11, five counties in the state had no COVID-19 deaths at all.  Seven other counties had 3 or fewer deaths.  Orange, Grand Isle and Essex counties had only ten, ten and five coronavirus cases, respectively, and no deaths.


Unlike large and remote states such as Montana and Alaska, Vermont is located in a very precarious geographical position with respect to COVID-19 hotspots.  The State government has taken decisive actions to protect its citizens from the pandemic and it would appear these actions have greatly mitigated the spread of the disease in Vermont.  Indeed, it is easy to imagine a much worse healthcare outcome had the State taken a more reluctant or lenient approach to the pandemic.

While the healthcare outcomes have been good, the impact on the economy has been devastating.  The next article in The Informed Vermonter will take a look at the economic impact of the COVID-19 pandemic in Vermont.


COVID-19: 9. State of Vermont Response

Within our system of government, responsibility for public health lies mostly on the shoulders of state and local governments.  Given the current Administration’s reluctance or inability to provide much in the way of national leadership, this has been particularly true for the COVID-19 pandemic. 

Across the 50 states, the response to the COVID-19 pandemic has ranged from reluctant to decisive in the lockdown phase and reckless to patient in the reopening.  State and local officials have tried to find the right balance between human health and economic health.  By and large, all 50 states took very similar decisions and actions, but the timing of these actions differed substantially.

Thus far, Vermont’s response lies at the decisive and patient end of the spectrum and the impact of COVID-19 on public health has been minimized as a result. There has also been a sharp, adverse economic impact.

This article will review the actions taken by Vermont and compare them to others states and the rest of the USA.  The next article will discuss the public health impact of COVID-19 in Vermont.  Subsequent articles will take a look at both the economic and fiscal consequences in Vermont.

State of Emergency

Vermont had its first known COVID-19 case on March 7, 2020.  Beginning on March 1 in Florida, states around the country began declaring a State of Emergency with respect to the coronavirus pandemic.  By March 11, there were over 1000 known cases in the US as a whole and some 25 states had declared a State of Emergency. On March 12, the federal government declared a nationwide State of Emergency.  Vermont declared a State of Emergency the next day.

Vermont took two other actions at the same time.  Importantly, it restricted access to Vermont’s care homes.  It also banned non-essential travel by state employees and gatherings of more than 250 people.  Eight days later, gatherings would be limited to ten or less.

School Closures

On March 15, Vermont ordered all K-12 schools shut. Three days earlier, Ohio was the first state to do this and Vermont was the 15th.   On March 26, Vermont made it clear that schools would remain closed until September.

All 50 states ultimately took the same decisions and K-12 schools are closed around the country until September.

No More Fun

Vermont ordered all bars and restaurants shut on March 16.   All “close contact” businesses were shut on March 21, so no more pedicures, haircuts or movies for a while.

Every state in the country either closed or greatly restricted bars, restaurants and other close contact businesses.  Opening these businesses up again, which will be discussed below, differed more widely from one state to the next and the consequences are being felt today.

Stay at Home

On March 24, Vermont reported 20 more COVID-19 cases, bringing the total to 95.  It was only 17 days earlier that Vermont had its first case. Sadly, there were 7 deaths by this date.

Governor Scott took the draconian step of issuing a Stay-At-Home order on March 24, making Vermont the 9thstate to do so.   All non-essential businesses were shut down until further notice.  Governor Scott also ordered the Vermont National Guard to build three medical surge sites across the state in anticipation of hospitals being unable to handle all the COVID-19 cases that might be coming.

Governor Scott would have been acutely aware of the ramifications this order was going to have on Vermont’s businesses, labor market and tax receipts.  He would also have been aware that the CARES Act was about to be passed in Washington, which would greatly cushion the blow for the unemployed, businesses and the State’s own fiscal position.

Most states took the same measures as Vermont, but not all. Four states never issued a Stay-at-Home order, two states did so only on a regional basis and two other states issued a Stay-At-Home “advisory” as opposed to an order.  Three states allowed non-essential retail to remain open.

Travel Quarantine Requirement

On March 31, Vermont imposed a 14-day quarantine period on any non-essential travelers entering the state and banned travel from COVID-19 ‘hot spots” like New York City, Detroit and Chicago and states including Florida, New York and New Jersey.

Only 18 other states imposed mandatory quarantines on a statewide basis.  However, Vermont is a very small state and is located in a very bad coronavirus neighborhood.  To the west and south sit New York and Massachusetts, two states with very high infection rates.  To the north, over half of all of Canada’s coronavirus cases were in Quebec.

Shift to Reopening

As outlined above, Vermont shut down in an unprecedented fashion by way of a series of Executive Orders beginning with the State of Emergency on March 13 and ending with the travel restrictions and quarantine requirements imposed on March 31.  These restrictions would remain fully in place through the first half of April.

Beginning on April 17, the Governor began a cautious and phased reopening of Vermont’s economy. Phase 1 set out safe work rules, including social distancing, the need for non-medical facemasks, cleaning and disinfection requirements and the like. It also permitted limited construction work outdoors and in unoccupied buildings, single worker/single client professional services (lawyers, realtors etc.), and curbside retail operations.

Subsequent Executive Orders required mandatory coronavirus safety training in the work place and expanded the reopening of business.  As of May 22, construction, manufacturing and distribution activities were reopened, non-essential retail was allowed and parks, golf courses and trail networks were all open.

