 Good morning members. We are going to get started, so if you could do me a favor, please take your seat. And will Erin please send us live when you're ready? Good morning everyone and welcome to our legislative briefing for the upcoming legislative session. As many of you know, every year the Joint Fiscal Office organizes this important briefing to ensure that we all enter the session grounded in Vermont's revenues and budgetary pressures and also take the opportunity to highlight a few policy areas that will be coming up during the legislative session. This year's briefing is especially critical as we address the end of the historic federal funds coming into our state and the urgent need to ensure that these dollars get out the door in a timely manner. Here's an overview of today's agenda in case you haven't seen it yet. This morning we'll start by hearing from Tom Covet with an update on the revenue budget and economic outlook. We'll also have a presentation from some of our terrific JFO staff, Emily, Maria, Chris on the fiscal year 2025 budget contacts. Following their conversation, we'll have Marcia Howard, Executive Director of the federal funds information for states, will provide us a federal update. After that we will break for lunch and then we will return here in the chamber to hear from more Collins, Sue Minter and Gusty Lee to provide a housing update. And our final presentation for today will be from Doug Farnham, Chief Recovery Officer, who will provide an update on the flood recovery updates. It's going to be an informative day and we want to thank the legislative staff and the presenters for taking the time to brief us all. I'm sure they will do a terrific job. Members, this summer and fall I traveled around the state meeting with Vermonters across all 14 counties and it was a wonderful opportunity to discuss the issues that are impacting their daily lives. Communities are finding creative solutions to get more housing online, create and grow businesses, all well fostering stronger, more resilient community connections. And while there is a lot to celebrate, there is a tremendous amount of work ahead to make Vermont a healthier and safer state. Public health and safety was brought up in almost every conversation I had with Vermonters. Communities big and strong, big and small are wrestling with how they can support those who are struggling. The recent shooting of three young Palestinian men was horrifying and we are seeing an alarming increase in harassment and hate related incidents across our state. And I hope that you will all join me in taking every action possible to soundly reject hate. Hate has no home here. Members, we also have communities across the state, including our capital, suffer catastrophic devastation in the July floods. Vermonters work tirelessly and are committed to come back stronger and more resilient. This session will focus on flood recovery and identify critical policies for climate resilience and take the action needed to prepare for our new climate reality. And as a reminder, all ARPA funds must be obligated by December 31st, 2024 and there are over $6 million of unobligated funds. We will continue to work with the administration to make sure that they have a plan to get these dollars out the door to Vermonters ahead of this deadline. Earlier this month I asked members to participate in a survey and housing needs in their community. The responses cross party lines and geographical differences. We share so much in common and have the same desire to do all we can to make Vermont a better state. Despite the challenges before us, I know we will work together with respect and a spirit of collaboration. Keeping Vermonters and the responsibility, they are entrusting us with the forefront of our minds throughout the session. We have a lot to be thankful and proud of in this state, but we all know that there is much more to be done and we'll do it together. With that, I turn the podium over to Senator Baruch. Thank you. Good morning. When I was sworn in last year, I tried to warn the incoming freshman senators that often is not in this building. We find ourselves working on emergencies and crises that no one saw coming. I said, and I quote, no matter how careful we are, the truth is that the crises we can all see are only a small part of what we will eventually face together inevitably. There will be completely unforeseen emergencies that we can't even imagine as we sit here today, end quote. I spoke those words. I apparently jinxed all of us and I apologize for that today. The flooding that we saw was unprecedented, but we had each other to lean on to solve those complex problems. We'll continue working on that this session. As we look forward to that coming session, we know we have more than a few complex issues before us. Climate change is causing more extreme and more frequent natural disasters and the impacts disproportionately affect rural, low and moderate income and marginalized Vermonters. Vermonters experience firsthand the gaps in the state's flood response and recovery efforts and we must look for solutions to enhance our disaster preparedness going forward. As Vermont continues to rebuild and recover from this summer's devastating flooding, we must prioritize both climate change mitigation and resilience measures to address climate risk and rebuild smarter and stronger with resilience against future flooding events. Those weather events this summer also exacerbated what we all know is Vermont's housing and homeless crisis. Housing shortages have kept vacancy rates low, median rent prices high, and they have increased all the barriers to home ownership, especially for low and moderate income Vermonters. We must and we will prioritize statewide access to stable, affordable housing to build a thriving, resilient and vibrant future for all Vermonters. I just want to take a moment to thank the Joint Fiscal Office. Their work will be apparent today but their effort sort of goes invisible and I want to recognize it. They've done a great job preparing an agenda for today and we know the briefing will provide us all with crucial information. The Speaker and I want to thank the staff who have worked hard not only to make today possible but to help prepare us for the upcoming session and I'll throw in my great thanks to Ledge Council for their preparations as well. We're incredibly lucky. We're incredibly lucky to have such experienced, dedicated public servants supporting us in our legislative work. Also please know that as we go into the new session you can always reach out to my office or the Speaker's office at any time and we will help you in any way that we can. Now let me turn it back to Catherine Benham to introduce our next speaker. Good morning. I'm Catherine Benham. I'm the Chief Fiscal Officer with the Joint Fiscal Office and I thank you all for participating. The goal here is to provide information to you all and give you some context as you prepare for the upcoming session. As you heard earlier, the morning is really broad picture vision about various issues and then this afternoon will be about two specific topics. I would ask if you would let the presenters get through their presentations and then we will have some Q&A at the end of each presentation. For those people on Zoom, if you could send your questions in the chat, Erin and Sorcha, who are sitting here will get those questions into the queue. If we don't get to your questions, there is an email askJFO and you can send questions to us at any point on time. So with that, let me introduce Tom Kovet. He's our legislative economist. He works with the administration's economist to do a consensus forecast and there will be a consensus forecast in January. Tom, take it away. Thank you very much, Catherine. I'm going to contradict Catherine just a little bit just to start