- Associated Press - Tuesday, January 20, 2015

MONTPELIER, Vt. (AP) - Sharply dropping fuel prices are expected to provide a big boost to Vermont’s economy, but the near-term forecast for state revenues is still cloudy, two economists who advise the Legislature and administration said Tuesday.

“Led by an epic plunge in oil and gasoline prices, steady job gains, soaring consumer optimism and supportive monetary policy, the economy is poised to register its strongest growth in more than a decade,” Tom Kavet of Williamstown-based Kavet Rockler & Associates said in a written report.

But due to what Jeffrey Carr of Williston-based Economic & Policy Resources Inc. called “under-performance and structural change” in the state’s personal income tax, as well as similar changes in corporate income taxes, the two economists offered a consensus forecast calling for the state to collect $10 million less in revenue than previously had been expected in the current fiscal year.

Their updates were delivered to Gov. Peter Shumlin and the chairs of four legislative money committees.

The two economists also downgraded the fiscal 2016 revenue forecast even more - by $18.8 million - from their last forecast in July. And they said the state would collect $8.1 million less than previously expected in fiscal 2017, which begins in less than 18 months.

The changes are small in relation to an annual general fund budget of about $1.4 billion. And both Carr and Kavet said that as the relatively recent declines in fuel prices work their way through the economy, the picture could brighten significantly.

Kavet contrasted the good news on fuel prices to lagging wages. Factoring in inflation, wages had declined by 1 percent nationally in the past six years to a national average of $24.57 in December, he said. Gasoline prices dropping from more than $3.50 per gallon to less than $2.25 in many places would feel “bigger than any raise anybody’s gotten in a long, long time,” Kavet said.

Shumlin delivered his annual budget address last week, calling for $14 million in cuts to the current year budget and closing a projected $94 million budget gap for fiscal 2015 with another round of budget cuts and a $15.5 million tax increase.

The administration tracks revenues as they come in month by month and had anticipated some downgrade in the current-year forecast, the governor said. “If you look at the downgrade they gave us for this fiscal year, we have already adjusted the budget for those cuts,” he said.

He said he hoped that by spring, an improving economy would boost revenues enough that the higher numbers could be incorporated into the fiscal 2016 budget negotiations before lawmakers go home for the year.

“By the time we all sit around this table at the end of May, or early May, when we actually make the final decisions, I expect that a lot of things might have changed,” Shumlin said.

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