Restrictions regarding in-state travel were relaxed, initially with quarantine requirements for out-of-state travel. Lodging has also reopened. By June 8, quarantine restrictions were relaxed for certain out-of-state counties where the COVID-19 infection rate was 400/million or lower.

In late May, bars and restaurants were allowed to provide outdoor service with indoor service resuming in June.

Close contact businesses such as hairdressers, nail salons and spas were allowed to reopen in early June.


This is pretty much where Vermont stands today in the post-COVID new normal.  By shutting down for a prolonged period of time and reopening on a phased basis, Vermont reduced the COVID-19 infection rate to manageable levels.  Indeed, Vermont has one of the lowest infection rates in the entire country.

Many states that shutdown later and reopened sooner are now suffering as a result.  The infection rates in many states, such as Florida, Arizona and Texas, has not even peaked yet.  As a result, shutdowns are now occurring for a second time.

Vermont’s out-of-state quarantine restrictions are looking like a smart policy! Now is not the time to relax.


COVID-19 Pandemic: Federal Government Response. 8. Federal Reserve Bank

There’s a very thin line between fear and greed.

As March 2020 unfolded, the financial markets began to unravel.  Investors of all stripes simply wanted to get rid of risk, so everything was for sale at the same time.  Money market funds, mortgage backed securities, corporate bonds, junk bonds and all related markets were quickly collapsing: all sellers and no buyers!

In early March, the Federal Reserve Bank (the “Fed”) stepped into the breach to stabilize financial markets and support the flow of credit to consumers, businesses, banks, and state & local governments. The actions taken by the Fed  have been decisive, timely and massive.  Thus far, they have managed to stabilize  financial markets.  The actions they have taken are summarized below.

Interest Rates are the Primary Weapon

On March 6, the Fed cut the Federal Funds Rate by 0.75%. Shortly thereafter, the Fed cut rates a further 0.75%, bringing the Federal Funds Rate to a range of 0.00% to 0.25%.  The Federal Funds rate is the key short-term interest rate in the US banking system and drives the cost of all types of debt.  This action reduced the cost of mortgages, auto loans, home equity loans and business loans.  These interest cost savings leave more cash in borrowers pockets to mitigate the impact of the recession.

Keeping the Financial Markets Open

When investors only want to hoard cash or gold, financial markets cease to operate.  In these circumstances, the Fed can become the buyer of last resort.  If done properly, these Fed investments lead to a renewed confidence in the markets with more normal two-way markets developing.

In the COVID-19 crisis, the Fed acted quickly and in impressive size.  Some of the key actions taken are discussed below.

First, the Fed resumed quantitative easing.  In early March, they announced that they would buy $500 billion of Treasury securities and $200 billion of agency mortgage backed securities in the secondary markets.  On March 23, they announced that these two programs would be unlimited.

Other actions included backstopping money market funds, adding massive liquidity to the securities repo market, direct lending to banks and relaxing bank capital requirements.  These two latter actions help banks maintain reasonable levels of new lending.

Supporting Business

The Fed instituted several programs to support business.  One was the Primary Corporate Credit Facility to provide direct lending to major employers.  These Fed loans would have no interest due for six months, provided the borrower paid no dividends and made no stock buy backs.  They also activated the Secondary Market Corporate Credit Facility to buy bonds and ETF’s in the secondary markets.  To prop up the short-term corporate debt market, the Commercial Paper Funding Facility was also opened.

Recognizing a gap in the government’s stimulus programs, on April 9 the Fed announced the Main Street Lending Program to provide loans to companies too big for the Paycheck Protection Program and too small for the Primary Corporate Credit Facility. This program can provide up to $600 billion of loans to companies with up to 15,000 employees or $5 billion in revenue.

Consumer Credit

Auto loans, student loans and credit card debt are all types of consumer loans that are funded by lenders in the securitization markets.  Instead of holding these loans on their books, banks package these types of loans into large diversified pools and sell them off to the bond market.

With the unemployment rate headed to 20%, it was clear there would be a high level of consumer defaults on the interest and principal payments on these loans, so the securitization market began to shut down.

To address this problem, the Fed reopened the Term Asset-Backed Securities Facility to lend to holders of asset-backed securities collateralized by student loans, auto loans and credit cards.

Helping State Governments and Municipalities

State and local revenues, both taxes and fees, are under real pressure owing to the COVID-19 shutdown.  With normal revenues sharply down, the need for new debt becomes paramount.

The Fed addressed this issue with a $500 billion facility to lend directly to states, counties and municipalities.

How Much Money Are We Talking About

 If you’ve been reading earlier articles in The Informed Vermonter, you will know that the federal government’s economic stimulus measures exceed $2 trillion.  Well, the measures outlined above are even bigger.  Here is an attempt to add it all up.

Federal Reserve Bank COVID-19 Response

Federal Reserve Program Amount ($ billions)
US Treasury Purchases 500 plus as needed
Agency Mortgage Backed Security Purchases 200 plus as needed
Primary Corporate Credit Facility & Secondary Market Corporate Credit Facility 750
Main Street Lending Program 600
Term Asset-Backed Securities Loan Facility 100
State & Local Lending Facility 500
Repo Market Operations 1,000
Primary Dealer Credit Facility As Needed
Money Market Mutual Fund Liquidity Facility As Needed
Total 3,650 plus As Needed amounts


$3.6 trillion! The amounts are huge, but the risks are not.  The massive Repo Market Operations, Primary Dealer and Money Market Mutual Fund Facilities are mostly providing overnight loans and never longer than 90 days. These loans are also collateralized with investment grade securities.  The Treasury securities purchased by the Fed have no default risk as the government can print the money to repay them.

