Vermont Legislature SmartTranscripts:

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah. It's Oh, right. I'm just going on this.

[Senator Ann Cummings (Chair, Senate Finance)]: Okay. We are live. This is senate finance and senate appropriations. Good

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: week.

[Senator Ann Cummings (Chair, Senate Finance)]: And we are here to receive the economic forecast. Tom Cabet, and Associates. So Tom, the floor is yours.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Thank you very much, and thanks for doing the meeting jointly. I appreciate that you don't have to do many other times. But mostly, I won't have time to do Q and A, so there's individual questions or issues that you're interested in. Do we have time to talk about those in more depth? Some of you have heard various forms, versions of this presentation earlier, and some of you may have seen at the emergency board what transpired there. The recommendations were approved by the emergency board, so this is the revenue data that underlies Governor's budget. And so that's what we're starting with. This is an unusual forecast in that there's very little change from the prior forecast in July. Typically six months down the road, there's just a little bit more true up that has to happen, and really, two things are responsible for that. The first that through the first six months, revenues were really close to expectations across all three funds. There was no fund that was off at a variance greater than 1%. So they were all really close. There's a couple of tables, I think it's page six, seven, that show where we stood after six months. Page six, the top table shows those variances, but education fund, oneten of 1%, transportation fund, twoten of 1%, general fund, nineten of 1%, and health care was higher, but there separate things going on there, and the general fund includes the health fund, it would only have been half of 1% without the healthcare. So that's really close through six months, and then we also just didn't have drastic changes despite all the chaos and trouble and everything that's gone on in the last year, when you think about what the economy's endured and what things have been thrown at it and all the rest, it's pretty remarkable how it's fared, but also that it was pretty close to expectations, and next year, with some additional stimulus that's going to come through the Reconciliation Act, deficit spending from that, things will be

[Senator Ann Cummings (Chair, Senate Finance)]: more or

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: less steady state. Now there are big bifurcations occurring in the economy. So I'm talking about aggregates. So for a lot of people, their experience is going to be radically different. It's been characterized as a K shaped economy where for a lot of people things are going up, looking great, and for others they're going down. And you probably hear that from your constituents. There'll be people that if you tell them, yeah, things are looking great in the economy, they'll look at you like you're crazy. And other people who say the economy's in the tank, they'll say, okay, it's not what I'm feeling. So all those stories are true, all those narratives can be true, but in aggregate, we're looking for pretty much what we had forecast for the coming year, and so we're looking at revenues that are gonna be pretty close. Across the whole longer term forecast, on page seven shows a table with changes each year by three major funds and the health care fund as a percent variance from the July forecast. And between fiscal 'twenty six and fiscal 'twenty nine, among the three major funds, there's no fund that will change by more than plus or minus 1%. So that's also just unusual that there's not more change happening or other things layering in that have happened in the last six months that would change that. So that's kind of steady state. It doesn't mean the economy is going to be steady state, there's no risks and nothing bad can happen and we can be comfortable where it is. There's a lot of stuff that's rattling around that could be problematic and new things almost every day. So we'll be keeping a close eye on all that, but in terms of the very close to what we were saying in July. Can I interrupt with an unrelated question? Yes, anytime anybody wants.

[Senator Ruth Hardy (Member, Senate Finance)]: And that is how you estimate the estate tax? Do you do make an estimate

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: For the estate tax?

[Senator Ruth Hardy (Member, Senate Finance)]: For the estate tax for revenue?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Is that just buried or is

[Senator Ruth Hardy (Member, Senate Finance)]: that that number that we see somewhere?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah. No. No. It's on the table. So you can look at the estate taxes. For the five year forecast, you'd look at the the very last page of page 47, available general fund, that's dated right under beverage. Fiscal twenty twenty six, thirty two point eight thousand. Oh, okay, and that number was low. The actual collected amount or estate, if we go to the source What page was it again? Look on page forty six first. Okay, so you go down there, so this is what we call source, and so this is before any other allocations go out to other funds and things like that. If you look at the estate tax, and you'll see fiscal twenty twenty five, it was 55,200,000,000.0, and it's forecast to decline 32.7, but 32.7 is still a pretty high historical, by most historical standards is relatively high. Estate tax is the most volatile revenue source. There are other volatile revenue sources. We'll talk about corporate probably in a little bit. That's really volatile. But estate tax comes in big lumps sometimes and at completely random times because it's based on deaths. There's not a lot of Hard to predict. What's that? Difficult to predict. Difficult to predict? And then whether there's a tax liability around the debt has to do with tax planning, has to do with mix of assets. And so because asset prices are present across the board, it means that there's just a much greater pool that's likely to be affected. And that's why we've seen higher levels in general. But from year to year, nobody knows what they

