Vermont Legislature SmartTranscripts:

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Good afternoon. We are here at a joint, committee hearing with the House Appropriations Committee and the House Committee on Ways and Means. It is Friday, 01/16/2026, just after 01:00 in the afternoon, and we're delighted to have, our economist here with us, Tom Covet and his assistant, Daniel Lee, to talk about the, economic revenue forecast and update that we heard this morning at the emergency board. And so with that, I think I'll let you all introduce yourselves and talk to us, and then we'll be asking questions later on. But we're delighted to have you here.

[Tom Kavet (Legislative Economist)]: That's right. You. Great. Tom, those of you who don't know, and Daniel Lee. So thank you, first of all, for doing this jointly. In the past, sometimes we've had meeting after meeting after meeting, we divide House and Senate into separate ones, and pretty soon we're, know, if we don't know what we said, there will be plenty of votes. But the other thing is, I think, the purpose of this is to have time to do question and answer. Many of you, I think, have seen the emergency board proceedings and have documents circulated in some time. So I'll give a brief overview, but I really just want throw it open to Q and A, so if anything you're interested in, we can respond to. This is one of the really forecast to make the least amount of change from the last forecast we did of any that we've done in the last thirty years. It's a function of both the fact that the estimates to date through December were very, very close. There's no fund, no major fund that's off by more than 1%, and that's also unusual. And with all the chaos and tumult and everything of the last year, it's kind of remarkable that really the economy performed pretty closely. They probably expected it would, and revenues are also pretty close. Doesn't mean that that uncertainty didn't represent challenges to the economy, and that everything's expected, and that next year's not going to have any additional tumult and surprise, but that we're pretty close to where we expected to be, and so we're not making drastic changes to the forecast. So in the forecast period going forward, there are a couple of tables on pages six and seven, the table's on page six. First table at the top. I don't know if Sorcher, you can get to page six on this.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Oh, sure. Thanks, Sorcher. And we also all have paper copies.

[Tom Kavet (Legislative Economist)]: Yeah. For

[Daniel Lee (Assistant Economist)]: for audience.

[Wayne (unidentified legislator)]: That would be helpful. Yes.

[Tom Kavet (Legislative Economist)]: So there's a year to date

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: You said page six, Tom?

[Tom Kavet (Legislative Economist)]: Page six, yeah. Page six. To date revenue dollar, and then the January versus July dollars. But the table on the following, page seven, shows the difference in this forecast and the July forecast as a percent. And you'll see between fiscal 'twenty six and fiscal 'twenty nine of the three large funds, education, transportation, federal fund, nothing will have a greater variance than plus or minus 1% in any given year between fiscal twenty six and '29. So there's not a whole lot happening. In healthcare, there were some pretty significant changes to the provider tax, and that's going to have a material impact obviously on revenues, and those flow through to the general fund. So when you look at the dollar changes on the preceding page, well that actually doesn't even have clarity because we're doing comparisons, but if you get out okay, this chart on page 26, I'm

[Wayne (unidentified legislator)]: looking pretty fast.

[Daniel Lee (Assistant Economist)]: No, she was having some technical problems. So

[Tom Kavet (Legislative Economist)]: on page 26, there's this chart showing the change in the revenues by fund by year, and you see the general fund by 2531, you know it's minus 35, oh that's just 30, okay minus $35900000.0.24 of that, 25 almost is just the hospital providers. So the changes to the rest of the general fund are pretty miniscule.

[Daniel Lee (Assistant Economist)]: Can you clarify the provider tax?

[Tom Kavet (Legislative Economist)]: It's just, again, Nolan Langwell is doing that particular part of the forecast there. In the healthcare section, we do the cigarette tobacco tax forecast.

[Daniel Lee (Assistant Economist)]: Guess I'll take Nolan's not here, so I'll just say the bulk of it is that we're federally required to reduce the rates. It's not reduction in the base.

[Tom Kavet (Legislative Economist)]: It's part of the reconciliation required that the rate it's not a policy decision, you guys.

