You are out on a walk and you see the dark clouds nearby. Do you seek shelter or take a chance on the storm passing by?
Last week there was a fiscal briefing for all new and returning legislators at the State House. While some of the information shared was positive, some should give us pause. And perhaps like being out for a walk with dark clouds appearing overhead, we are taking a bit of a gamble if we don’t change course in some respects.
For the good news, personal income tax receipts, the state’s largest revenue source, was 6% over projections through October (for fiscal year beginning July). However, just like the wind starting to pick up could be a warning, Vermont’s bond rating took a little slip, from AAA to AA+, still a very good rating, but a downgrade, nonetheless.
A statement on the change by Governor Scott highlighted two factors, “While Vermont continues to have the highest overall bond ratings in New England, our transportation bond rating is stable and we’re getting stronger every day, it’s no surprise that Moody’s Investor Services highlighted Vermont’s aging demographics and the unfunded retirement liabilities that have accrued over the last several decades. These are our most significant economic and budgetary challenges. In fact, they foreshadowed this in last year’s report.” State Treasurer Pearce also pointed to the changing demographics of the state as a significant red flag.
The demographic signs are clear:
· There are nearly 30,000 fewer Vermonters under the age of 20 than there were in the year 2000
· There are over 30,000 fewer Vermonters in the working age category of 25 to 45 than there were in 2000
· There are nearly 40,000 more Vermonters 65 or older compared to 2000.
· Outside of Chittenden County, we are just three to four years away from having just one worker for every retiree, child or dependent.
In addition, Vermont has the lowest fertility rate for all 50 states in 2017 as measured in births per 1,000 females age 15-44. Vermont was 49.7 vs a national average of 60.3 (South Dakota was highest at 76.4).
In part due to underfunding pension obligations for state employees and teachers during the 90’s, the catch up payments are taking an increasing share of the budget. In the coming year alone, the General Fund contribution to retiree pensions and benefits is expected to increase by $30 million from $162 million to $192 million, singlehandedly taking any projected revenue increase off the table. Are the annual increases sustainable or is Vermont ready for a pension reform conversation?
Couple that with normal increases in the budget, such as pay hikes and health care costs and you have a shortfall. The committees writing next year’s budget plans will have their work cut out for them.
Where is the silver lining in all this? For starters, recognizing the signs may spur constructive discussion and solutions to our demographic challenges, which is hampering our economic growth. Hoping the dark clouds will pass or business as usual is not an option if we want to brighter future.
The Vermont Legislature will convene on January 9.