The other programs mostly involve investment grade corporate and consumer debt securities (a small bit of the Secondary Market Corporate Credit Facility may have found its way into the junk bond market) where the risks are manageable but not zero.  In these programs, money appropriated under the CARES Act has been provided by the Treasury Department to the Fed to cover anticipated losses.  These reserves for possible losses are small in comparison to the size of the programs and may not be fully needed at the end of the day.  Indeed, there is a sporting chance the Fed will make money on all this.


Many of the programs discussed above were developed to address the 2008-2009 financial crisis.  As a result, the Fed was able to move very rapidly in the COVID-19 crisis…much more so than in 2008.  Consequently, despite an unemployment rate heading to depression era levels, US financial markets have remained relatively stable and credit has continued to flow to both consumers and businesses.

Unlike the federal government, which has been on a borrowing binge since the current President took office, the Fed was reasonably well positioned for the COVID-19 crisis.   They had been raising interest rates from late 2015, leaving them room to cut rates at the beginning of the COVID crisis.  Also, the Fed  greatly reduced its balance sheet by selling the securities it purchased during and after the 2008-2009 recession. This allowed the Fed to move aggressively and with confidence to support credit markets now.

As a result of these Fed actions, US corporations have been able to raise hundreds of billions of cash in the bond markets to cushion the blow from the COVID-19 recession.  Indeed, record new issue levels have been recorded.  Corporations such as Boeing, Ford Motor, Southwest Air and Carnival Cruise Lines, all severely and adversely affected by the COVID-19 pandemic, have been able to raise substantial amounts of private capital to help weather the storm.

Also, 401k and IRA account balances are all better off thanks to the Fed.



COVID-19 Pandemic: Federal Government Response. 7. Blundering, Corruption & Political Distraction

The federal government’s stimulus programs were intended for businesses that truly needed the money to keep afloat.  Unfortunately, many simply saw this support as a honeypot too tempting to resist.

Further motivating the greedy was a President visibly resisting the efforts of Congress to insure full transparency under these programs.  Hey, maybe no one would find out.

This article will take a look at the unscrupulous, unprincipled and deceitful side of  federal government programs during the coronavirus pandemic.

Paycheck Protection Program Misallocations

As reviewed in a prior article, the Paycheck Protection Program (PPP) was designed to provide grants to small businesses that needed the money to keep staff on the payroll.  The program was so popular that Congress increased it from $349 billion to $669 billion by the end of April 2020.

Most of the funding has been used as intended, but not all of it.  A key part of the CARES Act was the establishment of a Congressional Oversight Committee that can review all the businesses receiving money and take appropriate action as necessary.  Thank heavens!

According to public SEC filings, at least 71 publically traded companies were able to get loans/grants under this program.  Publically traded companies have shareholders who can invest more money and most have access to bank loans or the bond markets.  Under these circumstances, the use of the Paycheck Protection Program ranges from careless, to unethical to fraudulent.  In all these cases, there is greed.

Ruth Chris Steakhouse, owned by publically traded Ruth Hospitality Group, received loans of $20 million.  Shake Shack, also a public company, received $10 million.  Ashford Hospitality Trust, a public REIT, applied for $126 million of loans and received $76 million.  The CEO of Ashford is Monty Bennet.  Having furloughed 95% if his employees, he reduced his own pay from $950,00 to $800,000 and paid himself a $1.8 million bonus in March 2020!  To help grease the skids in Washington, he donated to the Republican Party and hired lobbyist Jeffrey Miller, a Trump fundraiser, to advise and assist on the loan program.  Each of these companies agreed to return the federal money after the loans were made public in the press.

In early May 2020, the House Oversight Committee wrote letters to a number of other public companies asking them to return the money as well.  A number of elite private universities and boarding schools, all of which have major endowments, were also able to secure loans and the Treasury Department is now trying to claw back this money.

Unfortunately, Congress is finding it difficult to get the information it needs to monitor the Paycheck Protection Program from the White House, Small Business Administration and Treasury Department.  Given the known abuses, they should continue to fight and fight hard.  All the cases above were widely reported in the press.  The concern is that these are just the tip of the iceberg.

In late June, the White House finally agreed to release the names of all PPP loan recipients with proceeds of $150,000 or more.  Hopefully, they will do what they say.

Bad Actors

With no federal coordination efforts whatsoever, all 50 states and every major city in the country are basically competing with one another to purchase critically needed Personal Protective Equipment (“PPE”) for health and social care workers. For some, all this chaos represents an opportunity.

 On March 23, Blue Flame Medical was founded to supply PPE to state and local governments.  The founders were two Republican operatives.  Michael Gula was a major Republican fundraiser with several Senators as clients.  John Thomas was a California political consultant working for Republican candidates in California.  Neither of these men had any experience whatsoever in the medical supplies industry.

Through political contacts, Blue Flame first entered into a $12.5 million contract with the State of Maryland to supply urgently needed PPE, taking a $6.5 million deposit.  Why the State of Maryland would enter into a contract with a company only one or two days old is a mystery.  In any event, Blue Flame failed to meet delivery milestones and Maryland cancelled the contract. Hopefully, Maryland will get its money back.

