State revenue report reveals economic concerns

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(Host) Administration Secretary Michael Smith says he’s concerned that a possible war with Iraq is having a negative effect on state revenues. Smith says a continued weakness in the state’s personal income receipts is a worrisome sign for the future.

VPR’s Bob Kinzel reports:

(Kinzel) As the House and Senate Appropriations Committees continue their work on next year’s budget, there are growing signs that the state may not have the revenue base needed to support the spending plans that are under consideration. Administration Secretary Michael Smith released the February revenue report on Monday afternoon and Smith says the new report highlights some serious concerns about the state of the Vermont economy.

Revenues from the personal income tax are down 40% from a year ago, corporate tax receipts are down 95% from February of 2002, and the sales tax and the rooms and meals tax show virtually no growth. Smith thinks the threat of war with Iraq is having a negative impact on the state economy:

(Smith) “Yes, I think it is. I think we’re in a period of tread water right now. As you remember, in January we were talking about this economy sort of hitting bottom, skipping along bottom and then inching up. I think we can say that it hasn’t started to inch up yet and that’s being suppressed by probably the international situation, as well as factors here at home.”

(Kinzel) Smith says he’s concerned about revenue projections for next year because there are a number of factors that could make the current situation even worse:

(Smith) “You know, there’s a lot of things in the economy right now where’s there’s a lot of downside risk to these revenues. Gas prices in particular, the international situation and the U.S. economy not rebounding as fast as most economists had thought.”

(Kinzel) If the state is unable to meet its revenue estimates for the current fiscal year, Smith says it will be necessary to dip into the state’s rainy day funds to balance this year’s budget:

(Smith) “If we have to, we would have to hit the rainy day fund. We’re hoping of course that we don’t have to do that. That will leave us fairly close to depending on what the amount is. We only have about $15 million in those rainy day funds now. That’s a concern to us.”

(Kinzel) Smith notes that state revenues are actually on target for the year because of unexpected increases in the estate tax and the state’s captive insurance premium fund. But he says these factors do not lessen his concern about the Vermont economy.

For Vermont Public Radio, I’m Bob Kinzel in Montpelier.

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