[Daniel Lee (Assistant Economist)]: Nor is it a loss of revenue to the hospitals. It's just It's a loss

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: of revenue to the general fund. And we heard about that when Ashley Berlin, two people from AHS, came into our committee earlier this week. And it was going to be 17,000,000 or $18,000,000 a year for five years, increasing by that amount for five years. So at the end, it was around $8,087,000,000 dollars $85,000,000 By the fifth year, we'd be losing $85,000,000

[Daniel Lee (Assistant Economist)]: a year from where it's been.

[Tom Kavet (Legislative Economist)]: Right, right. So so you know how that works with the full forecast, we're doing all the forecasts of the general fund categories except healthcare, where we only do the cigarettes, all the transportation, all the education part stuff, but the healthcare items are done by Nolan and a counterpart in the administration.net, just not a lot of change happening. It's not like there weren't some issues. There was a lot of weakness in the corporation's tax through the first half of the year, particularly in November and December. It was pretty high refunding, and we were concerned that that was something that might be a problem going forward. On page eight, which is hard to see the page number because it's a chart that you just use purposes and it brings to the whole page. I'll just sort of just got

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: it up there too.

[Tom Kavet (Legislative Economist)]: That's our corporate income tax revenue quarterly, and it's seasonally adjusted, which isn't normally how the data are expressed in the state. If you look at federal statistics, they're almost all seasonally adjusted annual rates, here's what's happening in the economy, GDP, whatever it is. We don't usually present revenue statistics that way, but that's the way we analyze. We seasonally adjust all the data, and that's what we end up modeling. And when you do that, you can also identify underlying trends and things. But you can see from all the movement on the red line, even at a quarterly level, how volatile that revenue source is. Yes.

[Wayne (unidentified legislator)]: What caused a big spike in revenue?

[Tom Kavet (Legislative Economist)]: Tremendous increase in asset values, tremendous amount of federal infusion of money into their economy, and a lot of categories were swept up with that. Also the ability to keep corporate profitability high even during times of very high inflation. So there was capacity to pass prices on. So it wasn't an increase in corporate capacity? No, not some dramatic increase in corporate capacity. We also went from apportionment schedule, we adopted single sales source apportionment and that ended up being a net positive. It wasn't clear what we were doing it, it's a very hard thing to analyze, trying to do company by company and guess what's your tax bill under this and that, but it has created a much broader base. So does it reflect an increase in tax rate with the corporations? Probably the effective rate, but we have no way to tell because it's a completely different set of taxpayers. But it is more like a national set of taxpayers. So that's why there are charts on the next few pages on total corporate profits, just because a, when we had this decline, we had a lot of refundings, and we went through refunds individually to look at them and see if we could find any patterns in what was causing that. And a lot of it was backward looking. A lot of it were events that took place one year, two years, even three years ago, returns that were being reviewed by the tax department, and then a settlement ended up with a refund. Not a lot of it was current. There was some slowing of payments and some absorption of carry forward money that might have been due to uncertainty in the economy, but there was nothing obvious. So that's why we're not And then we looked at national corporate profits and saw through the third quarter, they're looking really strong. So there's no reason to think that's really the bottom is going to fall out and what we saw in those two months problematic beyond some lost revenue. Yes? I think you

[Wayne (unidentified legislator)]: made a comment about significant impact on taxes as well. Not

[Tom Kavet (Legislative Economist)]: refund singular, but refunds. Yes, there a number that were substantial, and that's why we're looking to dig into them individually, trying to find out what's happening. Is it a company that all of a sudden is seeing a drop in demand, drop in profitability, drop in likely future obligations, tax liabilities, or is it something else? And so that's what we look at, but we did not find a pattern that suggested that

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: So it's a variety of

[Wayne (unidentified legislator)]: reasons for that.

[Tom Kavet (Legislative Economist)]: Variety of reasons and a lot of people that would look, If they were based on current conditions, that would be different. We had a very limited period of time to produce this forecast, six fewer days than last year. That's a lot of condensation of analytic time. We could have done more work in corporate and we're still looking at stuff that's generated for our use of this, but we couldn't find anything that would cause us to think this is systemic, we're looking at something like headed to the recession kind of thing. I think that will just as likely bounce back, and you see those kind of wild swings that you get. Some of those earlier drop downs, you might be panicking then too. So we didn't see reason to panic. And we had some offset on personal income, where it was running ahead of Target, that's been a bit stronger as well. So net is pretty close to zero.