In California, Blue Flame went for gold!  They somehow managed to get California in enter into a contract with a $456 million deposit.  As the money went out the door, the California Treasury Department received calls from bankers advising that the bank account Blue Flame was using to receive the funds had only been established three day before!  California rescinded the wire transfer immediately and is now investigating how it happened to begin with.

Blue Flame is now the subject of a Justice Department investigation.

On May 13, the Wall street Journal reported that FEMA had to cancel a $55.5 million facemask contract for non-performance.  The contract counterparty was a newly formed company called Panthera Worldwide.  Like Blue Flame, this company had no medical industry experience or assets of any kind.  Its owned by a company in bankruptcy proceedings.  Why FEMA didn’t go straight to major US manufacturers (like 3M) instead of this fly-by-night broker is a mystery.

The Informed Vermonter fears there may be many more Blue Flames out there.

The COVID-19 Distraction

 The Office of Inspector General was created to prevent inefficient and unlawful operations in government agencies by identifying, auditing and investigating fraud, waste, abuse, embezzlement and mismanagement of any kind.  The first Inspector General was appointed by Congress to tackle Medicare/Medicaid fraud in 1976. There are now 78 Inspector General positions in the federal government.

The CARES Act created the largest economic stimulus programs in US history.  With trillions of  taxpayer dollars going out the doors, the need for Inspector Generals has never been more clear.

The Trump administration appears to be using the distraction of the COVID-19 pandemic to get rid of Inspector Generals.

Michael Atkinson was the first to be fired.  He was the Inspector General for the Intelligence Community.  His mistake was to obey the law and report the Ukraine whistleblower complaint to Congress.  Firing Mr. Atkinson clearly sends a single to the rest of the Inspector General community.

Next to go was Glenn Fine, the Inspector General for the Pentagon.  When the CARES Act was passed, Mr. Fine was selected to run oversight of the massive corporate stimulus programs by a panel of Inspector Generals. Mr. Fine’s problem was a solid reputation and the expectation that he would actually do a good job.  The Informed Vermonter can only think of one reason why a President would fire a competent official selected to oversee the largest corporate loan program in history.

In early May, Christi Grimm, the Acting Inspector General of Health and Human Services, was fired by the White House.  In March, Ms. Grimm has overseen a survey of 300 hospitals in the U.S. and then issued a report saying that testing and PPE were significant challenges across the country.  President Trump wants everyone to believe there are no testing or PPE supply issues, so Ms. Grimm had to go.

Next came Steve Linick, the Inspector General of the State Department. He had evidently launched an investigation into certain action of Secretary Mike Pompeo, including non-authorized weapons sales to Saudi Arabia and the use of State Department employees for personal tasks.

Dr. Rick Bright, the head of the Biomedical Advanced Research Development Authority, was the key vaccine development official in the federal government.  His early warnings about the COVID-19 illness were ignored within the Administration.  He also was highly skeptical about the effectiveness of hydroxycloroquine, the malaria drug touted by President Trump as a cure.  In April, he was fired from his position and reassigned.  He has since filed a whistleblower complaint and will be speaking directly with Congress.

On April 13, President Trump claimed that he had total power to end any lockdowns imposed by governors around the country.  This is, of course, wrong.   Over the next few days, many governors publically disagreed with the President on this issue.

What does President Trump do?  He has William Barr, the Attorney General, threaten to file lawsuits against state governments for their lockdown orders. Governor Phil Scott of Vermont must have been delighted to add this to his list of things to worry about in the middle of the biggest health emergency in 100 years!


The US has a long history of government mistakes, pork barrel, corruption and fraud.  The Medicare and Medicaid programs have been troubled by mismanagement and fraud for many years.  Tax evasion is a major industry.

The size and scope of the COVID-19 pandemic and the Federal Government’s legislative response are unprecedented.  Unfortunately, the size, scope and audacity of the unscrupulous political and business responses appear equally unprecedented.

The large and rapid misuse of the Paycheck Protection Program suggests that there is a widespread ethical issue in the US corporate community. 

Fly-by-night operators trying to profit on the shortage of PPE is not a victimless crime.  Even if all the money is recovered, their false promises would certainly have delayed the delivery of PPE to front line health workers putting lives at risk.

Firing Inspector Generals and the at the very beginning of the largest stimulus programs in US history and politicizing COVID-19 by threatening to sue state governments makes the country look like a third world nation. 

Firing the principal vaccine development official at the beginning of the largest pandemic in 100 years is simply unbelievable. 

We should all watch these developments as carefully as we can.





COVID-19: Federal Government Response. 6. CARES Act Tax Cuts: Stimulus or Gravy Train

As Winston Churchill once said, “Never let a good crisis go to waste”.

This must have been the attitude of our tax code writers and the elected representatives who support them as the Coronavirus Relief, Aid and Economic Recovery Act (“CARES Act”) made its way through Congress.

According to the Congressional Joint Committee on Taxation, the total long-term cost of the tax cuts included in the CARES Act is $591 billion.  As discussed in the prior article, $292 billion of this is relates to the Individual Recovery Rebate program, which sent $1,200/$2,400 checks to low and middle class taxpayers across the country.

The next five largest tax cuts, totaling $276 billion, or 47% of the total, are all for businesses and wealthy Americans.  These will be explained below.