[Senator Ruth Hardy (Member, Senate Finance)]: because I bring it up because people are saying, we had that large increase 25 over projections. And we have statutory language that says what we do if it's over the projection. So people are saying like, oh, because of the greatest generation of the baby boomers passing away and having there will always be this kind of excess estate tax. But I assume you take that all into account.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah. Excess goes to the higher ed fund?

[Senator Ruth Hardy (Member, Senate Finance)]: We're going to continue to have that. But that doesn't make sense to me.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Well, it's not going to stay at 55. I mean, take a look at that over time, I didn't print that out, if you look at the estate tax over time, it bounces all over the place. So that 50 five is an anomaly. Fine, if that happens again, but would I forecast that again? Not likely, it's going to revert to a mean that's high because asset prices are high and You look at the demographics,

[Senator Ruth Hardy (Member, Senate Finance)]: and you look at asset prices when you try to predict?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, but it's also just timing and individual circumstances. There's so few taxpayers that even fall under the estate tax. It's a rare event, and so very, very hard to forecast. It's really kind of more long term reasonable average. Why does it grow? Because asset prices are growing. But in any given year, that could be plus or minus $30,000,000 We're not more likely to have excess or excess of the forecast in future years than we were in any other No, that's the idea. And I don't know, is it the July forecast that triggers the higher ed thing? Think it's the July one.

[Senator Ann Cummings (Chair, Senate Finance)]: I think it's

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: July. Is that right? I'm not sure. Anyway, that's the first annual forecast. Probably it's the July 1. So it would be 125%, I think, of that if triggers it. Okay. Thank you. Always a hard one to forecast. At the emergency board, we talked about corporate revenues being soft in November and December. There was a lot of refunding that occurred. And if you look at the chart on page eight, you'll see the kind of volatility you get in corporate, and then what that last quarter looked like relative to recent experience. And you'll see it's a pretty precipitous drop. We've looked closely at the individual returns involved with those refunds and individual circumstances, trying to find a pattern, trying to see like, is there something happening in the economy that we're missing that might make this bigger than we think and more prevalent and ongoing? Or is this kind of middle line noise that's going to bounce back? And we've, in looking at it, we did not find a pen. A lot of it was backward looking stuff. So somebody that filed a return three years ago, maybe that returns under review, turns out after the review they end up with a refund. Or there's adjustments that are made over time, but a large tax payment may be last year, but this year there's a true up and there's a refund, not of all of it, but all of a part of it. So that was more the nature of it than something that was ongoing that we thought, uh-oh, looks like people are expecting lower liabilities and are just paying lower estimated or doing, taking actions that would lower revenues.

[Senator Ann Cummings (Chair, Senate Finance)]: Can I

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: ask a question?

[Senator Anne Watson]: It looks

[Senator Ann Cummings (Chair, Senate Finance)]: like on this chart though, on page eight, that the big jump up was around the time that we made the changes to our corporate income tax and went to

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: And there was a pandemic.

[Senator Ann Cummings (Chair, Senate Finance)]: And there was a pandemic. Yes. Was fair. There were lots of other things allowed. But you don't think it was because of that?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Some of it was. Some of it was. And actually some of the refunds, not a big number, but there were two, I think there's some, had to do with entities that hadn't switched and that were paying a higher rate based on the older portion rents. And then they realized, oh, wait a minute, now it's single source sales, we don't have to pay as much and let's take a refund.

[Senator Ann Cummings (Chair, Senate Finance)]: Oh, so some of the drop after that was It's amazing

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: to me that you would think with corporations that they're

[Senator Ann Cummings (Chair, Senate Finance)]: gonna have a top flight account Pay attention, yeah.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Smartest people, you have a lot of smart people, but Vermont is sometimes a tiny part of their whole tax picture and they don't always pay that much attention to it, and so you can get, we've sometimes gotten like a $5,000,000 check and we can't figure out like what's that for? And they contact the taxpayer, the tax does, and then they'll just say oops, and two months later it gets refunded back. Somebody just, but it's that magnitude can just kind of slip. So it's volatile, it moves around a lot. So there were a couple of true ups and that was one thing we wanted to see. Was that widespread? Are there others that are like that? We couldn't find another one with the ones we looked at. So that didn't seem to be it and then our concern was, is it something that happened recently that could worsen? So there is heightened uncertainty due to the tariffs, due to the whole economic, the deglobalization, the immigration, attack on judicial institutions, various things like that that cause business uncertainty. And it's reasonable to think that businesses, that's in part why I think hiring has been weak, is there's not a lot of layoffs, but there's not really any hiring.