[Daniel Lee (Assistant Economist)]: Tom, as you dig into the corporate over the next few months,

[Rep. Lynn Dickinson (Member, House Appropriations)]: and I'm sure you'll

[Daniel Lee (Assistant Economist)]: be in touch with Pat about that, we might want to have you back into ways and means if you do start to discover some patterns and all that.

[Tom Kavet (Legislative Economist)]: Yeah, we see any Absolutely.

[Daniel Lee (Assistant Economist)]: I'm hoping you'll tell Pat right away, yeah, we'd love to have you in.

[Tom Kavet (Legislative Economist)]: Well, yeah, we would communicate that directly. Yeah, you guys would know about it.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Thank you. So I've got Tom has a question, and maybe if people have questions, just raise your hand, and I'll keep the list going.

[Unidentified legislator]: Okay. Can you help me read, in particular, this chart here, but also the one on page well, the previous page, whatever that is. Page eight. But on this one here, this this one with all the red on it, are those actual dollars, or are they inflation adjusted? So when I see something like since 1980, it's it's what's that?

[Tom Kavet (Legislative Economist)]: Current dollars. Current dollars? Jumps.

[Unidentified legislator]: So the the the figures that are on the right hand side are just okay. So it's just dollars.

[Tom Kavet (Legislative Economist)]: Billions of dollars. Right.

[Unidentified legislator]: Okay. And so and then when on the on page eight, can you just help me read this again from so from 2020, there was a massive influx of corporate income tax revenues. A lot of that could be, as you mentioned, could be because of the infusion of COVID related relief dollars being churned into the economy. Yep. And then the the current one sees this almost the same kind of precipitous drop on the way. But where is the sweet spot of considering what the new normal is? Yeah. Because because if these were if these were injected dollars into the economy for for good reasons, when we're starting to deal with austerity budgeting again, and, you we're trying to make believe it's 2019 in terms of how we how we budget stuff. How do we regard this? There's now this downslope of income in terms of how we're going to do our business over the next several years.

[Tom Kavet (Legislative Economist)]: Yeah. Well, that's why we do a five year forecast. It's not part of a statute, but once we have these models set up, it's not that hard to do. So we started doing it just as a grad estate, an appendix A at the end of the whole thing, has all the forecast tables out five years, not just two years. And that doesn't get voted on at the E Board, but it's so that you have some perspective on what it'll be. And it would have corporate revenues dropping to $2.23

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Is this page 46, or what page are you looking at, Tom?

[Tom Kavet (Legislative Economist)]: Yeah, find appendix. At the very end, so appendix A, the last, starting at the back, and you can look at the available general fund table one, page 47, and that would be, you see, corporate income in fiscal twenty twenty five was 272.6, would drop to $2.23, but then go back up like $2.48, $2.61, $2.75, $2.87, and up around 300. So it's not going to fall back down like it was before. Its corporate profits are likely to remain fairly robust at a historically high level, but not show the same kind of growth they did over that really unusual period. Great, thanks. May be some, Paul, AI investments are very expensive, and the companies that are making those investments are taxpayers of note. And it's not like they have a big presence in Vermont, but they have very big profits, so even a teeny proportionate share can be substantial. The cost of AI investment will be expensed, and when that's expensed, the profit will go down for these entities that have been extremely profitable. So if they don't develop AI products that are generating revenues that are feeding into profits, getting a return on that investment quickly, there could be some erosion in profit margins, even among these meg-seven kind of companies. And that would be noticeable. So there are things that could happen that could erode corporate profits overall. And of course, any kind of a downturn or recession, corporate profits usually turn quick and hard. They also bounce back pretty quickly. There lots of other smaller things happening. The consumption taxes were pretty stable. Sales and use was just as far as I had. Meals and things is a little bit below. Purchase and use is a little bit ahead, but those are essentially in line with what we're seeing in the retail and consumer sector. There is a bifurcation of consumer demand that we're seeing in the economy in general, we sort of call it a K shaped economy where those at the top are doing really well and those at the bottom are doing poorly, and in many cases, getting worse. Right now, 49% of all consumer spending is made by households that are in the top 10% of income. So that's an extremely lopsided sort of thing, and a lot of that capacity and willingness to spend is a wealth effect from what's happening with the stock market. Those same flats of people are heavily invested in the stock market in general, disproportionate share of ownership. And so there's a lot of free spending in one part of the economy, and in another part people are tightening their belts, you're seeing vehicle repossessions go up, you're seeing a lot of credit stress at the low end, and at the same time, the high end's doing great. So you'll talk to your constituents and there'll be some that are saying, what do you mean the economy's bad, it's never been better, and others will be saying, what do mean the economy's looking great, You know, it's terrible. I can't afford things, I'm not getting wage increases. So both of those are true. But we're seeing lower growth there. I mentioned the meals and rooms have suffered a little bit more than we expected from both sharp weakness in discretionary spending in middle and lower income households, but also by foreign visitation boycotts, particularly in Canada, and that borne out in the latest statistics in the briefing in early December. We looked at the stats through November, take another month, it's pretty much the same picture, but the visitor centers immediately proximate to Canada are down like 35%.

