On Thursday, economists for the Legislature and the Scott administration unveiled their latest outlook for the Vermont economy. And the news is generally good. Both economists say Vermont does not have to worry about a recession anytime in the near future.
But Republican Gov. Phil Scott and Democratic leaders in the House and Senate have very different views of what state government should do to strengthen Vermont's economy in the years ahead. And those differences are coming into sharp contrast as Scott prepares to deliver his budget address to the Legislature next week.
Vermont Public reporter Pete Hirschfeld speaks with Mitch Wertlieb about some of those distinctions. This interview was produced for the ear. We highly recommend listening to the audio. We’ve also provided a transcript, which has been edited for length and clarity.
Mitch Wertlieb: Pete, what are some of the important takeaways from the economic outlook that lawmakers and the governor got this week?
Pete Hirschfeld: There's been a lot of anxiety over the last year or so, here in Vermont and in the rest of the country, that the U.S. may be headed toward a recession. We've seen inflation at 20-year highs. That increase in costs erode spending power for both consumers and businesses. And that could be a bad thing for the economy, generally. But Tom Kavet and Jeff Carr — these are the chief economists for the Legislature and the executive branch, respectively — say Vermont's economy has demonstrated some pretty remarkable resiliency.
Unemployment remains very low, GDP growth is strong, wage growth is exceeding inflation levels and, they say the proverbial "soft landing" is potentially in sight. While there's no recession in the immediate offing, though, Kavet and Carr have issued some warnings. They say the economy will slow substantially, as will growth and state revenues. We can also expect to see sort of the the lagging effect of monetary policy by the Fed begin to manifest in ways that aren't necessarily conducive to positive economic outcomes.
So overall, definitely not as bad as it could be. But both Kavet and Carr say whatever optimism we have about our economic future needs to be tempered by some caution as well.
Mitch Wertlieb: Yeah, well, that's reflected in the State of the State address earlier this month that Phil Scott made, he warned Vermonters of tougher economic times ahead:
Phil Scott: It will be a much different picture than previous years. Sobering comes to mind. Once again, we'll face the discomfort saying no, choosing between many good things.
Mitch Wertlieb: So how will this latest economic news influence the governor's approach to the budget process, Pete?
Pete Hirschfeld: This report won't change Phil Scott's approach one iota.
He told lawmakers earlier this month to expect a budget proposal that rises by less than the rate of inflation. And I've talked to administration officials as recently as today who say that's still what we're going to see when the governor unveils his spending plan on Tuesday.
We will see a couple of new spending proposals related to housing in that budget. You can expect to see a plan related specifically to emergency housing for Vermonters who are experiencing homelessness. But this will otherwise largely be a maintenance of effort spending plan. Lawmakers say the 3% budget increase that we're going to see from the governor functions as a budget cut, because inflation is eating away at government spending power too. And as we as we heard, Phil Scott is actually acknowledging this reality. But he says Vermont's economy is driven primarily by the money that comes from the pockets of consumers in the accounts of companies — not from government spending. And so he's prepared to hold the line on state spending, even if it makes for some difficult choices when it comes to government programs and services.
Mitch Wertlieb: So it seems that Phil Scott is making the case for fiscal restraint with Democratic lawmakers. Is he having any success so far?
Pete Hirschfeld: Not that I've detected. I talked with several Democratic leaders in the Vermont House earlier today. I think they take this economic outlook as a kind of vindication of the record government spending that we've seen since the start of the pandemic.
They point to things like the $170 million child care bill the Legislature enacted last year — over the governor's objections we should note. They say we've already seen an additional 1,000 childcare slots open up, that wages for providers have increased, and they say the payroll tax that we're using here in Vermont to fund that initiative is generating more economic firepower for the state than it would have if we weren't deducting those tax assessments from workers' paychecks.
And they seem ready to pursue more significant spending packages this session — on flood relief, on climate resiliency, on health care, on affordable housing. They view government spending as a fuel that ignites economic growth, not the wet blanket that the governor sees it as. And this philosophical chasm between Democrats in the Legislature and the Republican governor seems only to be deepening really. The governor vetoed the legislature's budget last year, and they overrode him. And the dynamic early on in this session suggests that we could see a similar outcome in 2024.
Tune into Vermont public on Tuesday at 1 p.m. to hear a live broadcast of the governor's budget presentation.
Have questions, comments or tips? Send us a message or contact reporter Peter Hirschfeld:
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