The good news: The state’s revenues are up by about $120 million.
The bad news is that the national economy is slowing and Vermont’s tax receipts are likely to remain flat in fiscal year 2013, according to the state’s two economic advisors, Jeffrey Carr and Tom Kavet.
Though the state has benefited from one-time revenue events in fiscal year 2011, the two economists caution that those increases in tax receipts are unlikely to recur in fiscal year 2012.
Read Kavet’s forecast for the Vermont Legislature.
Carr and Kavet anticipate that Vermont will see lower economic growth through fiscal year 2013. They predict it will be the end of fiscal year 2013 before the state begins to climb slowly out of the Great Recession. They have recommended net revenue upgrades of $7.3 million in FY2012 and $16.1 million in FY2013.
Kavet told lawmakers and Gov. Peter Shumlin at the Emergency Board meeting on Thursday that the national economy is facing mounting headwinds from higher oil prices, the European debt crisis, the brinkmanship in Washington over the debt ceiling and Japanese manufacturing declines due to the tsunami and earthquake. The end of the federal stimulus, which plowed hundreds of millions of dollars into the economy is also a factor that has softened the economic recovery.
The biggest external threat to Vermont’s economic outlook is what Kavet called the nation’s self-inflicted wound – the bitter debate over the national debt ceiling.
If the debt ceiling is not raised before the deadline of Aug. 2, the country could default on its loans. Even if the federal government experiences a technical default for a day or less, the markets would go into a tailspin, the interest rate floor would go up six-tenths of a percent, and the nation would face $86 billion in additional net interest payments, Carr said.
The convulsive effect could have an incredibly damaging long-term impact on the nation’s economy, Carr said, and the situation is mind-bogglingly preventable.
Carr and Kavet said they would have to revise the state’s economic forecast should a default occur.
Other potential negative factors include gas prices, price weaknesses in high end real estate and stock market drops if Europe can’t prevent defaults in Greece and Italy.
High oil prices, in particular, are an enormous drag on the economy, Kavet said. The price at the pump functions effectively like a tax, hurting businesses and eating up disposable income for households and tourists that could be spent on restaurants and goods.
The two economists don’t expect Vermont real estate values to climb back up until the end of 2013.
Though Vermont has avoided the foreclosures and significant value declines that have been rampant in other states, Kavet and Carr predict home prices will continue to drop in the fourth quarter, bottom out and then begin “an extended period of very low price appreciation.”
Vermont is ranked the ninth “least bad state,” with regard to real estate values, as the economists put it. Price weaknesses are hitting the higher end of the market hardest. Homes worth $300,000 or less are selling reasonably well. Kavet and Carr said they hadn’t seen real estate prices decline so precipitously since the late 1980s. The scale of the drop – from 16.5 percent to -2 percent – exceeds the housing crisis that occurred 20 years ago, they said.
Unemployment rates, though very low in Vermont, are also cause for concern.
Carr said though the official rate of laid off workers seeking unemployment benefits is about 5.4 percent in Vermont, the actual rate, once the long-term unemployed are factored in is closer to 12 percent.