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: Do you

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: have a question?

[Wayne (unidentified legislator)]: Well, if you look at your chart there, the recession is now 1991,

[Tom Kavet (Legislative Economist)]: Yeah. Well, when you add that to negative sentiment, which is a real thing, and it affects other countries too, with Canada in particular, and it can be devastating. Yeah, no, that's a good point. Yeah, I didn't do exchange rate stuff, but it's great yeah we can talk about it at some point too maybe the next round we'll get deeper into that that's an issue too. Yes,

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: that's right.

[Wayne (unidentified legislator)]: Okay.

[Tom Kavet (Legislative Economist)]: See what else we have. Transportation funds are really pretty close. A lot of the changes there are pretty minor, but we did make a change to the assumptions about fuel efficiency, fuel use, and effective fuel efficiency through more EV adoption. With the current policies of administration now that is deemphasizing EV version and green energy in favor of fossil fuel extraction, we're going to see more gallons consumed in the state. So there's going to be more gas gallons and probably lower prices for gasoline. The net effect of that is that we get more money on per gallon taxation, but less on those that have price triggers around gasoline consumption. And it practically nets out. It's not like it's a big change, but it's something that we review every time we do the forecast, and it's a shift. We'll watch it closely, see how dramatic it is, but EV sales are way down, as might be expected when you withdraw subsidies, and gas vehicles are replaced. Lottery revenue got a little bit of a downgrade. There were two big jackpots in excess of a billion dollars, but we didn't see benefit particularly from that. So a little bit of a downgrade to lottery, that's the only thing in the education fund, it's not huge dollars, but it's a percent, it was off by more than most other leads.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Do you want to talk, Tom, a little bit about the risk matrix on page 18? Yeah. It's always an interesting thing to see what you're thinking It's parts one of my too. We had this right before the pandemic, and pandemic wasn't on it. Because nobody thought about it.

[Daniel Lee (Assistant Economist)]: Well, there's a there's a really big dot for things that no one thought of. Right.

[Tom Kavet (Legislative Economist)]: Well, either that or they thought likely at a risk Right. Below the line on Right. And so it wouldn't show.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Was the one time we got a little caught

[Tom Kavet (Legislative Economist)]: It it would be way over on the severity thing. And also At this

[Wayne (unidentified legislator)]: point, yeah.

[Tom Kavet (Legislative Economist)]: A lot of things you can't see and don't see, and so we could get hit again with all kinds of who knows

