Transcript Linkages: Economics and Public Policy Issues

2006 Legislative Orientation
Joint Fiscal Office
Economic and Revenue Review
Montpelier, Vermont
December 1, 2006
•
•
•
Thomas E. Kavet, President
Dr. Nicolas O. Rockler, CEO
Consulting Economists to the Vermont State
Legislature Since 1996
•
Kavet, Rockler & Associates, LLC
Economic and Public Policy Consulting
985 Grandview Road
Williamstown, Vermont 05679-9003 USA
Telephone: 802-433-1360
Facsimile: 866-433-1360
Cellular: 802-272-8385
Website: www.kavetrockler.com
E-Mail: [email protected]
JFO Analyses: Linkages Between
Economics and Public Policy Issues
Economics
•
•
•
•
•
Macro-Economics
Demographics
Micro-Economics
Data and Forecasts
Policy Review and
Commentary
Public Policy Issues
•
•
•
•
•
•
State Revenues
State Expenses
Tax Policy Impacts
Public Policy Options
Oversight Functions
Special Studies
Macro-Economics
State Revenues
Vermont Adjusted Equalized Grand List (thick red line) Vs.
OFHEO Conventional and Conforming Home Price Index, (Index 1980Q1 = 100)
in Vermont Lagged Four Quarters (thin green line)
60.000
363.885
55.000
333.9905
304.096
45.000
274.2015
40.000
244.307
35.000
214.4125
30.000
184.518
25.000
154.6235
20.000
124.729
15.000
94.8345
10.000
5.000
64.94
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
Sources: PVR; E.com Index based on OFHEO data; Prepared for the Joint Fiscal Office by Thomas E. Kavet, March 2005
Home Price Index, 1980Q1=100
Equalized Education Grand List - Billions of Dollars
50.000
Macro-Economics
State Revenues
70000.0
Vermont Real Adjusted* Equalized Education Grand List
(*excluding Utilities and Personal Property, including Current Use Exempt Value; Consensus1106 Forecast)
60000.0
Millions of Constant 1992 Dollars
50000.0
40000.0
30000.0
20000.0
10000.0
0.0
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
Source: Vermont Property Valuation and Review; Prepared for the Joint Fiscal Office by Thomas E. Kavet, August 2002
Economic Forecasts
State Revenues
What Kind of Landing?
Quarterly Growth in Real GDP at Annual Rates
8
4
Soft-Landing
Hard-Landing
2
02 Q3
02 Q1
01 Q3
01 Q1
00 Q3
00 Q1
99 Q3
99 Q1
98 Q3
98 Q1
97 Q3
97 Q1
96 Q3
96 Q1
95 Q3
95 Q1
94 Q3
94 Q1
93 Q3
93 Q1
92 Q3
92 Q1
91 Q3
91 Q1
90 Q3
0
90 Q1
Annualized Quarterly Percent Change
6
-2
-4
Source: Bureau of Economic Analysis, U.S. Department of Commerce
Economic Forecasts
State Revenues
• Official State Revenue Projections Prepared
Semi-Annually, in January and July
• Forecasts of 41 Revenue Concepts
• Consensus Forecast Process With
Administration Economist, if Possible
• Forms Basis of Official State Budgets
• Education Fund Forecasts of About 60 Key
Variables Affecting both Revenues and
Expenses
Detailed Economic and Revenue
Outlook Updates for Vermont Are
Available Every January and July at:
• Vermont Legislative Joint Fiscal Office Website:
- www.leg.state.vt.us/jfo
- see Publications and Archives
• Latest Consensus JFO and Administration Economic
and Revenue Outlook (some hard copy handouts may
be available here or at the Joint Fiscal Office):
http://www.leg.state.vt.us/jfo/State%20Forecasts/06%20
July%20Forecast.pdf
Current Economic Indicators Are Mixed
Vermont Revenue Collections for Major Funds Are Expected to
Slow Dramatically in the Current and Next Fiscal Years…
Total Vermont Source General and Transportation Fund Revenues
16.0%
14.0%
Percent Change vs. Year Ago
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
Source: Verm ont Legislative Joint Fiscal Office - Fiscal Year Basis
…As Sources of Exceptional Growth During
