State economists Thomas Kavet and Jeffrey Carr have downgraded their state tax revenue forecast, projecting an $11 million reduction for fiscal year 2013.
The two economists told the Emergency Board on Friday that state revenues would be about $20 million less in fiscal year 2014, than they had originally forecast. The reductions cut across the key general, transportation, and education funds.
“We were watching the economy carefully and closely, but it does seem with the downshift in the macro economy, there’s concern there’ll be a little less revenue,” said Kavet at the public hearing, prefacing this by describing the revenue in fiscal year 2012 as “generally pretty good.”
The two economists submitted separate reports to the board which agreed on most fundamentals. Kavet works for the Legislature and Carr for the Shumlin administration.
Kavet’s report attributed the less optimistic economic environment to “political dysfunction in both Washington and Brussels,” and accompanying policy inaction. Uncertainty surrounding European debt problems is a key factor here, as is the so-called potential future ‘’fiscal cliff” in Washington, which refers to politically paralyzed fiscal policy and several impending laws slated to come into effect simultaneously in 2013.
But Kavet added that Vermont’s real estate market is bottoming out, seeing “small gains,” and that this will eventually mean more construction jobs. Vermont home prices increased in the first quarter of 2012, a positive feature, especially given the fact that no other Northeastern states reported rising home prices.
Still, he said: “It’s hard to imagine that we’re going to have the kind of economic turnaround that we were hoping was going to come in [fiscal year] 13, six months ago, which now doesn’t look like it’s coming until we get into [fiscal years] 14 and 15.”
But Gov. Peter Shumlin, a member of the Emergency Board, wanted to remind the audience that Vermont’s financial situation is strong given the context of the recent economic recession.
“I do think that our ability to balance budgets in Vermont, to pay our bills, to maintain our extraordinary bond rating, and to be fiscally smart, not to spend money we don’t have, is paying off,” said Shumlin. He reported that other governors at a National Governors Association last weekend had complimented him on the state of Vermont’s finances.
But Shumlin also conceded that, “perhaps, projections weren’t as exuberant as what we had all hoped.”
The two reports, which contain hundreds of data points, were produced respectively by Economic & Policy Resources Inc., based in Williston, and by Kavet, Rockler & Associates, LLC, based in Williamstown.
Economist Jeffrey Carr concluded this part of the public meeting with: “Basically, we are continuing to increase our revenues year over year. Our growth isn’t at our earlier projections, but we’re continuing on a positive trajectory, and that’s good news.”
Other items heard at the Emergency Board meeting included the Vermont Economic Progress Council’s request to exceed a $10 million spending cap on employment growth incentives, as well as a Medicaid spending and caseload report.