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: what might

[Tom Kavet (Legislative Economist)]: happen. But yeah, these are things that are kind of recognized, and here's one that's a little bit prescient, the Fed loses independence. And the escalation of that just a few days ago was really incredible, counterproductive and in many ways. Every living Fed chair wrote a statement they made afterwards endorsing Chairman McCall's response, but there are real costs to that. Yeah, it's not a joke. It will make US debt much less desirable, much more expensive, and it's already we're already paying 15% of the federal budget on interest payments for the debt, and we are deficit spending every single year, whether the economy is strong or weak. Typically, you would ideally only do deficit spending when the economy was weak and you're counteracting a downturn. Now it's just some kind of a feature. You'll see the charts on The US statute that are back there. There's more red on that than the corporate profit chart, but it's just reaching staggering proportions, about 123% of GDP, and nobody knows exactly where a tipping point might be, but it will get more expensive. A lot of it's held overseas. 30% of the debt is held by foreigners. And when we can't float debt or we need to pay more interest in order to have that debt, service it, that becomes a real drag in the economy. And so that's a meaningful concern. Losing Fed independence actually impacts long term interest rates. A lot of these things aren't quick. It's not like you lose it overnight. This is a slow chipping away erosion. We saw, first of all, intimidation to have board members pushed out for minor issues involving a mortgage application. And you know, when somebody, there was a board member who wasn't even on the board when this transgression apparently occurred, and it's being heard by the Supreme Court now. But criminal charges against the chair of the Fed for cost overruns on a building project. I mean, really, how many building projects have cost overruns? And this is designed to pressure the Fed to get political response to rate reductions. A Federal Reserve that's responding to that kind of pressure puts us in the league of Turkey and countries like that. Yeah, that's really problematic. Stock sell off? Okay, we

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: do have a question over here.

[Tom Kavet (Legislative Economist)]: Okay, Mike. Tom, thanks for all this.

[Mike (unidentified legislator)]: Our federal debt is at about 38,000,000,000,000 right now. And you said we're not sure where the tipping point is for this country. Have there been other countries that have gotten into that zone where it really shut down their economy because of the amount of debt?

[Tom Kavet (Legislative Economist)]: Well, any sort of country that doesn't have a really big economy and a powerful military would be in tatters by now. So Greece or something like that got this, this would be already kind of profit. But Japan has debt as a percent of GDP at 200%, and that hasn't collapsed. A lot of that's held domestically. It's hard to know where the tipping point might be. But just to service it, when you have to pay that much, it starts to crowd out other things you want to do. And having that much debt also does raise interest rates, because it also crowds out private demand for that debt. So yeah, there's a cost to it, but it's hard to know. If it gets to crisis point,

[Mike (unidentified legislator)]: that's something Is it because we can just keep printing money?

[Tom Kavet (Legislative Economist)]: Well, we can print it, but there's the expectation that we could grow fast enough or tax highly enough to be able to repay the debtors. So there's a lot of confidence that one way or another we would be able to repay it. But if we repay it by monetizing it, by having really high rates of inflation and then paying it back in reduced dollars, that doesn't make people happy. And if the Fed is just lowering interest rates on political whims, then you're going get more inflation because you're going to get a lot of demand, and they're not going to respond to inflation, and they're essentially going to be paying down the debt by monetizing it that way. Debtors don't like that any more than a default. That's like a partial default.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: So I have Lynn and Wayne and then Jim, did you have your hand raised too?

[Tom Kavet (Legislative Economist)]: And something

[Wayne (unidentified legislator)]: Yeah, thank

[Rep. Lynn Dickinson (Member, House Appropriations)]: you. When you talk about these are national events that you're doing are national events. You get down into the granular part of what goes on in the state because we have obviously a pension issue that we have for our teachers and state employees, public debt that we are obligated to pay. We've had to create a payment system that's going to go on. It's not going to be cheap. To get into that and also look at the other obligations we have with the bonding that we have. I know there was an attempt by the former treasurer to go and reduce our bonding because she felt it was other people apparently also thought it was too high. Do you get into that state level kind of debt as well?

[Tom Kavet (Legislative Economist)]: Yeah, I mean, I'm on the capital debt advisory, affordability advisory committee, and so I that information. And pension funds are now being included in rating agency consideration of state debt ratings. And yeah, that's a big issue and needs to be paid down, and it's a huge challenge. There really wasn't proper analysis at the time when these assumptions were just sort of carried forward likely year to year with no true up when they were clearly not gonna be meeting those assumptions, and so it got pretty far out of hand, not as far as some states, but still, it's a big number. The recent guidance on debt issuance has been quite conservative, I think, and appropriately so. So the state's debt rating is maintained in a solid area, could be a little bit better, but it's certainly among the better states. It's not top, but it's one step down from that. But yeah, that's something needs to be kept in mind. We were talking about that this morning with what level of, so that the interest payments are really high because we have these high cash balances in the state. I think there's a chart showing cash balances that would be like page 14, and that's where we're getting all this interest income from. A lot of that's federal money that's then going to be spent and obligated, that's why it's going down. It's going down just about the rate that we thought it would, but the treasurer's thinking it will stabilize somewhat above a billion dollars, which is higher than we've had before, but the question was what level would be optimal? And that's probably something to start thinking about ahead. And if there could be legislative guidance on that, that would be helpful. But rating agencies love to see capacity in case things get bad, and the rainy day funds, things like the action, the rainy day funds in that cash balance, because it's cash that's around. But those are valid questions to have legislative in.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: So we have Wayne and then Jim.