the Past Two Years Diminish, Including:
• Slowing real estate markets and reductions in associated wealth, taxable
capital gains and personal income revenue
• Waning Corporate profitability as the business cycle ages
• Relatively high energy prices, dampening per unit tax source revenues
such as gasoline and diesel fuel, as well as new motor vehicle
purchases and associated ad valorem taxes
• Most risks at this time are on the downside, with some calling for a 50/50
risk of recession in the next year
• Rising interest rates, inflation risks and the extended housing market
render the economy vulnerable to further external shock
At the Same Time, the Property Tax Base Supporting
Education Expenditures Will Decelerate Rapidly…
Total Vermont Equalized Education Grand List - Primary Education Fund Tax Base
20.0%
18.0%
16.0%
Percent Change vs. Year Ago
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
Source: Verm ont Legislative Joint Fiscal Office - Calendar Year Basis
…As Real Estate Markets Retrench
In the Meantime, Near Term Cost Pressures Are Expected to
Escalate, With Fuel and Health Inflation Leading the Way
Cost Pressures Will Escalate
(Implicit State and Local Government Deflator, Percent Change vs. Year Ago)
6.0%
5.5%
Percent Change vs. Year Ago
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: U.S. Department of Commerce, Vermont Joint Fical Office and Administration Consensus Forecasts
Demographic Forecasts
Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
1996
586333
6498
6728
7044
7253
7652
7957
8477
8436
8073
8656
8756
8704
8462
8739
8747
8561
8577
8298
7668
7921
7459
7228
6694
6773
8195
9247
9070
8858
7777
8064
7897
8383
8869
9202
10188
10290
10211
10382
10164
11440
10730
10485
10371
10038
10337
9497
9161
9046
8525
9955
6882
6635
6630
6954
5996
5325
5155
5019
4565
4559
4414
4374
4030
4086
4291
4412
4255
4265
4109
3871
3761
3844
3716
1997
588632
6426
6375
6676
6982
7288
7579
7875
8421
8051
8587
8630
8579
8641
8482
8731
8767
8550
8780
8018
8006
7769
7189
6888
6508
6790
8018
9138
9132
8491
8619
7972
7866
8608
9052
9752
10278
10201
10424
9863
11397
11163
10541
10497
10300
10437
10126
9240
9260
8589
9334
9656
6608
6578
6660
7032
5800
5382
5161
4659
4819
4416
4302
4337
4033
4133
4195
4195
4310
4017
4007
3851
3741
3714
1998
590883
6426
6312
6332
6626
7031
7204
7520
7847
8070
8610
8610
8505
8570
8718
8530
8811
8808
8817
8436
8347
7836
7443
6808
6656
6485
6615
7903
9181
8755
9399
8520
7951
8095
8805
9610
9845
10192
10407
9895
11051
11109
10952
10541
10413
10692
10209
9837
9325
8774
9394
9032
9252
6538
6594
6724
6786
5848
5375
4778
4909
4664
4300
4267
4338
4077
4127
3988
4291
4061
3954
3984
3752
3616
1999
594211
6405
6246
6301
6394
6715
7012
7203
7482
7526
8628
8625
8477
8487
8636
8755
8597
8844
9125
8474
8809
8178
7506
7048
6583
6639
6336
6543
7974
8846
9722
9329
8537
8223
8318
9382
9734
9784
10415
9890
11093
10779
10909
10962
10464
10818
10469
9931
9940
8847
9613
9103
8670
9167
6563
6665
6500
6861
5853
4992
5048
4765
4556
4278
4272
4393
3981
3827
4062
3989
3961
3873
3874
3692
State Expenses
2000
598318
6501
6419
6317
6366
6534
6759
7068
7257
7251
8096
8829
8659
8563
8701
8777
8744
8604
8979
8931
8891
8664
7916
7241
6880
6659
6599
6354
6632
7597
9714
9618
9206
8659
8317
8713
9424
9661
9970
9946
11056
10821
10582
10906
10822
10918
10553
10186
9936
9515
9581
9361
8759
8607
9211
6623
6445
6650
6882
5499
5245
4883
4647
4491
4299
4293
4276
3902
3772
3888
3991
3838
3775
3794
2001
602935
6605
6518
6496
6386
6509
6576
6818
7123
7040
7808
8301
8880
8759
8790
8853
8768
8750