Pass-Through Vehicles

 To understand the highway robbery going on with these tax code changes, a basic understanding of pass-through investment vehicles is required.  Limited Partnerships, Limited Liability Corporations, REIT’s and Master Limited Partnerships are all pass-through vehicles.  None of these legal entities are taxed.  Instead, the income or losses from the business are “passed-through” to the shareholders in proportion to their ownership percentage.  These are very common investment vehicles in real estate, oil & gas ventures and pipelines, to mention a few.

Most of these pass-through investment entities are designed to have losses of taxable income, but positive cash flow.  This all works because the IRS allows taxable income to be reduced by non-cash charges such as depreciation of assets.

For example, apartment buildings can be depreciated over 27.5 years for IRS purposes. Lets say a limited partnership is set up to buy a $10 million apartment building.  The individual shareholders put up $2 million of capital and borrow $8 million at 4%.  Here are their losses for tax purposes:

Rent Revenue:  $750,000


Interest Expense: 320,000

Maintenance and Repair:  100,000

Property Tax: 150,000

Depreciation:  363,636

Total Expenses:  $933,636

Taxable Income:  ($183,636)

So, for tax purposes the partnership made a loss of $183,636.  This loss would be “passed-through” to each of their individual investor’s tax returns.

However, the story doesn’t end here.  The investment partnership actually had positive cash flow.  Depreciation is a non-cash expense. If you take that out of the equation, the partnership has positive cash flow of $180,000.  This can be paid out to the investors as a return of capital, which is not taxable income.

This type of investing is a very common in the USA allowing wealthy individual investors to make tax efficient investments.

Pass-Through Income Tax Code Change

The existing tax code allows individuals to use pass-through vehicle losses to offset other income, such as wages and investment income, up to $250,000 for an individual and $500,000 for a couple.  The CARES Act amended this provision so pass-through losses can be used to offset other income on an unlimited basis.  It also made this retroactive, covering 2018 -2020.

This change has little to nothing to do with COVID-19 economic stimulus.  First and foremost, a couple filing jointly would need to have other income in excess of $500,000 to even benefit from the change.  We’re talking about the top 1% here!  The ability to do this retroactively so the government has to send these people tax refunds is simply adding salt to the wound.

So, how much money will the taxpayers be handing out to these wealthy individuals?  According to the Congressional Joint Committee on Taxation, this provision will cost 30% of the total CARES Act tax cut cost, or $172 billion!

To put his in stark relief, the bottom 90% of American taxpayers get to share $292 billion of Individual Recovery Rebate payments and the top 1%, who don’t need the money, get to share $172 billion.

Net Operating Loss Carrybacks

The Tax Cut and Jobs Act of 2017 reduced corporate tax rates from 35% to 21%.  To help justify this massive reduction in corporate tax, a number of tax provisions that previously allowed corporations to lower their effective tax rates were tightened or eliminated.  One of these was the ability to take current year losses and use them to offset prior years profits and taxes.  The Tax Cuts and Jobs Act eliminated the ability of a corporation to “carryback” net operating losses (“NOL’s”).

The CARES Act permits NOL’s from the 2018-2020 tax years to be carried back five years, all the way to 2013 for any operating losses incurred in 2018.  For the many profitable companies that loose money in 2020 because of COVID-19, this provision will allow them to use those losses to recover a portion of the taxes they paid in prior years.  No doubt this extra cash will help a number of struggling companies.

However, this new provision is available to all companies whether or not they have been adversely affected by the coronavirus pandemic.  For the corporations that are unaffected or benefiting from the coronavirus crisis, this is just a gift at other taxpayer’s expense.  Losses carried forward (which has been permitted) reduce income being taxed at 21%.  Losses carried back before 2017 reduce income that was taxed at 35%. This provision allows corporations to pocket the differential.

Interest Deductibility

Like the treatment of NOL’s, the Tax Cut and Jobs Act reduced the ability of corporations to deduct interest expense to 30% of a certain earnings parameter to justify the lower 21% corporate tax rate..  The CARES Act raised this limit to 50% for 2019-2020.  The vast majority of companies that have this level of interest expense are leveraged buyouts owned by private equity firms.  Really?

Payroll Tax Deferral

Any employer, whether affected by the crisis or not, can now defer the payment of 2020 Social Security payroll tax and repay it over the next two years.  This is basically an interest free loan.  It will help preserve cash flow for businesses under pressure, but is a gift for the unaffected.

Payroll Retention Tax Credits

This is the only business tax cut in the CARES Act specifically tied to the COVID-19 crisis.  Employers that either 1) closed operations, or 2) lost half of gross receipts owing to COVID-19 are eligible for a refundable tax credit of up to $5,000 per employee that remains on the payroll.  For employers with more than 100 employees, this tax credit can only be claimed for inactive employees.  Smaller businesses can claim it for all employees.

This provision is clearly designed to keep people employed and off the unemployment rolls.


If our government assembled the best and the brightest to design an economic stimulus plan to address the COVID-19 crisis, it would probably not look much like the tax code changes outlined above.  Handing out $1,200/$2,400 checks to individual taxpayers whether they need it or not may not be the best economic choice.  Handing out tax breaks to businesses whether they need it or not is probably not the best economic policy.  Handing our $172 billion under pass-through tax provisions to people that definitely don’t need the money is reprehensible.

As indicated above, the Congressional Joint Committee on Taxation estimated that the CARES Act tax code changes will add $591 billion to the federal deficit.  Here is a brief summary of the costs.