[Tom Kavet (Legislative Economist)]: The federal debt has

[Wayne (unidentified legislator)]: been increasing over multiple administrations, presidential has been congress has been

[Tom Kavet (Legislative Economist)]: covered by both parties during this period of time, but without any corruption at all. Right.

[Wayne (unidentified legislator)]: So have you been to DC or stolen?

[Tom Kavet (Legislative Economist)]: It's amazing that there really isn't even conversation that you're here about these things. Somebody has

[Wayne (unidentified legislator)]: to have some concept of asking questions.

[Tom Kavet (Legislative Economist)]: You would think, mean, their people's job The political will just seems to be non existent. Unless they have a plan. It's always whatever the other party wants, the plan is too much because of the damage to spending, but then when they're in charge, it's okay for whatever it is they want, whatever their priorities are. It's a conundrum because it allows it to just kind of snowball. And there's not really, I don't see a political check right now, there's no strong, politically powerful voice that's really arguing for kind of a sane plan, you know, maybe phase into something or whatever, but you know the Reconciliation Act, one big vehicle building is, you know, it's adding billions of dollars a year, it's deficit financed. And you can like all the things that it does, but you're borrowing to do that. And it would be better to find, especially when the economy is growing and things are not bad, there's not some crisis. I think to the reaction around the COVID in retrospect, people will see that a whole lot more was pushed out the door than needed to be, and the inflationary impacts of that and others are

[Wayne (unidentified legislator)]: That's the way we're less reward from somebody that we don't intend to pay back.

[Tom Kavet (Legislative Economist)]: Yeah, right, our grandchildren. So

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Jim, you have a question. I'll just note we're going be here till two, so we have about twelve minutes.

[Rep. James Masland (Member, House Ways and Means)]: The dots are the matrix. The placement I would guess, you correct me, is maybe hopefully mostly empirically based and somewhat subjective. Yeah. Okay, and the reason, Moody's Analytics, not Moody's credit rating company, but Moody's Analytics is a economic forecasting, Moody's acquired, they were independent economic forecasting entity, and so we use some of their model constructs, both at the state level and The US level, and so because we're using a lot of their assumptions in the medical forecast, I put their risks down. So that's where it comes from.

[Tom Kavet (Legislative Economist)]: It makes sense, yeah, to the extent it does. Yeah, I think when I'm looking at it, I just see a plethora of

[Wayne (unidentified legislator)]: risks, there's a lot of things

[Tom Kavet (Legislative Economist)]: that go wrong, and that's always the case. But they're just things to be tuned in. So when they start, we can say, all right, that could be really impactful. Stocks by a lot of traditional measurements are overvalued. Might have dropped, but it hasn't yet. Still like keeps going up and down, often with bubbles that's how it happens. It keeps going and everybody wants to be the last one in, but sooner or later if it goes down. I'm not saying it's going to happen, but yeah, that's a risk. But it's just a way to organize thinking around this. Charlie, had a question?

[Rep. Charles 'Charlie' Kimbell (Ranking Member, House Ways and Means)]: Tom, I'm wondering about the child care tax revenue you have in a couple of different pages. And I think there was a problem with initial compliance with the new legislation that you put through. And there was a delay, I think, in the filing last year in terms of the filing because of people that are self employed and trying to figure out where it is. How confident are you in that bottom line? And is it a matter of compliance is fully there, or what's going on there?

[Tom Kavet (Legislative Economist)]: Yeah, I think we have actual data from one year, which really helps when I say how confident we're going to be, because we can look at personal income withholding, we can look at what actually did get paid, and then we can recalibrate. So whatever compliance was, it will probably improve a little bit. But whatever it was, that's what we're assuming, and we're going forward. I don't know how much is enough. I don't know what the demand is on the use side of it, because we're just looking at revenues. Is there an issue with that, or has it been plentiful enough?