with. Feel free to ask questions anytime. I kind of prefer to just have that flow but it's also okay to send them in. That's okay too. As you all know, in January, we're going to do a complete budget and revenue forecast update and this is just sort of a sneak peek at what's happening in the economy and how it's been affecting revenues. Normally, we do this a few days later than December 1st and so we have data from the month of November in which is useful and this year we didn't. So I'm talking numbers that go through October even though I've watched all the November numbers as they sort of pile up but the end of the month true up sometimes as surprises and so I'll be referring to November's numbers but we're using the first third of the year not the first quarter for first quarter I mean instead of the first third. So with that we'll get started here. So there has probably never been a bigger disconnect between the way people think about and see and perceive the economy to be and the data that we look at. I'll show you some consumer sentiment numbers a little bit later but they're down like in recessionary territory like about as bad as they've ever been and yet the economy has been growing at very solid rates surprisingly high. Consumers keep spending. Inflation has dropped dramatically doesn't mean there's deflation that's really different because prices are just going up at a slower rate after having gone up a very quick rate and that explains I think a lot of the angst that people have about the economy but inflation's dropping unemployment has never been lower it's ticked up a little bit but it's it's close to record lows and wealth is also still relatively high and there are better distributional effects with that wealth and there has been for about 50 years. It's not like there's some sea change in the distribution of wealth but during the pandemic some of the lowest quintiles of income and wealth did rise more than some of the highest ones. So there are things in the numbers that we look at and we say you know not bad and in the first half of fiscal 24 generally the economy has been a little bit better than was expected. There are a lot of headwinds that are going to be slowing things in the second half of the year we'll talk a little bit about that. If we look at revenues through October there and across all three funds they're about two and a half percent higher than what we expected and after November comes in there'll probably be about one percent higher than we expected. Both of those are pretty much rounding errors so it's basically revenues are really close to where we expected them to be. Under the covers there's some movement personal income's been strong corporate incomes been weaker than expected you know there are a few outliers especially in some of the categories that are a little bit erratic but overall revenues are very close to target and I don't think November is going to change that too much and I think so November is coming in a little bit light relative to the projections but that's mostly because the forbearance that was granted back in June to July for the payments of some taxes we kind of thought that would be more impactful than it turned out to be so that's part of why revenues are running stronger now and November didn't provide quite as much kick as we would have thought but still positive so you know the takeaway from the revenue picture is things are pretty much on track don't expect some gigantic windfall and there are a lot of challenges in the second half of the year so stay tuned as was mentioned there are crises around every corner that we don't see and we've got to respond to them all we've experienced that with some of the conflict in the Middle East and and elsewhere and so things come out of nowhere and can create real challenges so personal incomes have been the the category that was the the largest overtarget but it's pretty much been balanced by higher refunding than expected in and in corporate receipts other than that estate interest and lottery have been strong but those are really volatile categories so you know in lottery if you get a big jackpot then you're going to get a lot of people playing and you get more revenue with interest nobody really knows exactly when those returns come in the treasures knew at handling this much money in the way it's being handled so some of those returns are just erratic month to month I think we're we're good on the year but that'll bounce around quite a bit and estate taxes are notoriously volatile so that's those have all been strong though that's good meals and rooms has been a bit weak there will be some bounce back in November there that one I think we maybe were on the other side of the coin with respect to forbearance impacts motor vehicle purchase and use has also been weak because the big consumption tax has been weak and that of course is credit dependent but interestingly also vehicle inventories are still really low the the auto strike wouldn't have impacted October revenues but it will to some extent November and so they're just not there's not a lot of inventory out there prices are high and borrowing costs are really high so 80 percent of all new cars and 40 percent of all used cars are purchased with financing and those interest rates are are really high I think it's 7.4 percent on on new car financing the latest APR and 11.2 on used cars that's that's really steep the share of people that pay at least a thousand dollars a month on a car loan hit a record high in the last quarter 17 and a half percent paying more than a thousand dollars a month in car financing so yeah so anyway revenues are very close we'll talk about some of the pieces of it when I say you know generally growth is good you can see kind of uh you know this is GDP change annualized and the last read was 4.9 percent that's not gonna we're not going to stay at that kind of growth but even if it drops a two two and a half that's still uh pretty solid growth and and keeps the economy chugging so that's a plus everybody's talking about and familiar with inflation and where it's going and all that but it's really come down pretty fast it's going to be a lot harder to get from three to two than it was from nine to three and it's going to bounce around some two but this has been surprisingly good we really uh some of us expected it to stay higher and maybe even have further interest rate increases that seems to be off the table right now so uh you know the Fed doesn't want to talk to optimistically but I think it's a hold right now how long the hold is it could be a while and that is what's primarily gradually slowing the economy more and more or the high interest rates in response to inflation but if you look at unemployment that's uh Vermont is the blue line and the United States is a red line you know huge spike in the pandemic but you know we've we've had record lows recently it's ticked up a little bit and so is the United States so in terms of you know if you want a job can you get a job the answer is yes there's a whoops there's a poll the Wall Street whoop there we go poll the Wall Street Journal does with 75 economists and it's just more reactive than anything else but it was the last one dropped the risk of recession in the next 12 months a little bit under 50 percent it had been a little bit over 50 percent but that that kind of mirrors the the general improvement that people are seeing there's a matrix of risks that um uh Moody's analytics who we use for some of the macro forecasting we do puts out and you and and they started doing this they had maybe six or six or eight or so risks that they had and every time they put it out there are more risks there's now there's 20 something risks there but uh as you go up that that uh angle let me see if there's a pointer is that a point yeah it's a pointer