Administration economist Jeff Carr, left, and legislative economist Tom Kavet
Vermont's fiscal future looks brighter than it did at the height of the coronavirus pandemic this spring, the state's economists told lawmakers on Wednesday, but the outlook remains mighty murky.
"I don't think there's ever been a forecast with greater uncertainty than we have right now," the legislature's chief economist, Tom Kavet, said Wednesday morning during a meeting of the Joint Fiscal Committee.
Kavet and Carr were making the rounds Wednesday after settling on a consensus revenue forecast for the current and coming fiscal years. Their latest estimates, which were formally adopted by the Emergency Board, will guide legislators as they reconvene this month for an unusual late-summer session to complete the state's 2021 budget.
But the economists cautioned that "two enormous unknowns," as Kavet put it, could render any forecast moot. The first is whether the pandemic will accelerate or recede in the coming months, and the second is whether Congress and President Donald Trump would reach a deal to provide additional federal assistance to states, businesses and people.
"Right now, we have an economy that's being driven by noneconomic events," Carr said.
The bad news, according to Kavet and Carr's latest forecast, is that the state is likely to collect significantly less revenue in the coming years than they had predicted in their last official forecast in January. Collectively, the state's general fund, transportation fund and education fund are poised to pick up $275 million less than previously expected in the current fiscal year, a downgrade of 11.2 percent. In the 2022 fiscal year, those funds should receive $158 million less than anticipated, they said, a downgrade of 6.3 percent.
The not-as-bad news is that it could have been way worse. In April, a preliminary forecast suggested that the state could see a $430 million drop across all three funds this fiscal year, which would have amounted to a 17.4 percent downgrade.
There was also some actually good news. Because the federal government delayed Tax Day by three months, some Vermonters pushed off income tax payments until July 15. When the money finally arrived in Montpelier, it amounted to more than expected: $181 million. Even after paying down a $51 million deficit incurred at the tail end of the 2020 fiscal year, lawmakers were left with an extra $130 million to work with.
During Wednesday's Emergency Board meeting, Finance Commissioner Adam Greshin called the development "pleasantly surprising." He said the state had also managed to spend $60 million less than it had budgeted for in the 2020 fiscal year — money that can be carried forward into the current fiscal year.
That left him and fellow budget writers "with more of a wind at our back than a wind in our face," Greshin said.
They still have their work cut out for them. Rather than sign off on a full-year budget in May before adjourning for the year, as they typically do, lawmakers drafted a one-quarter budget in June that took effect in July. When they return later this month, they'll haggle over a second budget to cover the final three quarters of the current fiscal year.
Greshin and his boss, Gov. Phil Scott, have until next week to deliver a three-quarters budget proposal to the legislature. At that point, the House and Senate will begin writing their own versions of it.
Already on Wednesday, some legislators were making clear that they would resist any major cuts that the Scott administration might propose.
"I'm really concerned about doing more damage by making significant cuts in the state budget not knowing what the feds are gonna do," Sen. Dick Sears (D-Bennington) said during the Joint Fiscal Committee meeting.
Rep. Mary Hooper (D-Montpelier) asked Kavet how such cuts might affect Vermont's economy.
"The impacts are highly negative," he responded. "Those are all local jobs with high local multipliers and are also providing services to people that are important."
The federal government's failure to provide additional aid could be even more catastrophic, Kavet and Carr warned. They said their modeling assumed that the feds would dole out another $1.5 trillion — and without it, the nation's economy could see an even deeper recession.
Asked during the Emergency Board meeting whether he had received any assurances from his peers during meetings of the National Governors Association that such aid could be expected, Scott said, "Every time I'm on a call with [the] NGA, I get optimistic. And then two days later I get pessimistic."
Presumably referring to Trump, he said, "You can't count on anybody's word, so to speak, because there's one person somewhat driving this and [he] doesn't play well with others."
Near the end of the meeting, Scott mused about the unexpected income tax receipts the state had recently received — and how they might have been spent in better times. "As I reflect, I think about what could have been if not for the pandemic," he said. "Imagine what we would have had for a surplus."
"If wishes were horses," Sen. Jane Kitchel (D-Caledonia) said. "You know that saying."