[Rep. Charles 'Charlie' Kimbell (Ranking Member, House Ways and Means)]: Well, that'll be the next question, and I wouldn't expect you to answer it, but I was just trying to come up try to understand the reliability of that source.

[Tom Kavet (Legislative Economist)]: I think that's pretty solid. Okay. It was based on withholding tax and then prior experience before we even started, it was a pig in a boat as to how many employers could pay what share and all the rest, then tax has been available to go back to question mark entities that didn't pay anything that they think ought to have something and it gets improved. So based on the latest information, we're just taking it right off our personal income withholding forecast and that's dropping down. The way it lands in the Schedule two is very complicated, and I won't really go through that, but we make an estimate for what we think it's going to be, take that out each month, then at the end of the year do a big true up and transfer out. But hopefully it'll be close, but it's based on hard data instead of speculation. So that's better. Rebecca? Rebecca, that's a question.

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: Thank you so much. You mentioned this in the report, but some of the data collections nationally have been compromised or discontinued. Right. How is that going to affect your ability to forecast and are there regional efforts to come up with other measures that might support good decision making in the state law?

[Tom Kavet (Legislative Economist)]: Yeah, there's a whole page, that's also page 27, and the bottom of it's a little bit, it's a lot less of all the data sources, they select the data sources that we use that have been delayed or compromised or canceled, and for people that live on the numbers, I mean, try to when we do the forecast, we try to first run the numbers and just say, what are the numbers telling us? We don't put any priors on it, any expectations. What is the data saying? The revenue data, the economic data, all the rest. So we don't have economic data. We're like, okay, what did it say in September and August? And that's all we have, so it's not as good, not as accurate, and then some of the calculations, the methodologies going forward are compromised as well. The CPI, which like in Cornerstone, measure inflation, they skipped October, so October will never be out, But the shelter part of CPI, which is a third of the CPI for housing and shelter, is done on a six month rolling average. So October ends up being a zero and no change. So you're dropping a zero in an average of six months for six months, that's going to create a little downward bias. That's not good statistics. It's not good statistics.

[Wayne (unidentified legislator)]: And you could estimate based on previous forms.

[Tom Kavet (Legislative Economist)]: Well, you could look at other studies, you could look at other things. Actually, I think there are probably a lot of ways with big data, they could digitally collect information that would be more extensive and probably better quality, but the monies they propose doing some of that, and it's never been funded. So for them to change off it is also a big problem. Yeah, no, you could have estimated it. You know it's actually very unlikely that it's zero. It's very unlikely that it's negative. Just look at the history. So it's probably somewhere between one and four or two and four even. It's probably close to three. The things before and the things after were all 2.7, 2.8, three point zero, that would be better to plug that. They didn't want to be accused of making up numbers, so they just sort of said it's a blank, it's a zero, we do it. And they were transparent about it, so anybody who doesn't like, but to your question is, is anybody trying to do anything about it? Some of the national forecasting firms like Moody's are developing some of their own estimates and using those to try to fill in the blanks. Regionally, I don't know anything that's happening on that. What

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: else would you like us to know in the remaining few minutes?

[Tom Kavet (Legislative Economist)]: Well, if there are any other questions, that's really what it's about. I don't think there's all kinds of detailed, sub detailed things in here. And if you have questions that come up after looking at it, I'll feel free to

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: ask a question then. You talked at the e board about immigration policies and workforce and not necessarily having an effect. But in Vermont, we have a lot of dairy and other things where we use immigrant labor. And I'm wondering if you're noticing anything specific to Vermont related to our workforce, if that's impacting us here.

[Tom Kavet (Legislative Economist)]: Yeah, mean, the ag sector is so small as a share of the total. It's not like that leaps out in a state of a diverse, you know, larger economy. It's not to say it doesn't bring stress in particular areas. Health care has been another one that has suffered with that. Elder care, personal services, things like that have really been impacted. Construction, not as much here as in some other states, but still, yeah, there are sectors that have been impacted.

[Daniel Lee (Assistant Economist)]: Imagine that colleges and private schools might also be included.

