Business & Economy

Vermont’s economic recovery depends on a national return to normalcy

Outdoor diners at a Vermont restaurant. Hospitality business owners are desperate for more detailed business reopening guidelines that will help them plan for the months ahead. Photo by Glenn Russell; illustration by Mike Dougherty/VTDigger

There’s a million things that can’t be predicted about the coronavirus, as it continues to wreak havoc on the U.S. economy and dominates political campaigning this summer.

But Harry Holzer, a labor economist at Georgetown University, knows one thing for sure: There is hardship ahead for people who lost their hospitality industry jobs in March and will eventually need public assistance. 

“If this goes on for months or years — and a lot of those restaurants, already the margins were pretty tight — they might just throw in the towel,” said Holzer, who focuses his research on the low-wage labor market.

This week, VTDigger is examining the range of possibilities for the coming months of the pandemic in Vermont. As the state continues to see a relatively low rate of Covid-19 cases, the virus is spreading rapidly in other parts of the country. Could Vermont see another surge? How could national trends impact the state’s reopening? And what exactly are the state’s health care systems, businesses and government officials preparing for?

Hospitality is one of many sectors that have seen business all but disappear since Gov. Phil Scott declared a state of emergency in March, closing businesses and instituting social distancing guidelines that kept non-essential workers at home and ended public gatherings. 

According to the latest projections from Vermont’s fiscal analysts, state revenues in fiscal 2021 could fall by $374 million across all state funds because of the Covid-19 crisis — a drop of about 15%. Nationally, it could take three years for the economy to recover from the impact of the crisis, according to a report from consultancy McKinsey & Company. Lawmakers will know more after the tax filing deadline of July 15.

Holzer sees this dire prognosis playing out now in the plight of restaurant industry workers, many of whom were furloughed when Vermont restaurants were closed in mid-March. 

While hospitality businesses are now gradually reopening in many states — and closing anew in others — an estimated 10,000 restaurant workers in Vermont alone are out of work. Holzer doesn’t hold out much hope for the individual restaurants that were already struggling to survive.

Largely because Vermont officials acted swiftly to implement social distancing measures, and have reopened slowly, the state’s Covid-19 infection rate has generally stayed low and stable, with 1,272 cases and 56 deaths as of July 9. 

Vermont’s public health success, however, does not protect the state from the economic damage being experienced across the country. So no matter how little the virus spreads, Vermonters will continue to feel the financial impact as states like Texas, Florida, California and North Carolina struggle to contain the spread of Covid-19. 

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Five states hit daily highs on July 8, and the United States set another daily record with 59,000 new confirmed infections. And nobody knows when to expect the number of cases to plateau nationally; or whether the pause in reopening in these new hot spots will bring the virus back under control in the weeks ahead. 

People who work in the hospitality business — like those across Vermont’s economy — are desperate for information that will help them plan. And plenty of economists, scholars, and others are looking at past pandemics as they make their best guesses about what is likely to happen next, and whether a “second wave” is coming

Holzer said his guess is that the U.S. will continue to fare unevenly, with some places better at suppressing the virus than others.

But “just because things reopen doesn’t mean the customers will come,” said Holzer. “No matter what we do, in terms of openings and closure, I would expect retail, leisure and entertainment, transportation will continue to limp along at best.”

Vermont’s economy is tied to outsiders

Tourism is one of Vermont’s largest industries, bringing in nearly 13 million visitors and nearly $2.8 billion each year before Covid-19. It’s the largest sector of Vermont’s GDP after manufacturing, according to the state’s 2017 tourism study, and it supports 32,000 jobs, which is about 10% of the state’s workforce. Vermont hoteliers say the state’s lodging industry is expected to lose about $530 million in revenues this year, resulting in a loss of $48 million in occupancy taxes. 

That means Vermont will likely be hit harder than other New England states by the economic impact of the Covid-19 shutdowns. In fact, this is already happening, said Jeff Thompson, who runs the New England Public Policy Center of the Federal Reserve Bank of Boston.

Thompson, using the unemployment rate as a measure of economic damage, said Vermont and Maine both exemplify rural states that have relatively low rates of Covid-19 but are suffering economic damage that’s just as severe as harder-hit states nearby.

“If you think of a ratio with spread of the virus relative to economic harm, Vermont is off the charts in the extremely bad direction,” said Thompson. “You guys are so reliant on the sectors that shut down. People didn’t get sick and die as much in Vermont, but you are the state most heavily dependent on sectors that shut down, such as tourism and hospitality.”

The Ben & Jerry’s Ice Cream factory in Waterbury on Monday, June 29, 2020. The most popular tourist destination in Vermont is bereft of visitors due to the Covid-19 shutdown. Photo by Glenn Russell/VTDigger

Tourism makes up about 6% of Vermont’s GDP, said Thompson, putting it at No. 3 in the nation for its dependence on the industry, after Nevada and Hawaii. Maine is No. 6.

“Within New England you’re the most tourism-dependent state, for sure,” said Thompson.

Vermont draws nearly half of its tourist traffic from immediate neighbors such as Massachusetts, New York, New Jersey and Connecticut. Those states are starting to reopen after hitting Covid-19 infection peaks this spring. But the other half come from afar, many of them from Europe and from states like Texas and California. Vermont companies also sell their products to those states, or in many cases have factories or offices there. 