um the so as you go up this and you can't see it because this thing's blocking the axis but this is the impact on the economy on this axis and this is the likelihood of any of these things happening so things that are out here would have a really high impact on the on the economy but if they're down low they're not very likely so the thing that's the most likely and the most impactful is still Federal Reserve missteps that they'd keep interest rates either too high or or too high too long and and that's typically what what's happened in the past uh in causing recessions anyway there's a plethora of things that could cause the economy to to to be challenged some of them are self-inflicted things like the you know government shutdowns and this sort of thing but there are a lot of external events that can that can happen as well so I mentioned the interest rates being the the key thing that's slowing the economy that's the purpose of them is to slow the economy the idea is just slow it enough that inflation comes down and it doesn't provoke a recession that's what's called the soft landing and right now the chances of that are better than they looked six months ago but you do see just you know the impact here it's pushed so this is the the federal funds rate the effective rate probably around 5.333 right now and the 30-year fixed rate mortgage is top 7.6% recently it moves around a bit but that's pretty high and then prime rate's even higher than that like eight and a half so and then other interest rates build on that I think there was a slide early on that showed you know the the the interest rate on credit card debt almost 25 percent you know so and and credit card debt has been mounting crazy way to borrow money but it's too I mean it's made to be easy but you know 24 25 interest it's a killer so that's problematic and there've been more credit card defaults lately so that's that's something of a concern so high interest rates impact some sectors more than others the idea is that any anything you're having to borrow money for is going to be more expensive so there'll be less of it but some things are really dependent on that real estate is is is one of those vehicle purchases are another one that we've mentioned and commercial real estate in particular has been hit by both it has regular refinancing needs and there's been a big demand shock from the pandemic so office space is much less valuable and much less needed and so there will be defaults and strain on the financial system certainly and and you know from that sector but it it affects a lot of activity in the economy this is the just the inventories on for vehicles on dealer lots and you can see you know how low that that's been if I can get the pointer there and it's only up a little bit from the worst of the of the pandemic so that that supply hasn't really loosened up and that's limiting purchasing use revenues national housing starts down about 27 percent in the last year and a half so as an interest rates bite there's just less and less new construction home sales are down prices are still up they're going to be dropping but there's been a huge run-up in price so part of that's been asset appreciation in general but real estate in particular housing has been has had record levels of price increased and there have been big cycles in the past I'll show you in a few charts so this is a chart that we run every six months with all you know with the forecast because it shows where Vermont and other states land relative to the last cyclical peak and relative to the last trough in general Vermont and some of the other northern new england states have been moving up that chart if you just look at the second quarter of 2023 and the third quarter data just came in so so the chart before it's based on third quarter data but in the second quarter of 2023 Vermont had the highest year over year home price growth in the country so 10.9 percent was the highest growth price appreciation and second was Maine and you see there that New Hampshire and Connecticut were also pretty high so Maine has been particularly strong on a more sustained basis than Vermont but some of that's pandemic effects where you had a had a much more movement of people migration to some of these areas but it is really straining affordability with housing the this shows that same data over time only for Vermont going back to 1984 and you see there are three big cycles that have occurred in real estate and they're not necessarily coincident with economic cycles but quite often they are when you get increases like this there's only one direction they go so the red bars are actual and the green bars are forecast but there will be a either a steep decline or a prolonged period of slightly negative or very flat house price appreciation in the meantime people at own houses and it's the largest asset that most people own are seeing net worth go up but anybody trying to buy a house is really confronting not only high prices for the house high borrowing costs as well and supplies being limited because people that have a house that might sell it and maybe trade up or move somewhere else will be losing a mortgage that maybe is three or four percent and they have to get one at seven or eight percent and so that's just bringing housing transactions to a standstill and that is implications for the Education Fund and Grand List assessing if there are very few transactions it's really hard to get a clear CLA adjustments so that you're looking at really an equalized price across areas and when there's really quick appreciation like this it also skews a lot of the data so the reason this is important for revenues is that it directly feeds into the Education Fund property tax which is not one of the revenue sources that we forecast in January and July it's one that we just finished forecasting October November and the tax department will be issuing a letter around that maybe they already have but so looking at the Burlington MSA versus the non-MSA areas it's interesting at the start of this the the Burlington MSA is just appreciating much more quickly than the rest of the state but then when the pandemic hit the non-MSA parts of the state really caught up so since the last peak the Burlington MSA home prices are about 80 percent higher and they're about 66 percent higher in the non-MSA the rest of the state there's been a shift also in in in new construction the response to those prices towards apartments and away from single family housing single family housing used to be the the dominant part of residential building in the state and apartments are now higher than that in July it was 62 percent of all housing starts in Vermont were apartments so here's here's what I was talking about with the with the consumer sentiment information so this is October 2023 this is the University of Michigan consumer sentiment survey and you know this this is where it's at this looks like it's in the depths of you know recession I wish that thing on the bottom wasn't there but I I think you tried to move get rid of it last time and couldn't but anyway if you look at the dates that's that's the the great recession and that's where that's where people are saying they're feeling about the economy one you know the disconnect comes when you say well how are you feeling about it normally if you're in the downturn like the recession people aren't spending so they say I feel bad about things I can't afford anything I can't and they and it shows up in spending there's nothing happening in spending so people are complaining about the economy but they're spending like things are pretty good so that's also part of the disconnect and that's where it matters to revenues is if if consumers keep spending we're still getting tax revenue through a variety of sources that that that key off that so this is