[Senator Ann Cummings (Chair, Senate Finance)]: Right, well, when one day you think you have funding and the next day you don't, and then you have it back.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, one day you're funding costs. Again, you know what your input costs are to manufacturing something that you can sell at a particular price, and then that changes radically day to day, well, that's not a happy environment to be doing business. So it could make sense, and then somebody might say, I don't know what my liability is going to be, I'm not going to pay as much forward. So my payments would be a little bit lower. Or if I had a carryforward, I'm going to take a refund on that instead of just keeping the carryforward as robust as it had been. So there might be some of that retrenchment, but it was too early to tell, and when we looked at overall corporate profitability on the next two pages, there are stacks on US corporate profitability. So the first one is dollars. So that's quarterly series through the 2025. That's been chugging right along, no problem. And that's more reflective, it's not identical to our set of taxpayers paying our corporate tax, but given that we're now single source sales, it's closer than it would have been otherwise. So that's not slowing. The same chart, same data I've used on the next chart, which is a year over year percent change, and you see that we've had 21 quarters of growth with 96% growth in that period of time. But that doesn't seem like that's fallen down. We didn't take a hit on that. So it doesn't seem like what's happening in the economy in a widespread way, the reconciliation act's going be lower, corporate tax rates that actually will improve profits as we count them. So it just didn't seem like the corporate sector stressed in a way, unless it's all happening, I don't know, maybe firm size and other stuff like that might be

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, if you're a corporation or you're a wealthy individual, the economy is great for you, everybody else.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, but even smaller corporations, I think, are more impacted.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, yeah.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: And it's hard to tease all that out, especially with a compressed analog time frame. But yeah, you get it mixed in with this are all the Mag-seven and all that with it, but that's also part of our corporate income universe. So that's part of it. Any questions? There's a lot of other stuff we could talk about. I don't know interests there are. The things that are the big, if I were to say like three things that are affecting the economy, you have big headwinds from deglobalization, from the tariffs and from the reduced inflation. Those are measurable headwinds that are shaving quite a bit off growth. So between, in 2004 growth, it's about 2.8%, 2005 it's about 2%. So that's not, oh, the company's crashing, because of pretty solid headwinds. The thing that allowed that 2% though was this massive AI investment. So that's a gigantic tailwind that's really helping the economy, and then another tailwind is going to be deficit funded tax cuts with the Act stuff. And then their ideas being floated of tariff refunds, which would also be deficit spending. They say that, oh, well, they're just refunding tariffs. But one of the arguments about having the tariffs that was good was they were going to use it to reduce the deficit. Well, not if you give it back, and you also obviate the whole purpose of having the tariff. If you refund it, then nobody has an incentive to do anything different in terms of purchases, and if you look at the proposals that have been floated, the 2,000 per house, no matter how they limit that, at least with what's been suggested so far, the expense would be far bigger than all of the customs duties, not just the new tariffs, all the customs duties they're looking at refunding, notably all just prior to midterm elections. So there's a lot of pressure to deficit spend and it could add juice to the economy near term, help consumer spending, it would be good for near term tax revenues, but then you have longer term costs. Those are kind of things that are happening in the external environment, some of which are headwinds, some are tailwinds. On

[Senator Ann Cummings (Chair, Senate Finance)]: page 18, I don't know if you're showing in order, but I'm just

[Senator Ruth Hardy (Member, Senate Finance)]: Not at all.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: So I'd

[Senator Ann Cummings (Chair, Senate Finance)]: love for you to explain this a little bit more. And then I see this chart about the the economic risk matrix.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah.

[Senator Ann Cummings (Chair, Senate Finance)]: It's kind of cool. But specifically, one of the dots on it is house prices slump. Did house prices slump?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: What? Did they?

[Senator Ann Cummings (Chair, Senate Finance)]: Did they?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: No. They've been they're leveling off. Okay. Declined.

