A new report released Thursday shows that Vermont's economy is continuing to make slow and steady progress. Among the findings are that corporate profits are lower than expected, due in part to a number of companies hiring new workers.
The report was delivered to the state's Emergency Board. It's a group that meets several times a year to review economic forecasts. If projections don't meet expectations, then either budget cuts or revenue increases are usually needed to balance the state budget.
The Emergency Board has five members: the governor and the heads of the House and Senate budget and tax committees.
Tom Kavet is the economist for the Legislature. In general, he says Vermont's revenue picture is pretty strong — with one exception.
“Both the U.S. and the Vermont economy have been doing well,” said Kavet. ”It's been a very, very slow long steady recovery [and] revenues, also absent one category, would be upgraded this time. And that one category is corporate income tax."
Jeff Carr, the state economist, says the immediate outlook for the Vermont economy appears to be good, but he cautions that changes in Washington could have an impact on state revenues.
"We don't see the normal precursors of a downturn any time in the near-term,” said Carr. “But we're also coming to you at a time — and unfortunately we always seem to say this — of a lot of uncertainty in the economic outlook."
Legislative economist Kavet says corporate income tax revenues are down for several reasons. One is that companies are now hiring more workers.
"We don't see the normal precursors of a downturn any time in the near-term. But we're also coming to you at a time ... of a lot of uncertainty in the economic outlook." — State economist Jeff Carr
"As hiring starts to take place, you have an expenditure and you also have less productive workers initially starting, and corporate profitability tends to lag,” said Kavet.
Kavet notes that wage growth is up almost 3 three percent this year, and he says this development is bringing some people back into the labor market.
“There are a substantial number of people that are on the sidelines that had left the labor force during the recession that could be drawn on back in,” said Kavet. “And the free market mechanism to drawn them back in is higher wages."
After the meeting, Gov. Phil Scott expressed concern about the drop in corporate income tax revenue.
"I thought it sounded concerning to me that corporate revenue is down,” said Scott. “The good news is it appears that wages are going up, but we need to make sure that our businesses can survive and we want to make sure that they prosper as well. So we need more economic activity."
"We need to make sure that our businesses can survive, and we want to make sure that they prosper as well. So we need more economic activity." — Gov. Phil Scott
The Scott Administration believes the drop in corporate revenue in the current fiscal year is a one-time event, and it's recommending that one-time funds be used to close the budget gap.
But some lawmakers wonder if the situation will continue into the state's 2018 fiscal year, which begins in July.
“And what that translates into in FY '18, where we have a gap already of $70 million — so the question is, 'What will change?'” says Caledonia Sen. Jane Kitchel, the chairwoman of the Senate Appropriations committee.
The Scott Administration says the new revenue report will not affect the budget that they'll unveil to lawmakers next Tuesday afternoon.