just you know cartoons about the same one of the things that Michigan started doing on a regular basis just recently is and they did some of it back farther but their big gaps in the data is they started reporting it by party affiliation so they asked somebody if if you identify as a republican or identify as a democrat how do you feel about the economy and you can see there's a pretty extraordinary gap between so the red line is republicans and the blue lines democrats and then the one in between is total the blue line with the dots and independence are the green line that are there so that pretty much right splits the difference but here's the trump presidency right to where the lines cross pretty much and there's the biden presidency now looks like the republicans swing both higher and lower you know from from the the median there's sort of more intensity perhaps around that but but there's a clear you know it lends that people are looking thing at things through and probably more importantly there's a clear lens for where they're getting information about the economy so how it's being cast and social media definitely plays into that where lots of people are only getting news now through social media you had a question uh yeah well savings and net worth are both yeah both really important because that's dry powder that can be used to buy stuff and we're seeing actually a fair amount of private lending too so you know you're getting okay interest rates are high but somebody really wants to sell their home they'll finance it you know they'll provide financing they'll do you know so and then the other thing is is people's expectations about how long they're going to be high so some people say all right i'll go ahead and do it because i i i think the rates are going to drop and then i'll refinance and then and then i could afford it then but i just have to hold my breath for a year or two and you know then and but i still want to get in on it so yeah that that is happening but yeah uh so there was a lot of savings and in in in various to various degrees of liquidity right so some cash some you know things that people bought but but net worth went up dramatically through the pandemic and so that's providing a lot of the spending power that people have and that's diminished rather significantly but still it still there's a fair amount of capacity labor markets are still really tight unemployment rate is one reflection of that anybody who employs you know as a business and and tries to keep or get new workers knows how difficult the market is and um uh job growth is slowed but it's still positive uh fortunately it hasn't been so strong that it would motivate further fed interest rate increases when the economic news comes out now there's always this sense of like if it's too good then the feds are going to react by raising interest rates and you feel like it's a good number but it's bad because it's going to worse than what it was and if it's low then sometimes you're saying oh well that's good the feds not going to get excited about a number like that but this has sort of hit a you know job growth has been a little goldilocks spot where it's not too hot and not too cold and uh still growing um labor force participation has been rising i'll show you a chart on that and especially among older uh workers though is it's well below pre-pandemic levels so that a lot of the loss in labor force participation has been in with with older workers 55 and over wage growth has been slightly above headline inflation um there've been a lot of union actions you it's got a lot of press and and very successful contract negotiations from the perspective of the workers they have more power now so they're able to use that uh and extract uh a lot more it's just that a very small uh share of the total labor force is unionized but those agreements still have impact on on other workers because the other workers see it and say hey i ought to get something and so that does tend to push things up but by wage growth it it's a little bit more than inflation i think that's the the way people perceive that too i think feeds into sentiment because if you get a wage increase that's like five percent or something like that you want to believe that it's not just a cost of living adjustment but that you've done a good job in your and your employer recognizes that and if then you go out to buy things and everything's at least five percent more uh you know from the numbers on the page you're saying oh well your real income's still up a little bit but it feels bad because you sort of thought you deserved more but when you try to turn that into anything you're getting it's so much more you're treading water and psychologically that's that's a downer and um i i do think that's part of what feeds into it and we haven't had inflation like this for a very long time so it's new to to a lot of the working population um so there's a got job growth chart this is you know the the growth each uh each month and you see the green bars are just piling up but they're getting smaller and smaller and smaller but that's exactly what the fed's trying to do that's the unemployment rate and vermont's still way up high as we almost always are so uh very low unemployment um these these starts on job openings and uh the number of people employed i think probably to say more about the tightness in the labor markets than just the unemployment rate but that gap you know the number of job openings and the number of unemployed people you know it's usually usually they're more unemployed than there are job openings right before the pandemic it did you know flip the other way but this uh is unprecedented and uh speaks to the tightness some of that too though is that i think employers that listed job openings because it's been hard to get workers a lot of times they keep listings up in the event that they're needed they want a flow of applicants so that they can you know replace people as needed but uh so it might that may be affecting the data as well but but i don't think there's any question if you talk to employers and and workers and everybody there it's it's still a pretty tight market uh in in vermont uh it's even wider there's an even wider gap uh the data at and small areas like vermont is not as solid so it's noisier but the takeaway it's about double uh if you take the same ratio for vermont the united states is about three jobs job openings for every unemployed worker in vermont and there's about one and a half for uh at the national level so uh labor markets are still tight this is the participation rate that i i mentioned and it's a little hard to see with that scale but you know in in a you see how smooth and flat the line is this is the overall national participation rate dropped during the pandemic and sort of come back it's getting close to where it was but it's not quite there but age 55 and plus it dropped through the pandemic and it's really pretty much flat lined oh you can't see the the words on that i think if there's a printed thing there's kind of anyway he's talking about we're substituting capital for labor and we got robots but they're really smart robots but not so smart that they would form a union so that's anyway um there was a study two days ago that came out from the boston fed that we're always looking at demographics stuff because that's the core of all the economic analysis we do and we'll be updating the single age population numbers for vermont in december when we get new census data but um the boston fed did a study that i think is really interesting you know we we've had a number of efforts to try to do what we can to attract more people and and and workers to the state uh some of it effective maybe but a lot of it maybe not but this is really interesting it showed that 56 percent of the population growth