[Senator Ann Cummings (Chair, Senate Finance)]: Okay, and so could you just explain, I don't think I understand this chart. Yeah,

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: asset prices in general have been just going through the roof. So you see stock prices soaring, and home prices have also just been

[Senator Ann Cummings (Chair, Senate Finance)]: Right, that's why I was surprised to see that house prices slump

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: on

[Senator Ruth Hardy (Member, Senate Finance)]: the Just explain the graph, the two different axes.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Let's start with the graph. So the graph comes from Moody's Analytics, not Moody's the rating agency. Moody's Analytics was bought by Moody's, but it's an economic forecasting group that was bought by Moody's, and we've used them for a long time. We use macroeconomic and state economic model constructs from them as kind of baselines, and they put out their risk matrix when they issue a macroeconomic forecast saying, what could go wrong? And they put those on a scale where the severity of risk is further to the right.

[Senator Ruth Hardy (Member, Senate Finance)]: If it happens, the impact is greater the farthest it is to the right.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Farthest to the right, the more severe

[Senator Ruth Hardy (Member, Senate Finance)]: The impact.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: The risk. If it happens. That's right. If it happens, how severe would it be? So something like, okay, well, they have global pandemic on there, it's way off to the right. Probability isn't super high, the likelihood of it is super high, but if we had another pandemic, it would be So really the further to the right, the worse off it is. On the other axis, the likelihood of risk, the things that are higher up are much more likely to happen. So economy skews more K shaped is one of the most likely things to happen. It's been happening for a long time, and it would take something kind of dramatic to change it. You'd have to have a big redistribution of wealth and income, so that's unlikely, but it's not like that's gonna create an immediate and severe issue. There are some things though that are, so then that line down the middle are things that are reasonably possible would happen, and then which ones are high risk. As you go up that, you start to lose things. So Fed loses independence, for example. Now you would have to move that higher as being likelihood or risk has just increased even more, and it's a serious one. So changes in red represent an increase in the odds or severity of a risk. So the increase of the they probably raised it a little bit with that, but with the recent actions, you'd raise it even more.

[Senator Ruth Hardy (Member, Senate Finance)]: Is it the severity, the change to forecast or just economic growth? Or what is the risk to?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: So the risk, if you were to look at that, that would be longer term economic impact. Moody's forecasts go out

[Senator Ruth Hardy (Member, Senate Finance)]: to Just like a lower growth

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: rate of the economy over Higher borrowing costs.

[Senator Ruth Hardy (Member, Senate Finance)]: Some of these things are happening.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Catastrophic. You can have full on economic crisis if your long term debt can't be if nobody believes so what would happen without Fed independence, you're going to have lower interest rates. That's lower than they should be. You're going to create a lot of demand, inflation is going to be high, you're going to be monetizing the outstanding debt. So the people who are holding US Treasuries are gonna be repaid with dollars that aren't worth as much. That's like defaulting in some way for them. So they won't wanna hold them. They'll either sell them or need more higher interest to keep them or buy more. And that increases our costs to have the debt and servicing Yeah, I understand that.

[Senator Ruth Hardy (Member, Senate Finance)]: So it looks like some of these things have already happened. I'd say the Russian Ukraine war has escalated. I'd say that we do have mass immigration deportation. Well But is it just over the longer term?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: It's saying even more than there is now. As of December 25. Yeah. No. Those things are those are the headwinds that they've baked into the forecast. Okay. Yeah. So the if the Russian war escalated further, it could get out of control and be even more out of control, in other players, things like that, that would be even worse. But no, that's already baked in. The immigrant deportations are baked in at Okay. Certain levels, but it could be worse than that. And then social cohesion that occurs, loss of social cohesion and chaos that occurs as also other economic costs. Not all of these things are fairly economic, but have some. Senator Watson?

[Senator Anne Watson]: I do notice that you have on here climate change transition. And I realize that this is from Moody's, so you necessarily come up with the phrasing here. But I just want to clarify, because often in circles that talk about climate change, transition is a positive thing. Like, we're transitioning to new technologies, or things are getting we have mitigation technologies. I'm assuming that what is meant here is the climate is changing.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Well, it's Or is this it's

[Senator Anne Watson]: Right, that's what's meant. As opposed to the positive, like we're transitioning to new technologies.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yes, that's exactly Okay. Reading it properly. That's right. So again, that's the kind of thing that's long term and same with like losing Fed independence and running deficits forever that are mounting, mounting as a shred of GDP. All those things have tipping points and there are various levels of catastrophe associated with tipping points. Some okay like the stock market tips, okay it's going to crash, that's bad, blah blah blah, it'll come back, stuff like that, it's different kind of tipping point and same with like holders of long term US debt, all of a sudden lose confidence in the US government. That's a big, big tipping point that you just don't turn around. Anyway, yes, that's a

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, thank you.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Was there another question over here? I have a quick one.

