(Host) State revenue growth has dropped sharply, while demand for state services is rising. VPR’s John Dillon looks at the trend of state revenues and the long term impact on Vermont’s state services.
(Dillon) The immediate problems with the state budget may be magnified in the months ahead. The reason is that Vermont faces an unparalleled drop in state revenues. The amount of money that flows into state funds from income taxes and other sources fell by more than $60 million – about 7% from 2001 to 2002.
The decline is the sharpest the state has seen since 1978, when officials first began collecting comparable data. The shortfall far exceeds the dip Vermont experienced during previous recessions. Economist Arthur Woolf says Vermont is not alone:
(Woolf) “This is really unprecedented in Vermont and even nationally. Nationally, state governments are going to collect less revenue in 2002 than they collected in 2001 and that’s the first time I think that’s happened since 1945. So it’s really a totally new revenue environment for all states, not just Vermont.”
(Dillon) Blame the depressed stock market for much of the revenue decline. Woolf estimates that the money the state collected from taxes on capital gains – which includes profits from stock sales – dropped 50% from 2000 to 2001. He expects taxes on capital gains to fall another 20% this year.
Woolf and other economists say the Legislature will have to adjust to a new budget reality. There’s less money coming into the state just as there’s more demand for programs such as Medicaid, which uses state money to pay for health care. Steve Klein is the Legislature’s fiscal expert. Last month, Klein briefed new lawmakers and told them to expect a $20-30 million gap between budget demands and the money available.
Klein says the budget problem is especially severe now because lawmakers exhausted many of their one-time fixes earlier this year:
(Klein) “In FY 2002 and in 2003, to get through those years we pretty much relied on a lot of various reserve funds. We relied on a lot of stopping the one-time spending we’d done and doing whatever transfer we could do to solve those problems. As we head into FY ’04 we have less of those of available to use as techniques.”
(Dillon) Economists aren’t sure when the state’s revenue situation will improve. Over the past year, the experts have made downward revisions to their revenue forecasts. From last year to now, they lowered their revenue prediction by $100 million.
Economist Tom Kavet does financial forecasts for the Legislature. He says the economy is still shaky and may fall back into a recession. He’s worried about a decline in consumer spending, poor job growth and war in Iraq:
(Kavet) “Another risk is potentially an oil price spike that could be related to military action in the Middle East. And I think the fact that there’s very little room for further monetary policy stimulus is of concern as well.”
(Dillon) Next month, the state will make another revenue forecast. Officials say they may again predict more bad news.
For Vermont Public Radio, I’m John Dillon in Montpelier.