in all of new england between 2010 and 2021 came from foreign born residents okay so we can't affect immigration law we you know that's a federal thing we we you know we can't say we have a different immigration policy in the united states but we can probably affect uh how we welcome and treat and process and such immigrants and it might even be easier than competing for general workers in other states to focus on this the thing that jumped out at me so you look at every state in new england they've gotten a pretty big chunk of growth between 2010 and 2021 from foreign born residents vermont is down at the bottom there at minus two percent so we got nothing from that that would be pretty substantial um and maybe would be a more effective policy angle than just trying to compete saying oh well we'll just pay any worker that comes here i mean what are the things that are needed to help integrate people into the economy but that's a pool of people that we could actually perhaps more effectively recruit but it's um it's dramatic in in how substantial it was for all of new england and how minuscule actually negative slight negative it was for vermont anyway just a piece of news that we had so um and you don't need to see the caption for that uh it's just something like you know clear as mud anyway if there are questions um i could we can do some some now yes sir thanks thanks tom um again for all these numbers i i would say the consumer part of the consumer upset you know isn't so much being able to buy things like you know online or what we measure but speaking personally you know our my health insurance is going up 500 a month um interest rates i can't move um i've got a less than a four percent mortgage i can't move so if i'm going to pay a thousand or if i'm going to pay a thousand dollars for a car i'm not going to buy a car those are the things that are i think difficult to measure in our world i mean i keep pointing back to the fed all of this is the fed it's the cost of money and so where does that leave us with all of these other things that we want to do i want to see us build more housing too but if it costs twice as much of our of the of the way that we funded money into vhcb and other organizations to build funding and if it's costing those you know if we're getting half as much yeah housing with the same amount of money as we did five years ago um you're not a policy person i can't ask you what are we supposed to do but um i died to me that's why people i think have this real unease is that the cost of borrowing the cost of and we live on credit is um it's way it's way out of whack with what it's been yeah and you know if if the fed hadn't raised interest rates to try to slow inflation it would be ringing its way out or working its way through the economy simply by high inflation so you just have really high inflation you'd still have all the demand going and everything but it would be really high price increases for a pretty long period of time some of which can get baked in but yeah pick your poison it's it's uh it doesn't make it easier i think the only silver lining i mean here's what the fed would say is they're not going to have to keep them there this high forever i mean the highest in 25 years so the hope is that sometime next year and and this is why the markets were so ecstatic the last couple days is they you know they they saw hints that there could be uh maybe some interest rate reductions as early as the spring i don't think that's gonna happen but even if it was mid-year it would start to relax things so i think that's that's the hope but in the meantime it it they're not wanting there to be as much activity such that you know demand comes more in line with supply but it's um it's a very narrow way to address the problem because you're doing it all through interest rate set sensitive sectors and that's not sort of spreading the pain evenly yes is there a way to discern uh the economic well-being or parse it by socio-economic level that is to say um those above the median income of vermont are have higher or lower unemployment wages are rising or lowering when compared to those who might not have as high incomes etc by household thank you there there's some of the economic metrics are are broken out that way but not very many uh so um i with respect to income we look at that um so if you did quintiles of income in 2022 which is the latest data for that there was a little a little bit better performance at the bottom end and some of the wage increases too have been slightly more now they don't make up for 20 or 30 years of growing disparities but wage gains at the bottom have been a little bit stronger than wage gains in the middle and so it it just is based on the mix of industries that need that are needing people at any given time and you know what that competition is um yeah i wish i i wish there were data in more of the indicators that would do that yeah tom since you flagged vermont's performance or lack thereof of attracting in migration from the foreign born i don't know whether your curiosity got you to look and ask the question what are the other states doing uh after your comment of our scattershot an unsuccessful strategy thus far uh this study just came out two days ago uh the the guy who wrote it is a friend who's at the boston fed so i i really want to call him and i've got a ton of questions but um i yeah i just found it really interesting and uh and something we can actually do something about you know because it's sort of when you think of like well what does an immigrant confront when they come here you know language and and culture and customs and uh transportation and just getting integrated with society and i know we have efforts that do that it's not that there's nothing but i think that's exactly the first question to ask is you know what are some of the other states doing that we could replicate and how could we expand i i have to comment i was reaching recently lobbied by the local adult basic ed people saying you know here we are we're ready to do this but uh the word isn't out and the resources aren't there yeah okay well that's that's kind of where it stands but just just seems like an area maybe that we could spend a little time with that that's all yeah other questions yes thank you so much for this briefing i'm curious about the levels of credit card debt increasing my understanding is during the pandemic because of the one time funds that were provided to people that they used that to pay off their credit cards so are we kind of seeing us just going back to pre-pandemic levels of credit card debt yeah i think credit card debt is close to pre-pandemic levels but interest rates quite a bit more and um so that is a way that people have sort of maintained spending and is a little bit of a train wreck waiting to happen and so defaults are up too but yeah i think that's how some people are having to cope with inflationary increases and but i can't see it ending well okay oh allison so tom i'm just curious about the impact to go back to your house sales and the challenges of you know selling a mortgage that you may have at three point percent and having having to shift gears what impact is this having on our property transfer tax because well i think we are gaining by more expensive houses being bought at a higher level um we're also losing because very few houses are being bought so what do you anticipate because obviously we fund things we care a lot about in terms of housing with that tax i think it's a net loss for the property transfer tax so it's it's a little bit less revenue and it is a category that's running behind our expectations not hugely but behind and and that's that's the reason i think they're just so few transactions and um but but i think it also raises that issue that i mentioned before that it's really