MONTPELIER — Economists for the Shumlin administration and the Legislature provided an updated economic forecast Monday that predicts continued moderate growth for the state’s economy into the foreseeable future.
Thomas Kavet and Jeffrey Carr, economists for the Legislature and administration, respectively, presented a consensus economic forecast to the Emergency Board Monday that predicts a 3 percent increase in general fund revenues over the last forecast in January for the 2016 fiscal year. That means the state is expected to collected about $40 million more in revenue than expected in January.
The 2016 expected revenues are aided by about $30 million in news taxes and fees signed into law following the recent legislative session.
The new forecast also predicts about $30 million more in general fund revenues in the 2017 fiscal year, which represents about 2 percent growth.
“It’s nice that we’re finally seeing some signs of the economic recovery that’s taking place in Vermont. We’ve got the fourth-lowest unemployment rate in America. We’ve got a lot of folks who want to hire and can’t find qualified workers,” Shumlin told reporters after Monday’s meeting. “The days of dark, deep-red ink were pretty depressing, and we’re starting to see the labor of our hard work.”
The Emergency Board is comprised of the governor and the chairs of the money committees in the House and Senate. The five-member panel voted unanimously to accept the consensus forecast.
The forecast also predicts the state’s education fund is expected to grow by $1.6 million and $1.7 million in 2016 and 2017, a growth of 0.8 and 0.9 percent, respectively. The transportation fund, however, is expected to decline by $800,000 in 2016 and $600,000 in 2017, a drop of 0.3 and 0.2 percent, respectively. The expected decline is based on oil prices.
Kavet said the forecast is “uneventful” because the 2015 fiscal year forecast was very close to year-end results. The national economy also did not deviate from expectations, he said.
“The external economy hasn’t changed that much either. We’re looking at this very slow, steady kind of expansion and there’s not a big shift in that,” Kavet said.
Meanwhile, the state’s relatively low unemployment rate, the fourth-lowest in the country, is a strong indication of a growing economy, according to Kavet.
“The fact is it’s a very good proxy for the state of the economy in general. When the unemployment rate is really high lots of other indicators show that bad things are happening at the same time. And when it gets really low that also is coincident with lots of other things being good,” Kavet said. “As a general yardstick for what’s happening … it’s a timely indicator.”
He said the state is “about a year away from full employment,” which should lead to wage and income growth.
Shumlin, who frequently touts the state’s low unemployment rate, said the state is on the right track.
“It sure is better than what I inherited in 2010 when we were seeing negative economic growth. I think we all recognize that we’re making the right choices, we’re heading in the right direction and we still have more work to do,” he said.
The economists warned of structural problems with the state’s tax code, however. There is a shrinking sales and use tax base because of online commerce and the proximity to sales tax-free New Hampshire, they said. And the state saw minimal growth in personal income tax withholdings in 2015.
Senate Finance Committee Chairman Tim Ashe, D/P-Chittenden, began a discussion earlier this year about expanding the sales tax to services. That effort did not gain traction, however, and Shumlin said he does not favor it.
“I think we should be careful not to misdiagnose the problem. The problem with the sales tax is being experienced by any state that has a sales tax. The Internet is killing Main Street sales of goods,” Shumlin said.
Shumlin signed a 2016 fiscal year state budget into law earlier this year that assumed a 3 percent growth in state revenues. That followed a January consensus forecast that called on the state to downgrade projections from 5 percent growth to 3 percent growth.