Vermont’s Emergency Board, an obscure but highly influential entity, held its twice-yearly meeting Tuesday afternoon to receive an updated revenue forecast from state economists Tom Kavet and Jeffrey Carr. Or, as the governor dubbed it, “The Tom and Jeff Show.” (The E-Board includes Gov. Phil Scott and the chairs of the Legislature’s four “money commitees” — House and Senate Appropriations, House Ways & Means, and Senate Finance. All of whom are women, it should be noted.)
Their report is posted as a downloadable file on the Legislative Joint Fiscal Office website. It’s recommended reading; it’s full of economic information beyond the basic tax projections. Video of the E-Board meeting available here.
Considering the pandemic and all, the news is astonishingly good. The new outlook for FY2021 predicts a very slight dropoff in total revenue, about $20M in all. That’s peanuts compared to earlier dire predictions. For FY2022, which begins in July, the new forecast predicts $77M in additional revenue. Carr and Kavet also predict a big increase in revenues for FY2023.
(Now, if you’re concerned about the federal deficit, it’s not all good news. Since 2018, deficit spending has gone from 105 percent of GDP to 135 percent. Covid relief is one driver of the increase; the other is the Trump tax cuts of 2017.)
How can this be? One simple explanation: A tsunami of federal recovery funds. And with Democratic control of the presidency and Congress, Carr and Kavet expect at least one more big infusion. (President-elect Biden has proposed a $1.9 trillion relief package.) So far, federal relief funds to Vermont account for a stunning 20 percent of the state’s gross domestic product.
“Without the federal money, I’d be declaring a five-alarm fire on Vermont’s economy,” said Carr. “We’re all Keynesians now. If we throw enough money at a problem, we can mitigate the damage in the aggregate.”
“In the aggregate” is an important qualifier. Not all economic sectors have benefited equally. Some, including online retail, sales of cigarettes and vaping products, and short-term rentals, have gotten a boost from the pandemic. Others, like dining, entertainment and tourism, have suffered. (Vermont’s recent efforts to modernize the sales tax, including collection of taxes from online retail and short-term AirBnB-style rentals, have really paid off.)
Housing sales have gone through the roof; property transfer tax revenue is 40 percent above expectation. Eventually, that will filter through into grand lists, meaning the property tax base will grow substantially. (It also means housing has gotten much less affordable, but you know what they say about eggs and omelets.)
That increase, for once, is not confined to the Burlington area. In fact, it’s surprisingly uniform across Vermont. Some of our smallest communities have seen tremendous increases in property transfer taxes, albeit from a small base. Pomfret is up 398 percent. Bridgewater, 383 percent. Barnet, 304 percent. Pawlet, 411 percent.
One unknown in the housing boom, as the governor pointed out: How many of those newly-purchased houses will be primary residences and how many will be second homes slash pandemic getaways? Primary residences would be a much better ongoing boost to the state’s economy.
New projections for the Education Fund are up substantially — $15 million for FY21 and $32 million for FY22. “I spent 36 to 48 hours trying to pick [those projections] apart,” said Carr. “The numbers looked too good.” And they are. So maybe less cost pressure on the public school system?
Carr and Kavet noted that sooner or later, the federal beneficence will recede. When that happens, likely by FY2024, They cautioned that when that happens, likely by FY2024, Vermont’s economy had better be ready to stand on its own two feet. We’d be well advised to spend all those federal dollars as wisely as possible.
The E-Board unanimously adopted the report. In the coming days, the Legislature’s money committees will be fully briefed by Carr and Kavet.
The report is an unexpected dose of good news for state government and for Vermonters. It’s bad news for those, including the governor, who might have seen the pandemic as a reason to impose major austerity measures. Looks like we really don’t need to do that after all.