hard to calibrate what the what an equalized value would be if you can't get a good market read and if you can't get a good market if there's too few transactions it skews that and then if you go to a broader area or more you know different types of structures you know you can get a big big enough sample size but then you're you're uh sometimes compromising the accuracy of the geography or the type of building yes well thank you tom for the presentation today um one question i did have regarding some of the information that was put up there i did see the graph regarding the trends um on the increasing side regarding consumer spending now in terms of the consumer spending how is that quantified was that quantified in terms of uh taking out loans for homes cars things that things of that nature or is that just lumping all consumer spending including basics like groceries and what not as well that's that's a really aggregated category that covers a lot of things and then there's things like retail sales and retail sales without motor vehicles and without food and with you know so you can slice and dice it a lot of different ways but consumer spending has slowed but it's you know but it's still plugging along it's not it's not it's not reflective it's not consistent with sentiment at all and usually those two are much closer you know people's sentiment is negative and that's that's where they pull back and the reason consumer sentiment matters is that it affects consumer spending if it doesn't um as economists we wouldn't care about it it's just chatter then um but how people act is what affects revenues and affects jobs and all that kind of thing so that's where but it's unusual to have that much of a disconnect so in order to follow up with that question real real quick and i won't spend too much time on this but is there any way to possibly get that data broken down in terms of age demographics um one one issue that's been touched upon in the state is that our workforce is getting older and we're having less and less young people in the state so i'm just curious regarding the spending habits because we're seeing this data saying that okay we're spending more money but if you have a higher age population that has more of that economic influence then it makes me wonder the next generation it's supposed to be filling those employees are retiring um in terms of the economic resiliency that they have um so that's one thing i'm particularly curious about if that data is available by chance yeah that's that's a complex topic is sort of you know what are all the different ramifications of an aging population on fiscal and economic activity in the state and some are intuitive um and some are counterintuitive so a lot depends on the wealth and income of the individuals not necessarily how they're getting that income so the idea is oh you're old but you're not so you're not working so you're not paying in and therefore you know somebody else is having to support you in effect and if the old person has a lot of income uh which quite a few do uh they're doing more for the you know supporting the fiscal strength of the state by paying taxes on that income and somebody who's younger and earning less by getting it through wages uh so it's it's it's complex but it's it's definitely something we look at and uh if you'd like to get into some of the details maybe after the presentation or or further shoot me an email or let's have a conversation lunch or something at tom why don't we take one more question and one more question thank you i have a question over here over here whoops can we have so let's do two so um real estate sales analysis right now are analyzing sales that took place in the boom which is causing the cl a to be artificially high at this point so when the real with the real estate market tanking so to speak um will that not cause towns that reappraise to have artificially high appraisal values i mean it doesn't hurt to have a high grand list but for citizens of vermont to have their homes appraised more than what they can sell them for is not a good situation yeah no i think anytime there's a big swing up or down and given the lags in the way these things work it creates a certain amount of chaos and and and unfairness and i'm just saying what's happened in the markets is is going to work its way into a lot of chaos and you'll probably hear about it from constituents and it won't be easy for pbr and town officials and assessors to sort through uh because statistically it's going to be hard to just use the same old book and and get values that are you know that everybody's happy with and thinks are fair yeah okay this is really the last question okay tom thanks i'll make it an easy one especially thinking about the labor non-person non-participation when i speak to vermonters who might want to work i speak with employers who might want to hire one one thing that comes up again and again is the opioid crisis associated crime and you know issues coming in and out of incarceration do you see that in the data it it's a it's a huge issue and what we've seen is that when the labor market gets this tight it actually does start to bring in some of the some workers who would be considered less employable than usual so to the extent it can give people a chance that's really good you know they may have a bad record or they may have a bad have had a really tough time but maybe you know they're over and they'll be given another chance because it's so hard to get workers but uh yeah it's it is there are a lot of things that have reduced participation but mental health uh certainly drug use and and job performance in general uh those are uh important components the whole thing okay if i might and i i understand there are several questions in the chat i apologize for not getting to them the if you have questions please email ask jfo at leg.state.vt.us and we will respond to you that way um and thank you tom for your discussion on the economic and revenue review um next up is a jfo presentation and there are some familiar faces but have new roles so i'm just going to briefly walk through who the order of presentation and then they will take over uh maria bellovo is the associate fiscal officer with the house appropriations uh chris rupe is now an associate fiscal officer and he's leading the revenue team and emily burn is now the deputy and she is in charge of the budget team and i will turn it over to you hello i am maria blair and i would like to welcome you all to the joint fiscal office briefing um we have about a half an hour to present several slides that focus on providing content for developing the fy 25 budget this includes a review of revenues and appropriations the status of federal funds and identifying some of the pressures that the general assembly will likely have to address we will answer the questions regarding the fy 24 revenues and appropriations as follows where does the money come from where does the money go what does the money buy i think i might be going too fast okay sorry um so there's three key pieces of information that we'd like you to leave this briefing with over the course of the past few years vermont has been the recipient of an unprecedented amount of federal funds in addition vermont's general fund revenue collections have been very strong because of the large amount of both federal and state funds the general assembly has made some significant strategic investments many of the investments made by the general assembly will roll out over the course of several years the third takeaway is that the official revenue forecast projects at the rate of growth and the general fund will return to more normal levels this was one of the things that tom kevett just spoke to you about as revenue collections return to more normal rates of return the general assembly may be