More than $10.1 billion in federal pandemic funding is buttressing Vermont's economy despite the drag caused by labor shortages and an ailing hospitality sector.
That's the finding of the economists charged with tracking state revenues and helping Gov. Phil Scott and legislative leaders understand the economic forces buffeting the state.
Economists Jeff Carr and Tom Kavet on Thursday told members of the state Emergency Board to expect general fund tax revenues to be $44 million more this fiscal year than they had predicted in July. If their annual mid-year adjustment proves accurate, the state would enjoy a 7.4 percent increase in a general fund that would swell to $1.9 billion. That would come on the heels of last year’s 7.8 percent increase.
The main reason tax revenues continue to surge is because stimulus funds are causing people to keep people spending.
“We’re getting to the point where that $10.1 billion in federal … dollars that have come to Vermont over the last couple of years are starting to wind their way through the system,” Carr told the board.
Vermont has benefitted from the third largest influx of federal pandemic dollars in the nation per capita — $16,214 per person — behind only Washington, D.C., and New York, Carr's report shows.
Kavet described the amount of federal stimulus as “unprecedented” and far beyond the economic damage caused by the pandemic. “We had a hole and we’re filling it five times over with federal stimulus,” Kavet said. “The economy can’t respond. It can’t produce that much that quickly.”
Tax revenues would have been even higher if houses and cars had been more readily available, Kavet said. Lack of supply is one of the reasons that home prices, up 17 percent through the third quarter of 2021, are soaring.
“Jeff [Carr] sold his home in a matter of hours way above list [price],” Kavet said. “It’s a supercharged market.”
Such top line assessments will help policy makers decide whether to continue various pandemic assistance programs and how much to spend in areas such as education, infrastructure, workforce development and climate change.
Rep. Janet Ancel (D-Calais) said she wanted more detail about those who may not have seen their stock portfolios grow. “What it doesn’t give us is a picture of who is hurting in this economy,” she said.
Kavet said employers trying to attract workers are raising wages at the lower end of the scale. However, he acknowledged that “fortunes have diverged starkly.”
“It looks like there is greater inequality of both wealth and income post-pandemic than pre-pandemic,” he said.
Sen. Jane Kitchel (D-Caledonia) said she, too, was perplexed by the increase in requests for financial help for food and rent at the same time economic indicators like tax revenue are robust.
“It’s kind of an interesting dynamic to have a growing demand for assistance for those basics in this environment,” she said.
Carr warned, however, that the federal funds won’t last forever, and future tax revenues could sink. It’s possible that tax revenue from cannabis sales could help fill the difference, he said. He’s forecasting $3.9 million in cannabis revenue in 2023 and $8.5 million in 2024.
Without those funds, however, Carr predicts general fund revenues would drop by $17 million in 2024 as the stimulus funds dry up and tax revenues come back to earth.