[Senator Ann Cummings (Chair, Senate Finance)]: What is the CRE doom loop?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: What's that?

[Senator Ann Cummings (Chair, Senate Finance)]: What is the CRE doom loop?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: That's commercial real estate. CRE, commercial real estate, you sort of have to be in that sector to know, they use a lot of abbreviations. Commercial real estate has had some real problems post pandemic because you had all the exiting from all the space and what to do with it. So a lot of those things are underwater and it's a big debt load. So the doom loop is that they can't get financing, it keeps going down, and prices drop, and it's that sector. Is there anything you would highlight about the Vermont economy in particular? In terms of risk, or you just mean in general? In general, as appropriators in the tax committee of what we should be aware of. I mean, we're kind of the cork in the ocean floating in the national economy, and it's not like we're steering a lot of stuff that happens. So we're kind of takers of occurs. Probably unique risk of safety. You know, our participation in Or things that we should just

[Senator Ruth Hardy (Member, Senate Finance)]: be paying attention to more.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah. You know, when when I think about how AI is powering investment in lot of places, we're not kinda front and center in that. We we get AI benefit through the stock market indirectly with people that are individuals that are holding stock. There are a few companies that are players, I mean Global Foundries and Vermont Semiconductors are not making the top high end chips, but they're making chips that are still part of the AI information flows that go into data centers. There's a variety of chips that are needed. And then some of the designers of the chips are in Vermont, and so there's some benefits from that. But none of the physical infrastructure investment is happening here. I don't know other issues, mean labor markets in Vermont are still relatively good compared to the rest of the country. The latest data we got to read in November on our current data is delayed, but it was tied for third best in the nation, which is kind of where we've been for quite a while. So that's better than some places. Not lots of job growth, but some. Yeah, I don't know specific sectors. Can talk about real estate, housing prices going up but flattening. Yeah.

[Senator Ann Cummings (Chair, Senate Finance)]: Two questions. I'm looking on page 48 of your health care revenues. Did you factor in I mean, looks like you might have, but not fully the provider tax provisions that were in HR1?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: That doesn't mean that. Exactly why it's bumped down.

[Senator Ann Cummings (Chair, Senate Finance)]: Okay. If it's not

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: You can get negative numbers. Starting in fiscal twenty twenty eight. Minus 1.4, minus 2.9, minus 3.1, minus 3.4. That's the bottom line available healthcare. All in the provider type.

[Senator Ann Cummings (Chair, Senate Finance)]: It's all provider type.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Provider type minus 3.4, minus 6.2, minus seven point zero, minus 8.1.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, no, 8.1. Okay, so I Yes. The provider tax decrease phases in. The rate decrease phases in. Because I expected to see the 8.1 more up in the first year, but it ramp the the decline ramps.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: It ramps up.

[Senator Ann Cummings (Chair, Senate Finance)]: Okay. And then I and when you gave this presentation or a of your presentation in December at the

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Briefing.

[Senator Ann Cummings (Chair, Senate Finance)]: The briefing. I wasn't here, but I read the press on it. And you had stuff to say about the impact of the Canada situation on our economy, or at least the press reported on it. And I wonder if how big of a factor has that been in our sales tax, in particular, sales and rooms?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: It is rooms and meals and meals, obviously. I mean, it's not helpful anywhere. There also have been boycotts of purchases of things in The United States, so even mail order stuff. And it's not limited to just Canada, other foreign countries also. Yes. People are averse to traveling here and they're kind of afraid that you get here, like, are we gonna get through airport without being hassled? Or if my skin color is not right, then what's that gonna mean for, so it's just not a particularly attractive place right now. Meals and rooms are got a little bit of a downgrade, we had already assumed that that was going to be an issue. It's a little bit worse than we had assumed. I updated the visitation numbers at the visitor centers proximate to the Canadian border and a little bit beyond. And December was through December, which is pretty much the whole year was very similar to through November, which doesn't surprise me, 35% fewer.

