For months and months, Gov. Phil Scott has been setting the stage for a Big Austerity Year where he could issue a rousing call to Live Within Our Means Like a Family Around the Kitchen Table, and slam the Democratic Legislature as mouth-foamin’ tax-and-spenders. After all, the federal Covid relief money has been spent, so the state will have to rely more heavily on its own coffers. And as the federal tide recedes, the knock-on effect will be a slowdown in Vermont’s economy. Of course. It all made perfect sense.

And then state economists Jeffrey Carr and Tom Kavet came along yesterday and pissed in the punchbowl. Take it away, VTDigger:

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.

Vermont’s favorite stats ‘n charts duo delivered the surprising good news to the Emergency Board, which consists of the governor and the four legislative “money committee” chairs. The Carr and Kavet economic forecast (downloadable here) will provide the basis for budget deliberations for the fiscal year beginning July 1.

And Scott just lost a fair bit of leverage in those deliberations. I’m sure that as a person, he’s glad to see Vermont doing so well. But c’mon, despite his protestations to the contrary, Phil Scott is a politician. He’s been in politics for more than 20 years. This, speaking purely in political terms, is a setback for his planned austerity offensive.

The economists’ new outlook is starkly at odds with their January 2023 forecast, delivered when the state’s coffers (Only in Journalism word alert) were still flush with federal cash. This time last year, Carr and Kavet predicted a nearly 9% decline in general fund revenues for FY2024, which began last July 1.

The new forecast is also far rosier than its immediate predecessor, delivered in July 2023. The general fund is now expected to net $120 million more this fiscal year than they thought last July, and the education fund should add $29 million over the July forecast. The Transportation Fund is the exception to the good news; it’s expected to take a smallish hit thanks in large part to slow sales of new vehicles due to high prices and interest rates and the auto industry’s supply-chain struggles.

“Despite widespread pessimism about the state of the economy,” Carr and Kavet wrote, omitting the fact that they themselves were the source of pessimism aplenty, “GDP growth has been stellar, unemployment is close to record lows (and for a near-record number of consecutive months), all while inflation has been receding.”

Carr and Kavet are still predicting tougher times ahead, which they’ve been doing on the regular for several cycles now. They describe the coming 12-18 months as “a period of maximum stress.” They do not expect a descent into recession, but they do see a substantial slowing in the economy with the resultant loss of state tax revenue.

Maybe they’ll be right this time, and it would be unwise to ignore their warnings even though they’ve proven remarkably changeable in the recent past. But the immediate fiscal pressure has lessened considerably. The governor will deliver his budget proposal next week; he may find the Democratic/Progressive supermajority less receptive to a stern lecture than they might have been before Carr and Kavet unveiled their latest forecast.