CARES Act Provision Cost Estimate ($ billions)
Individual Recovery Rebate Program 292
Permitted Pass-Through Losses 172
NOL Carrybacks 40
Other Business Tax Code Changes 64
Other Individual Tax Code Changes 23
Total 591

Source:  Derived for Congressional Joint Committee on Taxation

Remember, the CARES Act is adding over $2 trillion to a federal budget deficit that already exceeds $1 trillion per year.  The conversation around the tax code could change materially in the not too distant future.



COVID-19 Pandemic: Federal Government Response. 5. Vermont’s Money Haul

In the previous articles, The Informed Vermonter reviewed the major federal legislation passed in response to the COVID-19 pandemic.  In total, this legislation provided for over $2.3 trillion of increased aid and economic stimulus.  In this article, the amount of this money making its way into Vermont will be discussed.

As you will soon see, the amounts are not small.  It can be difficult to comprehend numbers like $2.3 trillion.  When you peel the onion back to Vermont and its population of 624,000 people, the scale and impact of these huge federal programs becomes a bit clearer.

CARES Act Bonanza

As part of the massive $1.7 trillion CARES Act, there was a provision for $150 billion of direct federal grants to states, territories and Indian organizations to be allocated based on population.

Vermont has received $1.25 billion under this program.

This is a huge amount of money for Vermont.  In fiscal year 2019, the State of Vermont had total revenues of $6.3 billion according to the annual audit. This CARES Act grant represents almost 20% of the State’s total annual revenues.  The grant exceeds total annual state income receipts by $205 million.

The state government has until the end of the year to determine how to spend all this money.  Normally, the governor and legislature spend most of their time worried about finding enough money to fund existing programs.  It should be quite interesting to see how they handle a $1.25 billion bonanza.  There’s probably a very long line forming to get their hands on this money.

 Payroll Protection Program

As of May 16, 2020, 11,124 small businesses in Vermont had borrowed $1.17 billion under the CARES Act Payroll Protection Program.  This represents an average loan size of $105,178.  To the extent all these borrowers use the loan proceeds for qualified uses (75% for payroll…), these “loans” are converted to grants and need not be repaid.

As of May 16, 2020, there was still over $100 billion remaining in this program to be allocated by the Small Business Administration, so more Vermont businesses will probably take up this program.

Stimulus Checks

Unlike the $1.25 billion state government grant, the money sent to income tax filers under the CARES Act can be spent as each individual recipient sees fit.  In the aggregate, it’s a lot of money.

So, taxpayers in Vermont received $1,200 each ($2,400 for joint filers) plus $500 per dependent.  The Informed Vermonter took a stab at estimating the total amount of money this represents.

In 2018, Vermont had 320,213 individual income tax returns filed.  The table below estimates the total payments made under this program.

Filer Category Number of Filers Stimulus/Filer ($) Total ($ millions)
Joint Returns less the $200,000 105,000 2,400 252
Single Filers less then $98,000 191,000 1,200 229
Dependents 100,000 500 50
TOTAL     531

Source:  Derived From Income Tax Statistics, Department of Taxation, Vermont Agency of Administration

These are estimates only.  First, the number of dependents is an educated guess based on the number of K-12 students in Vermont.  Also, the Stimulus payments reduce $5 for every $100 of Adjusted Gross Income above the levels in the table.  The table excludes recipients in this category.  Having said all that, this estimate is in the right ballpark.

For the Vermonters who lost their jobs or are facing coronavirus medical bills, this money is a godsend.  For the majority of Vermonters, this money is a windfall  (and tax free at that)!

Extended Unemployment Insurance

 The CARES Act increased funding under Unemployment Insurance programs by $600 per week for up to 13 weeks, all paid by the federal government.  It also expanded eligibility under the Pandemic Unemployment Assistance program to include independent contractors, people with limited work histories, gig workers and the like.  This program pays lost average wages plus the additional $600/week.

Prior to the COVID-19 shutdown, Vermont would have had an average of 10,000 to 11,000 people receiving Unemployment Insurance Benefits at any point in time.

As of May 14, the Department of Labor had received 90,213 unemployment claims bringing the total to 69,444 eligible for normal Unemployment Insurance and 25,361 for Pandemic Unemployment Assistance.   This represents about 30% of the entire Vermont work force!

In fiscal year 2019, Vermont paid out $65 million in Unemployment Compensation.  Payroll taxes supporting the Unemployment Insurance program have exceeded claims for several years and Vermont’s Unemployment Insurance Trust Fund stood at $523 million as of June 2019.  So, Vermont’s cushion going into the crisis was 8 times a normal year.  With Unemployment Insurance claims going from a normal level of say 10,000 to circa 70,000, it looks like Vermont’s Unemployment Trust Fund can weather this storm.  It seems unlikely that 70,000 people will remain unemployed for a full 12 months.

Both the Pandemic Unemployment Assistance program and the extra $600/week are fully funded by the Federal Government.  Average Unemployment Benefits in Vermont are about $510 per week.  With 25,000 people now eligible for Pandemic Unemployment Insurance, the weekly cost could be in the $12-$13 million range.  With 95,000 people eligible under both programs, the weekly cost of the $600/week extra payment is around $57 million.  Combined, that’s about $70 million a week at what is hopefully peak COVID-19 unemployment.