[Senator Ann Cummings (Chair, Senate Finance)]: 35%, that's a significant drop.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: That's a significant drop, yeah. And yeah, I don't have other corroborating information. Is there anything from New Hampshire that you've seen or anything Well,

[Joint Fiscal Office analyst (unidentified)]: I have other piece of data for Vermont. So I looked at border crossing data collected by US Customs. So they collect data on passengers, traveling passengers, arrival cars, buses, and train. So the data I looked at, latest data was available October. So comparing 2025 up to October at the same time year before 2024, the passenger number dropped 31%. So do we quantify that in terms of dollars? So according to the Vermont Tourism Agency publication, 2024 last year, half a million Canadian visited Vermont, and then the other piece of data was overnight visitor spending per person per visit was about $444 So if you multiply 31% with half a million people times $444 that's nearly $70,000,000 So that's loss of $70,000,000 just for lost Canadian visitors.

[Senator Ann Cummings (Chair, Senate Finance)]: Wow.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, mean

[Joint Fiscal Office analyst (unidentified)]: that's based on assumption, it's a quick and dirty type of destination, but that's a very significant number.

[Senator Ann Cummings (Chair, Senate Finance)]: That is a for small Vermont, that's a very significant number, especially in, I would assume, the Northern part of Vermont even more so that has more people coming for quick visits. Yeah. Wow, thank you. Nice question. Thank

[Senator Anne Watson]: you. So I have a question on page 40, the chart that is about Vermont's livable well, I guess, household income in Vermont.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Oh, that's not Vermont. Oh, that's not Vermont, this is US. Never mind. It's time frame that we went back to when that was first done. And we saw the disparities existed then. And guess what? No surprise.

[Joint Fiscal Office analyst (unidentified)]: More of

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: the same, the longer you go, it doesn't really change. And

[Senator Anne Watson]: my question was going to be, this is the percent change from 'ninety nine to 'twenty four, and

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Real. That's inflation adjusted.

[Senator Anne Watson]: Okay, that was going be my question. Was this a Yeah. So relative to inflation.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, I probably should do that as expressed as an average annual compound average annual rate. It would be minuscule down even 5.2% over twenty five years. If you look at wage growth, page 43, this is real hourly wage growth from 2009 to 2020 plus. The average is 20¢ per year. So when you talk about and that's average, is private employees, but all private US employees, you can imagine that there's even a subset that's doing work, somebody doing better, but that's not exactly simply

[Senator Ann Cummings (Chair, Senate Finance)]: This is the affordability crisis, people. Wages are not increasing, and costs are increasing. And this is why people can't afford things. It's because of low wage growth from the vast majority of people in our country and our state.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, and again, these are aggregate. But on page forty one and forty two, you see percent change versus year over year. And you see how dramatic the pandemic was in affecting real wage growth. So first on page 42, see year over year change, and it can go up and down, and there are periods where it's slower or higher, but you have this enormous spike up. So the real wages really benefited, and a lot of those were low end wages. And that other chart had that little pipe pandemic bump in it, twenty ten one. You can see the pandemic was this noticeable interruption. But then what followed that was this period where inflation went way up, wages didn't, and that's, you know, you sort of gave people a taste like, what would it be like if my real wages actually went up in a meaningful way? Debt was paid down, there was all kinds of improvements that occurred, poverty rates dropped, there are a lot of things that were benefits in that, but then it all got taken away pretty quickly, and now we're down in this zero to 1% kind of world with it. But that whipsaw, I think, also just the political effect of that is bad enough that you have to think dip, but to get an actual real improvement for a while and then losing is especially hard, think psychologically and otherwise. But yeah, the affordability thing is real, it's just different realities that exist across the economic spectrum from where you sit.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, that's why it's really hard to look at this on average, because the high end is masking what it's like for the majority of people.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah, but I will say, like in personal income, we also have a phenomenal amount of revenue from the high end. And it's going to make it even more volatile because that income is a lot more volatile. But we'll do some cross sectional work with some of the personal income data going forward that looks at that. But it's even more concentrated. And of course, some of it is corporate and personal income works kind of the same way, but it's very volatile, but we're getting a lot of revenue from it as well. We have a progressive tax structure in personal income taxes, and so that's one of the areas that's growing above rates of inflation in general. Senator Chittenden has the

