After bracing for hard times, Vermont economists predict healthy state revenues



Published: 01-21-2024 7:20 PM

Despite last year’s hand-wringing over an anticipated downturn of Vermont’s economy, one year later, state economists on Thursday were notably optimistic about where the state’s finances stand.

“We have no recession in the forecast,” economic adviser Jeff Carr told a panel of high-ranking lawmakers Thursday.

“Thank you for saying that so bluntly,” House Ways and Means Chair Emilie Kornheiser, D-Brattleboro, replied.

In the initial weeks of every legislative session, Carr and legislative economist Tom Kavet present their updated state revenue forecast to the state’s Emergency Board, a panel comprised of the Legislature’s key money committee chairs, as well as the governor. The highly anticipated presentation largely kicks off the budget-writing process for state lawmakers each year.

Until Thursday, lawmakers had been bracing for sour news. In recent years, “epic, unprecedented, off-the-charts” influxes of federal cash — in the words of Carr last year — bolstered state revenues. Lawmakers knew those reserves were due to dry up, and they fretted that the state’s come-down would be harsh.

But according to Carr and Kavet’s report, Vermont’s economy over the past year has “exhibited surprising economic resilience.” Unemployment rates remain low, inflation persists but has slowed, and the stock market is performing well, the economists wrote.

Two of the state’s three major pots of revenue are performing well, according to the report, with both the General Fund and Education Fund’s revenues exceeding expectations. Bolstering the General Fund were strong personal income tax receipts, they said, and for the Education Fund, “robust” consumer spending and higher-than-expected cannabis sales have lined the coffers.

The exception in all of this optimism was the state’s Transportation Fund, which performed roughly 6% below expectations. Largely to blame for the underperformance, Carr and Kavet said, was a major slow-down in vehicle purchases over the past year — and the tax dollars that those purchases generate. They theorized that the slowdown was attributable to sky-high sticker prices for both new and used vehicles, combined with expensive financing options and still-limited inventories, pushing would-be purchasers away from the dealership.

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Even with the state’s revenues performing relatively well, however, the lawmakers and economists noted Vermonters may not necessarily hold a favorable view of the economy. Even at a slowed pace, nationwide inflation remains persistent, and many everyday costs— namely housing, food and fuel — have increased between 25 and 55% since before the pandemic, according to the economists’ presentation.

“That I think is what people feel also at a visceral level every day because those are the things you’re shopping for frequently and are necessities,” Kavet said.

With Thursday’s forecast out of the way, lawmakers can begin work on the state budget — their annual must-pass legislation — in earnest. Even with healthy revenues, lawmakers have been clear-eyed since before the session began about the immensity of Vermonters’ needs this year. Chief among the challenges are the state’s ongoing housing crisis, as well as the task of helping residents recover from this summer’s catastrophic flooding — and bracing for the next natural disaster to come.

Republican Gov. Phil Scott is slated to deliver his annual budget address to legislators next week, during which he is expected to propose a spending plan which increases the state budget by only 3%. During his State of the State address earlier this month, he warned lawmakers that they may find the proposal “sobering.”