Economists: state revenues to grow less than expected

MONTPELIER — Economists for the Shumlin administration and Legislature issued a revised state revenue forecast for the current fiscal year Thursday that projects a total of $28 million less in revenue, but growth over the 2016 fiscal revenues.

Tom Kavet and Jeff Carr, consulting economists for the administration and lawmakers, issued their revised revenue forecast Thursday to the state’s Emergency Board, which includes the governor and the four chairs of the Legislature’s money committees. Revenue for the state’s general fund was lowered by $21 million, while revenues for the transportation and education funds were lowered by $3.5 million and $3.4 million, respectively.

Economists Tom Kavet, right, and Jeff Carr, left, present a new revenue forecast to the Emergency Board on Thursday, July 21. (VPB/Neal Goswami)

Economists Tom Kavet, right, and Jeff Carr, left, present a new revenue forecast to the Emergency Board on Thursday, July 21. (VPB/Neal Goswami)

Still, revenues are expected to grow above the 2016 fiscal year, which closed on June 30, both Kavet and Carr said.

“The upturn continues, that’s the good news,” Carr told the Emergency Board.

“There is continued growth. The economy is plugging along. It’s been a very long recovery period. It’s the fourth-longest in the history of business cycles back to 1857,” Kavet added. “It is a little bit below expectations, so there is a slightly lower trajectory by just over a percent than had been assumed before.”

Carr said because revenues are expected to grow over the last fiscal year, calling it a revenue downgrade is somewhat misleading.

“It’s hard to say it’s a forecast downgrade when you say receipts are actually going to be increasing,” he said. “There’s a little bit of a semantic issue to say that it’s a downgrade when revenues are actually increasing, but that’s how we get to the number. I know that it’s going to be really hard for the public to consume.”

Thursday’s downgrade follows a downgrade in January of $9.1 million in the 2017 fiscal year.

Democratic Gov. Peter Shumlin and top administration officials said revenues increased by 2.3 percent in the 2016 fiscal year over 2015. And the new revenue forecast still predicts revenue growth in 2017 of 4.8 percent above 2016.

According to Kavet, increased fees and taxes passed by the Legislature in May offset some of the expected decrease. He said a bounce back for the winter tourism season after a dismal 2016 should help. After a banner year in 2015 of 4.7 million skier visits, 2016 slumped to 3.2 million skier visits as the state lacked snow and cold weather.

“We’re assuming normal winter weather next year,” Kavet said.

Critics of the Shumlin administration, including Republican Lt. Gov. Phil Scott, who is running to replace the retiring Shumlin, have criticized the administration for passing budgets that grow faster than revenues or the economy. Scott issued a statement Thursday knocking the Democratic-led Legislature and Shumlin administration for their budgeting practices.

“The revenue forecast released today by the Shumlin Administration is unwelcome news, but not unexpected. The fact is, legislators passed the FY17 budget in May knowing full well there would be a deficit, even after raising $47 million in new taxes and fees,” Scott said. “This repeated pattern of spending more than Vermonters can afford, raising taxes and acting surprised when we are faced with shortfalls year after year is a clear sign that Vermont’s system of budgeting is broken.”

Scott promised in his statement that he would “never propose, nor will I sign, a budget that grows faster than the underlying economy or wages in the previous year.”

Gov. Peter Shumlin and legislative members of the Emergency Board receive a new revenue forecast on Thursday, July 21. (VPB/Neal Goswami)

Gov. Peter Shumlin and legislative members of the Emergency Board receive a new revenue forecast on Thursday, July 21. (VPB/Neal Goswami)

Shumlin, speaking at the Emergency Board meeting Thursday, sought to push back against the criticism, offering statistics that contradict his critics’ narrative.

“Some of our critics claim that for the last five years we have been spending at 5 percent and taking in a much lower number in terms of economic growth. I just want to point out, with our economists here to back us up if they need to, that that is totally fiction,” the governor said.

Shumlin said the current fiscal year budget passed in May grows at a lesser rate than economic growth and said past budgets were buoyed by federal funds in the aftermath of Tropical Storm Irene.

“If you look at the record … economic growth is 2.8 percent. The budget for 2017 grows at 2.4 percent. If you look at the last five budgets that we’ve all passed together, on average, the gross state product grew at 3.1 percent. If you average our budgets, they grew at 3.7 percent. So, very close alignment,” Shumlin said. “The obvious question is, why? The answer is there are a couple of years where … it was higher because we had Irene and we took in lots of federal funding. I didn’t hear any Vermonters say, ‘Hey, don’t go out and rebuild the roads and bridges, don’t take the federal millions they gave us, hundreds of millions.’ So, obviously, that would jack one-year spending.”

The governor called the $21 million downgrade in forecast revenue “a very small adjustment” to the budget and said the revenues may perform better than the forecast.

“I really do think that you’re being extremely cautious. We will go with it, but I won’t be at all surprised,” he told Kavet and Carr. “We’re going to prove you wrong.”

The administration will present a plan to the Legislature’s Joint Fiscal Committee Monday that will account for the downgrade, according to Shumlin. Part of the plan will utilize $9.9 million from unspent Medicaid funds in the 2016 fiscal year. The state has about 1.8 percent of its $1.7 billion Medicaid program remaining.

Another $7 million in the 2016 fiscal year budget to pay for Medicaid’s so-called 53rd week — essentially an extra week of Medicaid payments that arises every five to six years — can be used in the 2017 budget, Shumlin said. Meanwhile, $3.6 million in Medicaid expenses will transferred from the general fund to the State Health Care Resources Fund. The remaining $600,000 will be covered from various line items.

neal.goswami@timesargus.com

Read the report by Kavet below:

 

2016-07 July Forecast Kavet by nealgoswami on Scribd

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