8732
8784
9371
8741
8386
7640
7067
6957
6621
6617
6448
6349
8365
9609
9492
9323
8737
8704
8755
9357
9850
9536
11136
10799
10633
10602
10785
11308
10666
10284
10208
9525
10317
9340
9015
8705
8649
9307
6410
6597
6673
6477
5783
5081
4766
4584
4513
4323
4186
4196
3850
3614
3893
3871
3741
3701
2002
606767
6706
6616
6594
6561
6522
6547
6622
6867
6903
7577
7998
8353
8980
8985
8937
8837
8759
8866
8527
9191
9195
8448
8076
7448
7131
6907
6625
6701
6167
7014
8281
9464
9600
9376
9106
8728
8682
9530
9413
10667
10867
10602
10644
10479
11256
11041
10390
10303
9777
10324
10046
8991
8953
8742
8730
9004
6555
6619
6271
6806
5597
4958
4697
4603
4536
4210
4103
4138
3691
3618
3773
3772
3664
2003
610298
6806
6718
6686
6652
6695
6555
6587
6658
6652
7428
7762
8041
8451
9213
9134
8914
8819
8863
8645
8909
9001
8868
8127
7863
7508
7070
6905
6701
6403
6808
6962
8168
9558
9642
9745
9107
8642
8835
9098
10529
10409
10666
10611
10524
10943
10989
10752
10407
9868
10593
10054
9662
8924
8989
8821
8439
9209
6572
6217
6585
6582
5457
4886
4716
4626
4416
4129
4047
3963
3697
3504
3676
3696
2004
613464
6906
6812
6780
6742
6786
6726
6591
6621
6438
7147
7594
7800
8132
8681
9368
9103
8889
8917
8631
9022
8711
8666
8518
7902
7912
7442
7059
6977
6392
7060
6756
6883
8256
9583
10013
9723
8993
8781
8427
10169
10269
10219
10671
10480
10985
10686
10698
10763
9966
10692
10314
9668
9586
8955
9064
8520
8624
9226
6166
6528
6367
6417
5373
4902
4734
4502
4329
4068
3877
3969
3578
3415
3596
Demographics
State Expenses
Vermont Population - Age 0 (Births)
9000
8500
8000
7500
7000
6500
6000
5500
5000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Source: U.S. Census Bureau, Vermont Legislative Joint Fiscal Office Estimates
Vermont Population by Age - July 1980
85+
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2000
4000
Number of Persons
6000
8000
Source: U.S. Census Bureau
10000
12000
Vermont Population by Age - July 1990
85+
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2,000
4,000
Number of Persons
6,000
8,000
Source: U.S. Census Bureau
10,000
12,000
Vermont Population by Age - July 2000
85+
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2,000
4,000
Number of Persons
6,000
8,000
Source: U.S. Census Bureau
10,000
12,000
Vermont Population by Age - July 2005
85+
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2000
4000
Number of Persons
6000
8000
Source: U.S. Census Bureau
10000
12000
Vermont Population by Age - July 2010
85+
Age 85+ = 13,089
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2000
4000
Number of Persons
6000
8000
Source: U.S. Census Bureau
10000
12000
The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red)
85+
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2000
4000
Number of Persons
6000
8000
Source: U.S. Census Bureau
10000
12000
The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red) vs. July 2020 (clear)
85+
Year 2020
85+ Population = 17,210
80
75
70
65
60
55
Age
50
45
40
35
30
25
20
15
10
5
0
0
2000
4000
Number of Persons
6000
8000
Source: U.S. Census Bureau
10000
12000
Demographic Forecasts
State Expenses
Vermont Population Projections by Selected Age-Cohorts
JFO and Administration Consensus Forecast - August 2000
Total Pop
%ch
0-4Year
%ch
%share
5-18Year
%ch
%share
5-19Year
%ch
%share
0-18Year
%ch
%share
5-14Year
%ch
%share
15-19Year
%ch
%share
1996
1997
1998
1999
2000
2001
2002
2003
2004
586333
588632
0.39%
590883
0.38%
594211
0.56%
598318
0.69%
602935
0.77%
606767
0.64%
610298
0.58%
613464
0.52%
35175
33747
-4.06%
5.733%
32727
-3.02%
5.539%
32061
-2.03%
5.396%
32137
0.24%
5.371%
32515