[Tom Kavet (Legislative Economist)]: Colleges and private schools? Yeah. International students. International students. Yeah.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: That would be yeah. Yeah. But I just heard that the administration is gonna be revoking or sending back, like, the 250,000 or so Haitians that were here that came after the twenty ten earthquake. I just read that today. Did you see that? And that's those folks are often their caregivers.

[Tom Kavet (Legislative Economist)]: Yeah. Oh, you've gone to a nursing home, are you?

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Yeah, or hire somebody privately or whatever, yes. That's gonna have a huge impact.

[Tom Kavet (Legislative Economist)]: Yeah, and they are good people. Honestly, the care that I've seen from the immigrant community to elders has just been extraordinary. And they're very hard to replace. So the real cost of demonizing that segment and in higher education, it's not just a loss of money, but also influence that the country can exert and also talent that stays. And I mean, the long term costs of a lot of these things, they didn't show up right away, but they're real and meaningful and will not be helpful. Yeah, exactly.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Woody, go ahead. Question.

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: With everything that's going on in our country right now,

[Tom Kavet (Legislative Economist)]: America

[Rep. Woodman 'Woody' Page (Member, House Ways and Means)]: has been looked at as a place of stability. Is America still a good place to invest in? How does the outside world look at investing in America? And how might that trickle down to

[Wayne (unidentified legislator)]: our state as well?

[Tom Kavet (Legislative Economist)]: Yeah, that also has a long term, short term component. So the rule of law is really critical for investor confidence any place in the world. When you make contracts that you need to make in order to run a business and build stuff and invest, you need to feel like it's going to be impartially adjudicated, there's not going be money on the table and all the kind of stuff that happens in many, many other countries in order to get something done. To the extent that the judiciary is not independent and is being yanked around for political favors and various things like that, it will undermine that confidence. And again, it's the sort of thing that happens gradually. It's not like just all of a sudden it's there, but there's a lot that's going on that is suggestive of that kind of control. There's a desire for politically controlling that, which should be an impartial process, and that's degrading, that will have high cost. I mean, the benefits we get from these institutions and these norms is enormous, and they're easy to tear down, maybe they're not easy, they're easier to tear down than they are to rebuild, and there's a high cost to that. It's trouble, yeah. Rebecca? Actually,

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: was trying to build on that same question. When you think about the patient economy you're talking about, you know, to the extent that it's increasingly financialized, it's also more liquidity, it can move across borders more quickly too. Is there growing risk just dependent our tech sector because it can also be moved out of The United States?

[Tom Kavet (Legislative Economist)]: There's a tech sector.

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: I'm just a little

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Tech sector, yeah.

[Tom Kavet (Legislative Economist)]: Tech sector, got it. Well, I think you'll see it like, so the investments in research and development money to universities has been drastically reduced. China is doing the opposite, and has been for some time. Their rankings recently published for the top universities in the world based on research papers that are produced, based on frequency of citation, patents that have come from all the rest, really in the top ten, eight or nine are Chinese universities now. There's one, maybe two American universities that are in the mix even. And so, yeah, you can lose dominance in a field. I think the combination of commercializing that research and development is another step, and The United States is set up with a lot of capital and all the Silicon Valley investors and all that, it's been a very fertile place for that to be developed and then manifested in market applications. Again, it will take a long time to lose all of it, but you lose pieces at a time, and it will become less and less attractive. You won't have the same personnel. Look at some of the tech companies who started them. So many of them were started by immigrants who came in, people that came in, went to school here, or just came here and started these entities that are now generating millions of dollars in taxes, two per month, not just billions, but many millions of dollars that we get in tax revenue from these companies. So it's a real loss, it really is.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Alright. I think we need to wrap up. So thank you so much for coming on that cheery note. But I guess the good news is that, with all the chaos, we're still basically at least neutral, and that's a good thing.

[Tom Kavet (Legislative Economist)]: Ending into the year for Yeah.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Yeah. So we thank you for your time. Appropriations, if we can go back to our committee room just for five minutes to check-in after this, that would be great. I don't if you have any directions for your committee?

[Rep. Rebecca Holcombe (Member, House Ways and Means)]: Thank you.

[Rep. Diane Lanpher (Chair, House Appropriations Committee)]: Alright. Happy Friday. Thanks so much. Thanks, Bob. Thank you.