Vermont officials have been making it easier for people from counties with few cases of Covid-19 to visit. But those who travel from places with rising rates are still required to quarantine for two weeks, or quarantine for one week and get a negative Covid-19 test, hindering travel. 

Counties from which travelers are permitted to enter Vermont without quarantining (labeled teal), as of July 9. Via Vermont Agency of Commerce and Community Development

Vermont is also one of the states more heavily dependent on higher education than others, even now that four small colleges have closed in the last two years and another is on probation. That, too, ties the state’s future to the fate of others.

“Vermont’s near-term future is really going to be an echo of what happens in the rest of the country,” said Thompson. “As long as the rest of the country is not feeling in a position to travel, or feeling comfortable sending their kids to college and university, Vermont will disproportionately suffer. You guys are in some sense dependent more on the national return to normalcy than other states are.”

And without a quick resolution to the rising Covid-19 infection rate, Holzer sees dark days ahead for the national economy — and thus Vermont’s. 

“We’re going to get into a time period where, the longer this goes on, the harder it is for people to resume their former activities because they’ll be in the red,” he said. “It will become more like a traditional recession. If this goes on for a long time, businesses pile up debt, and separate from the virus you have another problem.

“I think it will take years to recover from this,” he said.

Asking for help now

In an effort to turn things around before traditional recession sets in, hospitality business owners are asking for help from the government. Karim Houry, who co-owns the Woodstocker B&B in Woodstock, said innkeepers need better advance notice from state officials when restrictions on tourism are going to be eased.

“We field a lot of phone calls from people saying, ‘We want to come, we understand there are restrictions, when do you think we’re going to be able to come without all those restrictions or less of them?’” he said. “We’re unable to answer those questions, which means either they say they still want to come and they’ll take the risk and book in the next two months, or unfortunately they decide to go to a neighboring state and we lose that business.”

Even before Covid-19, lodging owners were asking the state to devote more money to tourism marketing. Lawmakers from tourist towns last year banded together in a new group called the Tourism Caucus and asked lawmakers in January to raise spending for tourism marketing by half a million dollars. Amy Spear, vice president for tourism at the Vermont Chamber of Commerce, said New Hampshire’s marketing budget is double that of Vermont.

The effort to get more state marketing money was buried by the Covid-19 crisis, but hospitality owners have informally joined forces to lobby lawmakers and the governor as they decide how to spend the state’s share of the CARES Act money.

“For an industry that gives so much to Vermont in terms of experiences, to tax income, we feel very unheard and unseen,” said Sarah Morris, a member of the family that owns the Basin Harbor Resort in Vergennes. 

Morris said she is working with other lodging owners on lobbying efforts. “Personally, I feel the Legislature doesn’t understand marketing and they think that that ask is silly,” she said. “It’s an annual battle for us, and often we are left to market ourselves.”

The hospitality industry is also pushing for a larger share of Vermont’s $1.25 billion from the federal CARES Act, some of which state officials are distributing to industries and private business owners this summer and fall.

Hotel Vermont and the Courtyard Marriott on Cherry Street in Burlington. Seen on Friday, June 5, 2020. Photo by Glenn Russell/VTDigger

“We’re all trying to figure this out,” said Hans Van Wees, the general manager of Hotel Vermont in Burlington, which reopened July 1. “We still have to put a hard number to it, but we feel at least $200 million would be needed for lodging in Vermont to survive until next spring.” 

While some Vermont hospitality businesses have received federal emergency PPP and EIDL loans and grants created to help businesses weather the crisis, Vermont doesn’t have a dedicated rescue program for the industry. On July 6, the state launched its grants program for an array of business sectors that reported revenue drops of at least 50% in any one month of the crisis compared to the same month last year. But the maximum grant under that program is $50,000. 

“There’s a lot of loss; these grants just do a tiny bit,” said Economic Development Commissioner Joan Goldstein. “But we have to offer people some hope that they can survive.” 

Another common ask from hospitality businesses: a mask mandate from the governor that would relieve business owners from having to enforce their own mask requirements.

The Brookings Institution held an online discussion June 29 with Arne Sorenson, the CEO of Marriott — the world’s largest hotel company — and with restaurateur José Andrés to talk about how hospitality businesses nationally are doing in the face of the Covid-19 shutdowns. Brookings President John Allen said June 29 that 39% of U.S. leisure industry employees have lost their jobs in the crisis.

Masks required sign
Montpelier is one of several communities to pass municipal orders requiring retail customers to wear masks. Photo by Mike Dougherty/VTDigger

The industry’s future is tied to how confident consumers feel about traveling safely, said Sorenson, whose company closed one-fifth of its 10,000 hotels in the crisis. Consumer confidence, he said, can’t happen without safety measures like remote check-in, new hand-washing protocols, and mask requirements. He said those are things individuals, businesses and governments can control.

“One of the frustrating things is we can’t require guests practically, when the state doesn’t require it, or the county doesn’t require it, that they wear masks,” Sorenson said. Confidence, and along with it the economy, would improve faster with such a requirement, he said.

No matter what happens with the spread of the virus, there’s no guarantee that customers will return to restaurants, lodging and attractions, said Holzer. He noted that the $600 federal unemployment benefit is due to expire at the end of July, which will likely reduce consumer  spending.

“The virus remains the key variable… but besides that, how much restructuring will occur, how many businesses will start closing?” said Holzer. “It’s anybody’s guess.”

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Anne Wallace Allen

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