Assuming a straight line reduction in unemployment between May 1 and December 30 to normal levels (this could be optimistic), the extra $600 in weekly benefit could cost in the $500-$600 million range and the Pandemic Unemployment Insurance could run a further $200 million or more.

Supplemental Nutritional Assistance Program (Food Stamps)

With over 90,000 Vermonters out of work, the demand for SNAP benefits must be increasing.  Following the Great Recession of 2008-2009, Vermont SNAP benefit recipients peaked at 100,138, or about 16% of the entire population. At the end of 2019, this had reduced to 67,800, or about 11% of the population.

Under the Families First Coronavirus Response Act and the CARES Act, eligibility requirements were eased, benefit levels were raised and federal appropriations were increased.

According to the Vermont Single Audit Report for fiscal year 2019, Vermont received $111 million related to SNAP, excluding the hot lunch school program.

Given the level of unemployment, SNAP benefit recipients could easily increase well above the 67,000 level back towards 100,000, depending on how long people stay out of work.  To venture an estimate, lets assume there will be, on average, 15,000 additional recipients for six months.  This would require an extra $50 million in federal SNAP grants.

Other CARES Act Funding

 The CARES Act provided additional funding to a large number of state and federal programs.  Senator Patrick Leahy’s office published a list of other funding that has been granted to Vermont totaling just about $65 million.  This is spread across 13 different programs with the largest grants being $20 million for public transportation, $9.6 million for Vermont airports and $5.4 million for public health preparedness.


Much of the above are estimates and educated guesses.  We won’t know the real numbers until all the dust settles and a final accounting is completed.  With Vermont’s fiscal year ending June 30, a final tally of federal grants won’t be available until after June 2021.  Having said that, the amounts indicated above are certainly in the ballpark and they are HUGE.

Here is a tally of the additional federal funds flowing into Vermont as a result of the COVID-19 crisis:

Program Amount ($ millions)
State CARES Act Grant 1,250
Payroll Protection Program 1,170
Stimulus Checks 531
Extended Unemployment Insurance 750
SAAP Benefits 50
Other CARES Act Funding 65
Total 3,816


$3.8 billion is a lot of money!  It represents $6,115 on a per capita basis.  It is 11% of Vermont’s Gross Domestic Product.  It represents a 180% increase in the normal level of federal grants received by Vermont.

Of course, mandatory shutdowns and 95,000 unemployed Vermonters is a completely abnormal and unexpected outcome.  Imagine how things would have been without this addition $3.8 billion if assistance.  One suspects more bankruptcy’s, more defaults, more joblessness, more hunger, more anxiety and more misery overall.

In the next article, CARES Act tax cuts will be reviewed.  For many readers, this will show Washington at its worst!




COVID-19 Pandemic: Federal Government Response. 4. Coronavirus Aid, Relief and Economic Recovery Act (“CARES Act”)

In 2009, Congress and President Obama passed the American Recovery and Reinvestment Act to pump $831 billion into the economy to mitigate the devastating affect of the the Great Recession.   

This was a highly partisan episode in our history.  No Republicans in the House and only three Republican Senators voted for the bill.  Indeed, the Tea Party began partly as a response to this legislation.

How things have changed!  On March 27, the largest economic stimulus measure in US history was put in place with complete bipartisan support, including all 100 members of the Republican held Senate and a Republican President.  The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) will pump over $1.7 trillion into the economy to mitigate the devastating effect of the COVID-19 recession.

The next four articles in The Informed Vermonter will attempt to review and explain the CARES Act, which is a bit of a monster.  This article will try to outline in broad terms what the Act sets out to do and the related cost parameters. The next article will address the amount of CARES Act money flowing into Vermont.  The third article will focus on corporate and individual tax code changes and the last will address potential abuses of some of the stimulus programs included in the Act.  The CARES Act is not all “motherhood and apple pie”!


The Cares Act does seven basic things.  First, it fixes issues and provides much more money to the healthcare and social programs included in the first two phases of COVID-19 legislation.  Second, it arms FEMA with resources.  Next, it creates a series of massive loan programs for businesses large and small.  Fourth, it provides huge tax cuts for businesses and individuals, particularly rich individuals.  Fifth, it greatly increases federal government payments into the Unemployment Insurance Program.  It also addresses COVID-19 issues in our student loan programs and expands access to retirement plan funds.  Each of these elements will be summarized below.

Much More Funding for Healthcare and Social Services

In the two prior articles, The Informed Vermonter described the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act.  These were the first two phases of the federal government’s response to the COVID-19 crisis and they were put in place in a hurry.  The CARES Act included a number of clarifying amendments for these prior Acts and a boatload more money.

The largest new provision was an additional $127 billion appropriation for Public Health and Social Services, with $100 billion earmarked for reimbursement of hospital and other healthcare entities responding to the COVID-19 emergency for expenses and/or lost revenues.  The CARES Act also provided an additional $17 billion for Veterans Affairs medical support, an additional $25 billion for domestic food programs and a further $4.3 billion to the Center for Disease Control.


The Federal Emergency Management Agency (“FEMA”) has been put in charge of the federal government’s emergency response to COVID-19.  The CARES Act provided FEMA with $45 billion to do the job.

Economic Stimulus Loan Programs

 The Cares Act funded three large federal loan programs for businesses, as outlined below.

