MONTPELIER, Vt. (AP) — Vermont’s economy no longer is in the steep decline seen from late 2007 to mid-2009, but faces “a long road back” to good health, two economists said Wednesday as they predicted a slight uptick in state revenues.
“We can do an awful lot of improving before we get back to anything that’s really considered normal,” said Jeff Carr of Williston-based Economic & Policy Resources Inc., which provides economic analysis to Gov. Jim Douglas’ administration.
Carr has been working with the Legislature’s consulting economist, Tom Kavet of Williamstown-based Kavet, Rockler and Associates, to come up with agreed-upon revenue forecasts so the governor and the chairs of the legislature’s budget and tax committees know how much money the state is going to have to spend.
On Wednesday, Carr and Kavet agreed that the state’s largest pot of money, the general fund, would grow over estimates they offered in November by $4.7 million for the remainder of this fiscal year, and $4.8 million for fiscal 2011, which begins July 1. That’s a tiny uptick in a fund greater than $1 billion and won’t make a big dent in the $150 million budget gap lawmakers have been grappling with since they returned to Montpelier Jan. 5.
While getting slightly better is an improvement over getting a lot worse — as the state’s economy had been doing for most of the past two-plus years — Carr and Kavet agreed there were warning signs that the recovery will be, in Carr’s words, “slow, fragile and insecure.”
Carr predicted it will be another three years before Vermont returns to the level of economic activity it saw in 2008.
Both economists agreed that Vermont’s recovery had so far depended on hundreds of millions of dollars from the American Recovery and Reinvestment Act that was passed last winter. More than $300 million in federal money will flow into the state during the next two years just for improvements to its telecommunications infrastructure.
One big risk to the recovery, they said, is the impact of Washington eventually scaling back that spending.
“The speed and shape of the recovery is still highly uncertain and will critically depend on the timing of the withdrawal of this federal support,” Kavet said. Turning off the federal spigot too fast, he warned, would send the economy reeling again, resulting in a “double-dip” recession. Keeping the money flowing too long risks inflation and overheating the economy.
Kavet and Carr said they saw some positive signs, including an increase in retail sales in December over the previous two years. They noted the state’s unemployment rate appears to be coming down, from 7.4 percent in May to 6.4 percent in November.
But they said there are some warning signs as well, including a sharp upturn in the long-term unemployed — those out of a job 29 weeks or more as of December — and indications that a decline in housing prices in Vermont likely will continue for another year.