Revenue Forecasts Raised Slightly As Economists See Steady Recovery

Economists say the state is steadily rebounding from the recession, but that the recovery would be stronger if the fiscal stalemate ended in Washington.

As a result of the positive news, Gov. Peter Shumlin and leading lawmakers have slightly raised Vermont’s revenue forecast.

Economists Tom Kavet and Jeff Carr gave a tag-team presentation at a meeting of the Emergency Board. The panel – chaired by the governor – makes fiscal decisions when the Legislature is out of session.

The economists’ job is to look back at what happened in the last fiscal year and to look ahead at what’s next. Both economists gave an upbeat forecast. They said the obstacle to Vermont’s continued recovery is not at home but in Washington.

“At this phase of the business cycle we’d usually be looking at a much more vigorous recovery,” said economist Tom Kavet, who consults for the Legislature. “We’d normally be having accelerated rates of growth, and the reason is the headwinds that exist from federal fiscal policy.”

The deadlock in Congress has put a drag on the economy due to automatic budget cuts known as the sequester and because of an end to the payroll tax holiday last January.

Economist Jeff Carr advises the Shumlin Administration. He said there was one positive outcome for Vermont’s bottom line from the Washington dysfunction. Investors bought and sold stocks and other property anticipating changes in the federal capital gains tax rate. That “asset churning” boosted Vermont’s personal income tax returns. But Carr said don’t expect the same thing to happen this year.

“The level of increase that we experienced in tax revenues in fiscal year 2013, certainly some of that increase came at the expense of ’14 and ’15 and maybe even ’16. It’s good, we got the money, we banked it; we’re doing things with it,” he said. “But certainly we had to take a very critical look at what we saw for ’14 and ’15 and even beyond as a result of that.”

In Vermont, the economists said both the housing market and the job market have strengthened.

State revenues in the last fiscal year also benefited from a strong ski season, which boosted the meals and rooms tax.

The economists developed their forecasts before IBM laid off 419 workers last month. Carr said at least the lay-offs came as more jobs are available.

“The one aspect of the IBM action is that it came at a time when Vermont had the best year over year job change in manufacturing, non-farm employment jobs in the region, and the eighth best in the country,” he said. “So if it has to happen, it should come at a time when we can at least absorb it, as opposed to four or five years ago when it would have been layered on top of something that  was in a downward spiral.”

Gov. Shumlin accentuated the positive as he looked over the numbers. He said the state’s fourth lowest unemployment rate in the country is a sign the economy is heading in the right direction.

The Emergency Board slightly raised the revenue forecast for the state’s three main funds by 1.2 percent for the next two fiscal years.