constrained in its ability to make new discretionary expenditures we included this slide for those of you who are not familiar with the joint fiscal office and there are some out there are not um while we were putting together this slide it occurred to us that this is the 50th year that the joint fiscal office has been in existence we were established in 1973 to provide nonpartisan analysis of fiscal issues before the general assembly per statute we serve the four money committees so that's the house and senate committees on appropriations the houseways and means committee the senate finance committee in addition to these committees we staff the house and senate transportation committees as well as the house and senate institutions committees the staff the joint fiscal office is also available to any committee or member of the general assembly we strive to serve all who request assistance now we're going to move to a discussion of the context that you will be working within when developing the fy 25 budget we included the next two slides to review some of the things that the state has had to contend with over the past several years these events and issues are not the sort of things that we generally are faced with and they have tested the ability of the state to respond this list does not include every issue and is not in any particular order of significance as you build the fiscal 25 budget this coming session many of these things on the list will be part of your discussion first on the list is natural disasters vermont experience significant flooding this past July and will continue to address future disasters the opioid epidemic is still very much with us the COVID-19 epidemic has faded somewhat although people are continuing to become sick and the effects of the disruptions that the epidemic caused are still being felt around the state vermont has struggled with the high cost and access to child care access and the scarce child care labor force continue to be issues vermont is officially the state with the second oldest average age in the country behind main this impacts the economy the labor force housing and a myriad of other important issues to our state as you are aware vermont has had the benefit of unprecedented amounts of federal assistance over the past few years much of it related to the COVID-19 epidemic these funds provided the state with opportunities for investment to support vermonters in addition to the federal funds vermont's general fund revenues have been very strong as noted the official revenue forecast does not include this level of revenues moving forward vermont has experienced a significant shortage of housing especially for low and moderate income households in addition the inadequate housing inventory in vermont is challenging the state's ability to shelter the homeless population the next bullet point refers the economic environment that we all are living within although inflation is eased somewhat we are still experiencing the effects of inflation as well as the effects of high interest rates the final two bullets reference the high rate of turnover in both the general assembly and with staff throughout state government and this has resulted in recruiting challenges as well as high vacancy rates so now i'm going to turn you over to chris rupe thank you maria all right as most of you probably know there are three major funds of state government that pay for the vast majority of programs and activities the general fund the education fund and the transportation fund we put a little graphic here just to put into context how much money comes through these various funds in the overall picture of the state budget you also see that federal funds like all other states federal funds make up a very large share of our state budget and we also have dozens if not hundreds of special funds that contribute on pretty significant amounts of money to supporting our state budget each of the three major funds the general fund the ed fund and the t fund all have their own dedicated revenue sources their own dedicated tax streams you can learn more about each of these taxes if you look at the fiscal facts book that jfo puts out at the start of every year which is also posted on the jfo website we update it every year so let's start with the general fund you know the major fund that supports state government with state tax revenue the one that you all probably spend the most time thinking about is the general fund the general fund is a relatively flexible pot of money and it's used to fund a wide range of government services and operations the major revenue sources are expected to generate 2.1 billion dollars for the general fund this year in f y 24 you'll see here from the graphic that personal income taxes are by far the largest source of revenue to the general fund brings in more than half of the money corporate income taxes are another major revenue source but there are also lots of other taxes that bring in smaller amounts of money for example the general fund receives 69% of the meals in a room's tax and there are also things like health care revenues here that show up those are your tobacco taxes your provider taxes those funds run through the general fund but ultimately are used to help us match our federal Medicaid funds you'll notice here that interest income is on the list that's been a substantial source of revenue recently it typically has not been a very big source of revenue but our state's cash balances have been unusually strong these last few years due to a lot of the federal covid relief money that has come through and obviously interest rates are at levels that we haven't seen in several decades so interest income has gone from just being a few million dollars a year to being a pretty substantial source of general fund revenue this year that's not expected to be in perpetuity though as the cash balance starts being spent down in future years let's go to my favorite fund the transportation fund the second the second one i'm going to talk about you've all heard about the t fund it's expected to bring in about 304 million dollars this year the t fund primarily supports the agency of transportation which includes dmv but it also supports the costs some of the costs of operating the vermont state police and bgs much of the t fund is also used to match federal transportation dollars that we get in vermont is a big winner when it comes to getting federal transportation dollars the t fund is where the gas and diesel tax revenue goes along with the fees that dmv collects for things like your vehicle registrations and your driver's licenses the t fund also receives two thirds of the revenue from the purchase and use tax which is like a sales tax on motor vehicle sales and registrations the ed fund gets another third of it and there's also some miscellaneous revenue sources that are smaller over time the purchase and use has grown as a contributor to the t fund as a demand for vehicles has been stronger in the pandemic area era and prices for vehicles has increased the gas tax on the other hand has continued to diminish over time and that trend will likely accelerate in the future let's look at the third major fund the ed fund the ed fund is expected to bring in about 2.2 billion dollars this year the ed fund is a little bit unusual the ed fund is driven by spending decisions rather than the amount of tax revenue that's available in the forecast what i mean by that is all of your local schools make their own local spending decisions those spending decisions made at the local level along with the spending decisions made here in terms of appropriating ed fund dollars dictate how much money needs to be raised out of the ed fund in the coming year there are non property tax revenue sources that are dedicated to the ed fund such as the sales and use tax the