(Host) Administration Secretary Michael Smith says that Vermont’s economy will probably slow down over the next two years.
Smith says rising housing costs and stagnant income tax revenues are the key factors in the slowdown.
VPR’s Bob Kinzel reports:
(Kinzel) For the past few years, state revenues have grown, on average, by about 7% a year, a rate that’s allowed the state to allocate surplus dollars to a variety of different programs.
But now the Douglas Administration expects revenue growth to slow down significantly in the coming years.
Administration Secretary Smith is projecting a growth rate of 1.4% in the current fiscal year and just 1.1% next year. Rising housing costs and slower income growth are the major factors behind the slow down.
Smith emphasizes that he doesn’t believe the state economy is headed toward a full-blown recession.
(Smith) “It’s coming down on a slope that isn’t a crash or a collapse. It’s coming down on a slope where we can manage it as it comes down and manage the expenditures to the revenue. The thing that we just have to remind ourselves is that the revenue growth won’t be as robust as it’s been – positive but not as robust.”
(Kinzel) Smith currently is in the process of drafting a state budget for next year. He thinks overall spending will grow about 2%.
Because the state has little control over the growth of certain programs such as Corrections and some health care costs, Smith says many other departments of state government will have to level fund their budgets.
(Smith) “I think what we need to be is prudent in our budgeting in the next few years as we move to this transition from fairly robust growth to modest very modest growth. And the message that I’m sending to department heads is we need to be prudent.”
(Kinzel) Smith says it’s likely that the governor will propose efforts to enhance economic development initiatives during his State of the State address next month as a way to stimulate future growth.
(Smith) “We need to sort of layer in there how do we have an economic development plan that meets this century’s needs and I think what you’ll hear the governor talk about are ways to sort of level the playing field for Vermont, like broadband access and rural development.”
(Kinzel) Smith says the state’s Transportation Fund is running behind projections, in part because of a softening of the new car market.
He says many people are keeping cars longer than they used to, a situation that has led to a decrease in revenue from the state’s motor vehicle purchase and use tax.
For Vermont Public Radio I’m Bob Kinzel in Montpelier.