(Host) High fuel prices, an uncertain housing market and a slowdown in consumer spending all add up to bad news for Vermont’s economy.
That was the conclusion today from the state’s two economic advisers. Acting on their advice, Governor Jim Douglas and legislative leaders substantially lowered the state’s revenue forecast.
VPR’s John Dillon reports:
(Dillon) Tom Kavet is the legislature’s economic consultant and economist Jeff Carr provides advice to the Douglas Administration. Together, they reach a consensus revenue forecast.
The two economists last met with the governor and lawmakers in April, and they held out some hope that the slowdown the country was then experiencing would be short lived.
They were wrong. Here’s Tom Kavet on what they saw back in April:
(Kavet) "We were looking at three main things that were weighing on the Vermont and U.S. economies. We were looking at housing markets, we were looking at credit markets that were rapidly becoming dysfunctional. And we were looking at energy prices. And there was hope that there would be some improvements or stabilization in all or any one of those three. And in fact, in the last three months, those have all three worsened."
(Dillon) The huge increase in energy prices – driven by the skyrocketing price of oil – is a $935 million dollar annual drag on the state’s economy.
Jeff Carr described the fiscal impact this way.
(Carr) "None of that money is turned around and invested in Vermont – it leaves. And it would be like the equivalent of doubling the personal income tax, doubling the rooms and meals tax, doubling the motor vehicle purchase and taking the money from that and not spending it in Vermont, like government tax increases tend to do."
(Dillon) As consumers spend more money on gas and fuel oil, they’ll spend less in stores and restaurants. That means less income from tourism and a decline in tax revenues.
Based on this bad news, Governor Douglas and legislative leaders cut the general fund revenue forecast for 2009 by about $17 million, or 1.3%. For the next fiscal year, they lowered the estimate by another $16 million dollars.
The Transportation Fund – which is supported by the gas tax and a sales tax on vehicles – is in even worse shape. Officials are expecting an $8 million decline in this year, and $9 million less the following year. If energy prices stay high, Jeff Carr said the situation will only get worse.
(Carr) “And that raises some serious issues about the Transportation Fund going forward, because of the importance of the fuel issues on that.”
(Dillon) And the economists were not holding out much hope this time that things will improve in a few months. Tom Kavet:
(Kavet) “I think the concern here is that the reason I think at least that there is more downside risk right now than upside is that we don’t really know where the bottom is to this. The credit markets haven’t stabilize, and we would have hoped that they would have.”
(Dillon) The legislature and the governor will hear from the economists again in November, in time to revise the revenue forecasts before the legislative session begins in January.
For VPR News, I’m John Dillon in Montpelier.