[Senator Thomas Chittenden (Vice Chair, Senate Finance)]: Didn't mean to stop that topic. But relatedly, we're about one year into the second Trump term, and I hear reports about the administration exerting pressures on presumably nonpartisan governmental entities and their reports. From your standpoint, would you opine on any concerns you might have on numbers being politically pressured that you otherwise previously had a lot of confidence in?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: They fired the Commission of Bureau of Labor Statistics, which produces the inflation numbers and the job numbers, all the rest, ostensibly because they didn't think the numbers were they didn't like the numbers. It's a little bit like a Fed, you know? That was real concern, the person that they were gonna appoint actually didn't get appointed. I'm not sure exactly who's running it now, I think it's been compromised down the line, although the decision about how to handle the missing October CPI, so they've missed the whole month and they needed to essentially have something there because some of the components of CPI rely on data that involve multiple months. The shelter component of CPI that's kind of down in the weeds is one third of the CPI, and it uses a six month rolling average to plug that in. They essentially put a zero in for October because they didn't have anything. Now we know it's highly unlikely that the number was really zero. It's probably between, you know, two and three, probably between two and a half and 3.2 or three or something, know, I mean, those are the numbers around it were between three and two seven, immediately around it. But the reason that November and December numbers are suspect is that zero is getting averaged as it goes forward. It won't be until April that that's washed out of the paper. So methodologically, could you have done something that was sort of more reasonable? They just didn't wanna be seen as putting a finger on the scale to do anything because they don't really know what it is.

[Senator Ruth Hardy (Member, Senate Finance)]: It's like by putting a zero, that is putting

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: your Yeah. That's putting a zero. Yes.

[Senator Ruth Hardy (Member, Senate Finance)]: It is.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: But it sort of sounds more neutral. I don't have the numbers Well,

[Senator Ann Cummings (Chair, Senate Finance)]: it's neutral if you don't understand math.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Okay. Now that's true. But but also, they were politically gun shy, which is what's happening at the Fed too. They're trying to, like, scare people who are making the decision into doing what they want, and they're threatening them with criminal lawsuits that are expensive to defend, and if you lose, you go to jail. Who wants to be a Fed chair under those circumstances? Now Jerome Powell has a lot of personal money, good for him, he can defend himself if he so chooses, but still, that's the shot across the bow that's happening. And so pretty soon you get a bunch of sycophants like you would have on boards and things in Russia or Hungary or places like that, which is kind of, yes people, going through the paces, but the shots are all being called politically. That's kind of the risk. You lose credibility in those numbers. Chinese statistics were like that for a long time. It's like they want to report this growth, that's what they're going to report. Do you believe it? Not really, there would be people taking pictures using space photography to look at number of trains and things that are moving to try to get a better idea of what was happening than they were reporting. I don't think that's as much of an issue in China today as it used to be, but it's still like those aren't reliable when you know there's pressure. That can happen here, It's not to the point that I don't have faith in it because I think the people down the line have a lot of integrity, there are a lot of nerdy, really good data people there, right? And we interact with them and go to conferences with them and do stuff, write papers and things, but it's threatened and it's like these other things, not helpful and potentially really harmful. The page of missing statistics and compromised statistics in here, There's just a long list of stuff to cancel, compromise, otherwise What page? 27? It's 27, but the list is so long it runs over the page number at the bottom. So it's like if you see page 26 or 28, it's right before it, page four, but it's just a list of all these stats that we rely on. We do forecasts of trying to let the numbers talk, the revenue numbers and the others. Don't go in with any priors, look at the data, see what it's telling you. If it's really bad, then you respond to that. If you can't look at numbers that are current, if August is the last read I have, I'm flying blind a little bit. I mean, still August is better than nothing, but I'm not getting the kind of current information that I usually have, and that's a problem. So I don't know if in the next potential government shutdown, if we get through that. It looks like there's some movement on stopgap things, it could be good, but we'll see.

[Senator Ann Cummings (Chair, Senate Finance)]: Anybody else?

[Senator Ruth Hardy (Member, Senate Finance)]: Looks like that's it.