The first was the $500 billion Economic Stabilization Fund, designed to make loans to businesses, states and municipalities adversely affected by the health crisis.  $25 billion was carved-out for the airline industry, $4 billion of cargo carriers and $17 billion for businesses “critical to national security”.  The balance of $454 billion is being used by the Federal Reserve Bank to purchase publically traded securities and make direct loans.  The Secretary of the Treasury has been given broad authority to negotiate the terms of loans subject to the limitations in the Act.

With respect to any direct loans, there are strings attached to avoid fraud and abuse of the program.  Executive pay levels are capped, dividends are not permitted and stock buy-backs are prohibited.  Also, the loans must have appropriate compensation and equity warrants have been a feature of some of the loans made.  All of these “strings” are making companies think long and hard about taking a government loan.

The Federal Reserve has used much of this money to buy corporate bonds, municipal bonds and mortgage bonds in the public secondary markets.  These Fed purchases helped the markets to recover rapidly in April, thus permitting many US corporations to tap the capital markets for their needs instead of the taxpayers.  For example, Boeing was able to sell $25 billion of bonds and Ford Motor $8 billion.  Both companies operations have been severely hurt by the COVID-19 pandemic.

The second major “loan” program was the $349 billion Paycheck Protection Program. The intent of this program was to provide two months of cash flow protection to small businesses so they could keep employees on the payroll.  The amount of a loan under this program is the monthly average payroll in 2019 times 2.5, up to $10 million.

Any borrowers must certify that the money is needed to survive.  The loan is forgiven and converted to a grant if 1) 75% of the funds are applied to payroll expenses, and 2) the remaining 25% is applied to mortgage interest, rent or utilities. Basically, if the borrower uses the money the way the government intends, it’s a free grant.  If not, it’s a loan that needs to be repaid.

As of April 16, 2020, the Small Business Administration (“SBA”) reported that 1.66 million loans had been made totaling $342 billion.  Loans of $1 million or less accounted for 56% of the total funds and loans exceeding $5 million just 9%. With all the money going out the door in about two weeks, Congress approved a further $320 billion appropriation in late April.

The SBA data seems to indicate that most of the loans are indeed going to small businesses.  There have been some abuses, which will be discussed in a future article.

The final loan program covered by the CARES Act is the SBA’s Economic Injury Disaster Loan Program.  This program has been around for many years and is designed to provide loans to homeowners, small businesses and non-profits to recover in declared disaster zones.   COVID-19 is the first time the entire country has been declared a disaster area, so this program has had to grow rapidly.  According to the SBA, 775,476 loans totaling some $4 billion had been approved as of April 20, 2020.

Tax Code Provisions

There are a number of important tax code changes included in the CARES Act. Some of these changes are clearly intended to provide short-term stimulus and mitigate the economic impact of the pandemic.  However, some of the changes are simply designed to benefit the top 1% of the population.  Only one of the changes will be discussed here.  All the other tax code adjustments (particularly the ones for rich people) will be reviewed in a subsequent article.

The CARES Act provides for a 2020 individual tax credit for all federal taxpayers (the “individual Recovery Rebate” program).  The tax credit is $1,200 for single filers and $2,400 for joint filers plus $500 for every dependent.  It’s a one time only credit and eligibility is tied to income.  The amount of the credit declines to zero as income go from $150,000 to $198,000 for joint filers.  According to the Congressional Joint Committee on Taxation, the cost of this program will be $292 billion, representing 49% of the total CARES Act tax cuts.

Student Loans

With schools and universities shut down across the country, there is a great deal of distress among students.  The CARES Act created a $14 billion emergency fund for grants to students to cover the cost of course materials, technology, food, housing and childcare.  Student loan payments being made by an employer to an employee (or the student loan provider) are now tax-free from March 27,2020 until the end of the year.  Interest payments on federal student loans have been temporarily suspended, as have any enforcement actions.

Expansion of Unemployment Benefits

The Act provides an additional $600/week from the federal government on top of the amount being paid by any state’s Unemployment Insurance program.  It also expanded eligibility.  The expected cost of these measures is $250 billion.

Expanded Access to Retirement Plans

The 10% tax penalty for early withdrawal from IRA’s has been waived for individuals whose health or income has been adversely affected by COVID-19.  It also suspended the requirement for minimal distributions from IRA’s for 2020.  Normally, there is a requirement to begin withdrawing IRA money from age 72.

I’m not sure why this latter provision was included.  By suspending the provision, individuals can now defer any IRA related taxes otherwise occurring 2020. With stock markets down over 30%, perhaps the lawmakers didn’t want to force people to take losses on their withdrawals.   Anyway, this all seems a bit generous to the author.


The Congressional Budget Office initially estimated that the CARES Act would increase the federal budget deficit by $1.7 trillion, with the vast bulk of the damage occurring in 2020 and 2021.  As indicated above, the further $320 billion was added to the Payroll Protection Program in late April, bringing the total above $2.0 trillion.

The chart below provides an estimated breakdown of the costs of the CARES Act, all of which will be added to an already very large federal government deficit.

Cares Act Cost by Category ($ billions)

CARES Act Program Cost ($ billions)
Tax Code Changes 591
Economic Stabilization Fund/Corporate Loans 454
Loans for Airlines and Specified Industries 46
Paycheck Protection Program 349
Paycheck Protection Program Phase 2 320
Expanded Unemployment Benefits 250
Healthcare and Social Services 173
Total 2,228


The next article in The Informed Vermonter will focus on the CARES Act money flowing into Vermont.  It’s a big number.