1.18%
5.393%
32999
1.49%
5.438%
33557
1.69%
5.498%
34026
1.40%
5.546%
117691
-0.36%
19.994%
117056
-0.54%
19.810%
115869
-1.01%
19.500%
115219
-0.56%
19.257%
113982
-1.07%
18.905%
112757
-1.07%
18.583%
111722
-0.92%
18.306%
110638
-0.97%
18.035%
125697
-0.27%
21.354%
125403
-0.23%
21.223%
124678
-0.58%
20.982%
124109
-0.46%
20.743%
123353
-0.61%
20.459%
121948
-1.14%
20.098%
120631
-1.08%
19.766%
119660
-0.81%
19.506%
151438
-1.21%
25.727%
149783
-1.09%
25.349%
147930
-1.24%
24.895%
147356
-0.39%
24.628%
146497
-0.58%
24.297%
145756
-0.51%
24.022%
145279
-0.33%
23.805%
144664
-0.42%
23.581%
83576
-1.68%
14.198%
82184
-1.67%
13.909%
80829
-1.65%
13.603%
79960
-1.07%
13.364%
78948
-1.27%
13.094%
77768
-1.49%
12.817%
76481
-1.66%
12.532%
75098
-1.81%
12.242%
42121
2.67%
7.156%
43219
2.61%
7.314%
43849
1.46%
7.379%
44149
0.68%
7.379%
44405
0.58%
7.365%
44180
-0.51%
7.281%
44150
-0.07%
7.234%
44562
0.93%
7.264%
5.999%
118111
20.144%
126032
21.495%
153286
26.143%
85007
14.498%
41025
6.997%
Figure 2: Vermont Public School Enrollments
108,000
106,000
104,000
102,000
100,000
98,000
96,000
94,000
92,000
90,000
88,000
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
Sources: Vermont DOE and Consensus Administration and Joint Fiscal Office Projections - May 2006
Economics
•
•
•
•
Tax Policy Impacts
Tax Increases: MV Fees, Cigarette Tax, etc.
Tax Cuts: Income Tax, Sales & Use Tax
Federal Tax Change Impacts
Neighboring State Tax Changes (e.g., NH
Income Tax, NY, et. al., Cigarette Tax
Changes)
• Tax Collection and Compliance (e.g., Diesel
Tax Change)
• Tax Credits, Tax Expenditures (e.g., Business
Subsidies, VEPC, VEGI, TIFs, etc.)
Economics
Tax Policy Impacts
The Arizona Alt-Fuel Debacle
• What Happens When Tax Policy Impacts Are
Not Adequately Estimated?
• End-of-Session, “last minute” legislation
• Pet Project of Speaker of House
• No Party Opposition – Governor’s Support
• Federal Highway Funds Threatened
• So-Called “Minor” Changes to Existing
Policies
Economics
Tax Policy Impacts
The Arizona Alt-Fuel Debacle
• What Happens When Tax Policy Impacts Are
Not Adequately Estimated?
• 1% Program Cap Changed to “Registered”
Vehicles, Instead of “New” Vehicles
• Refundable Credit of 30%-50% of a New
Vehicle Plus Fuel Conversion Costs
• No Fuel Use Requirement
• No Resident Requirement for Credit
• “Quick and Dirty” Estimates of $2-$11 Million
Economics
Tax Policy Impacts
The Arizona Alt-Fuel Debacle
• What Happens When Tax Policy Impacts Are
Not Adequately Estimated?
• Potential $400-$800 Million Out-of-Budget
Expense!
• 5-10% of Total State Budget
• Possible 4 Year Budget Freeze
• Program Cancellation – Lawsuits Abound
• Speaker Loses Re-election Bid
• Becomes Major Political Issue in Subsequent
Elections
Other JFO Economic Functions and
Special Projects
• State Economic Model Specification and
Management (REMI, REDYN, IMPLAN)
• Legislative Oversight Functions (e.g., VEPC,
State Agencies and Departments, Legislation
Compliance Follow-up, etc.)
• Legislative Studies and Sub-Committee
Support Functions (e.g., Property Tax
Analysis, Livable Income, etc.)
• Special Topic Research/Analysis (Fiscal
Cost-Benefit Models, Electric Utility
Deregulation, etc.)
For Further Information, Contact
The Joint Fiscal Office or:
• Thomas E. Kavet
• Dr. Nicolas O. Rockler
• Kavet, Rockler & Associates, LLC
Economic and Public Policy Consulting
985 Grandview Road
Williamstown, Vermont 05679-9003 USA
Telephone: 802-433-1360
Facsimile: 866-433-1360
Cellular: 802-272-8385
Website: www.kavetrockler.com
E-Mail: [email protected]