[Senator Ann Cummings (Chair, Senate Finance)]: Anything else we should know?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: I if if there are other things, feel free to contact Joint Fiscal or us directly, and we'd be happy to respond to those. Yeah. Just looking forward, is there anything right now that's at the top level of your concern and that should be a concern to us going forward based on what you're seeing in market? I think there are many of the things we talked about. I think in terms of media, things would be if you've got some kind of bubble pop happening with the stock market bringing back down and having cascading asset value losses, but it could go on for quite a while, and the entities that are involved in funding it are not like the .com businesses twenty five years earlier. They're making real profits and huge profits, and they've got a lot more substance, so I think it could go on longer. I don't think everybody's going to be a winner in this, so there are going be some losses at some point, and the scale of it is just massive. I mean, it's just really hard to overstate, but like 10,000,000,000,000 in value, something like that, at. It'd be hard to get an ROI that's gonna make you whole on that, but who knows when. So I'm always looking at that kind of vulnerability because that could be quick. A lot of the other issues are longer term and they're very serious, but they're not have to be as immediate in terms of how they affect you. Recession risks are, they spiked up in April and then dropped down to like maybe thirty three percent in the next twelve months chance of recession, which is fairly low. It was forty five percent in April. The labor markets are worse than, since that April, that's a reflection of the uncertainty. Since the April tariff announcements, employment has been pretty much dead in the water. There've been some increases, some decreases. There's a chart on the employment

[Joint Fiscal Office analyst (unidentified)]: change,

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: page 29, but you can see that employment since April has been either negative or if you average those, you're right about at zero, a little bit above zero. And if you look at manufacturing jobs, which are supposed to benefit from the tariffs, they've declined every single month since April. April introduced, you do something like that, you just scramble the deck and people might say, okay, need to know what the deal is before I hire somebody or before I move forward with an investment or something like that. And that's gonna be so if that stabilizes that should know, hopefully that improves, but that's a risk too. Do you see anything that you would describe as a change in methodology or change in strategy, a change in the amount of reserves that we maintain for emergency, are there warning signs that we should do something different than what we're doing based on what you see happening? At the state level? At the state level. Really haven't looked at reserve levels independently, nobody's asked me to look at that, I can't really comment on that. We've spoken about that earlier. There is this cash balance that's enormous, that's being spent down, but we're assuming that it levels off somewhere north of a billion dollars, which is higher than it used to be. Now that holds rebate funds and other things that are already in that, but that could be an opportunity if you want to have more of a cushion, would be to think about that, not just whatever the Treasury decides he wants to do with it, have some input on what you think an appropriate balance might be and whether reserves or how you want to work with that. But that might be something I have a conversation about. Don't have any independent perspective. Yeah.

[Senator Ann Cummings (Chair, Senate Finance)]: Know people are getting antsy, but, I I was noting on page 12 when you were talking about different revenue sources, your paragraph on the lottery revenue and how that's declined, and particularly the sentence lottery ticket purchasers are often on the lower leg of the K shaped economy and have had less disposable income of late which to spend on games. I know there's a proposal right now to actually expand the lottery by offering it on phones. And I'm just wondering, do you have data on lottery users and income that you could share with us?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: There are studies that have been done, but I don't have I don't have a lot specific data, and I don't know that it's collected. I don't know how they could I don't think they allow credit card use for the gambling apps. Was stated. So I don't know how you could have them. It would a bank debit, a direct bank.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, I don't know.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Understood that credit cards weren't. No, I don't know. I mean, is a regressive tax.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah, it is a regressive tax.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: And I

[Senator Ann Cummings (Chair, Senate Finance)]: was just wondering if there's data available that's Vermont specific about it.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: We can look into that. That would be helpful. Is Chris in the room?

[Senator Ruth Hardy (Member, Senate Finance)]: You would.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Okay. But anyway, we can get back to joint fiscal and ask somebody if they can look into that.

[Senator Ann Cummings (Chair, Senate Finance)]: Would be great.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Great. Well, thank you all.

[Senator Ann Cummings (Chair, Senate Finance)]: I hope this is your last presentation. Don't know how many times you've done it today.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Well, the question and answer, though, is interesting because everybody has different interests, and

[Senator Ann Cummings (Chair, Senate Finance)]: it's

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: better to answer any questions here.

[Senator Ann Cummings (Chair, Senate Finance)]: Assume you didn't factor in the chance of our getting involved in another foreign military action.

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah. Actually, that wasn't even on their list.

[Senator Ann Cummings (Chair, Senate Finance)]: Yeah. Taking over Greenland?

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: I didn't see Venezuela. Or Greenland. Yeah. Right. Like

[Senator Ann Cummings (Chair, Senate Finance)]: China's in Russian ships in the harbor. So

[Tom Kavet (State Economist, Kavet, Rockler & Associates)]: Yeah.