quarter of the meals in a room's tax the third of the purchase and use lottery proceeds what comes in from those non property tax revenue sources gets factored into the funding equation so we figure out how much needs to be raised based on the spending demands on the ed fund how much is likely to come in in revenue from those non property tax sources and that difference needs to be made up through the property taxes which are set every year so these major funds are a big part of the revenue story but they're certainly not the whole story like other states vermont receives billions in federal funds that share which are reflected throughout the budget and often require a state match to draw down vermont also has what we call the global commitment fund to support medicaid and other health investments and hundreds of special funds that are set up to fund specific things the capital fund is something that our institutions committees are very familiar with and that historically pays for physical construction projects with a relatively long useful life often using bonded or borrowed dollars but in recent years we've been paying for more capital projects using cash rather than borrowed funds now let's pivot back to the general fund this is my doom and gloom slide this figure shows you how the available general fund revenues have trended over the last two and a half decades not adjusted for inflation and the blue line and then the red line is adjusted by inflation to be in 1998 dollars so one of the things that really jumps out when you look at this is that revenues are not a perfectly straight line you actually see dips that correspond to times of economic challenge you can see the great recession in the the late 2000s really impacted the general fund look at the recent years though in the early to the early 2020s that coincided with the COVID-19 pandemic we had a really really significant spike in revenue collections for a few years really peaking in FY 23 but look at the forecast on the right side for the future years right now the the July consensus revenue forecast actually expects general fund revenues to dip down below the FY 23 levels and not exceed those FY 23 levels again until FY 27 so what I'm trying to show you here is that the COVID era really juiced up the general fund for a time but we're starting to see that momentum slow down and we expect revenue collections to start to reach the more modest levels of growth in future years that Vermont is accustomed to seeing before the pandemic era this slide shows you the year over year changes in percentage in available general funds so you'll see here that in times of economic difficulty we had negative revenue growth which relative to the prior year which you'd kind of expect but COVID-19 and 2022 really really spiked up in a year over year revenue gain but moving forward those gains in year over year revenues are expected to be much more modest they're expected to be much more like what we've seen in the you know quote unquote normal years in the early 2010s where Vermont typically saw growth in revenues way less than five percent a year so right now the forecast expects that those really unusually strong years in the COVID-19 era are going to sort of fall behind us and moving forward our collections are going to look more like what Vermont is accustomed to see it this chart shows you the where the general fund revenues are through October of this year so the good news is that revenues are cumulative revenues through that month are above the July forecast by about 30 million dollars you get to that by comparing that blue column in the middle with the green bar on the right but that's not the whole story because that July forecast expects us to bring in less money in 2024 than we did in 2023 so we are indeed slightly ahead of the current forecast but we're actually slightly behind where we were a year ago the July forecast does not expect the T fund or the ed fund to decline relative to last year's collections but both of those other major funds are also expected to grow at slower rates in the future so now that I've shared that wonderful news with you I'm going to turn it over to my colleague Emily Byrne to walk you through some more details about where the money goes and what we buy with it thank you thanks Chris great to see you all today I'm going to do the expenditure side and then wrap us up hopefully pretty quickly so first we'll go into where the money goes so if we look as Chris had alluded to there has been significant growth in the general fund and other funds over time so this chart just to sort of demonstrate that by showing where we were in 2020 compared to where we were in 2024 when we look at those charts you can see with the general fund we had almost 770 million dollars about 48 percent increase from 20 to 24 and in federal funds we had about 872 million or a 38 percent change in available funds so that's a pretty significant amount of money that's been available to the general assembly to appropriate over the last four years when we look at where that money went we can look at this chart which is a sort of an overview of appropriations from FY24 and you can see two pretty distinct bars on this the first one is about three billion of the eight point five billion dollars that was appropriated last year about a third of that went to human services so most of that is the Medicaid program but other human services related programs you can see by the chart that about half of that spending is federal funds the federal government matches the Medicaid program and the state is required to contribute sort of our share to that so a big chunk of spending is through the human services the next third is for the K through 12 spending so a lot of that is is how the state appropriates local budgets and state the property tax but we think of the budget the two big sections human services in K through 12 education and then the other third is everything else that state government does so the next largest bar is transportation but everything else from natural resources to housing etc is that other third of the of state spending so when we go to so what does that really buy what do we spend eight point five billion dollars on so approximately a quarter of the eight point five billion dollars is buying things like state employees personal services contracts paying for buildings everything from the state house to the offices that state employees occupy software computers hardware etc to sort of operate state government then the remaining three quarters of that money is sort of going out the door if you will that's going to pay Medicaid providers for Medicaid services that's for contracts to pave roads and build bridges that's grants for clean water projects unemployment benefits general system benefits etc those are that money is all sort of leaving state government and going to pay for services for Vermonters so at a high level we think about the general fund as sort of the most flexible fund that's available so we've got about 400 special funds the general assembly has dedicated the revenue that goes into those special funds for specific things so the general fund we sort of thinks about is our most flexible fund that's available but flexible is sort of a relative term when you think about where all that those dollars need to go so in FY 2024 we had about two point three billion dollars in the general fund that could be allocated so if you think about sort of where all that money went the first thing we have to sort of subtract from that two point three is the three hundred and thirty million dollars of one time appropriations that happened in 2024 so those appropriations reflect revenue that's not going to reoccur right we've heard a lot about from the economists and from chris that there was some excess money the general assembly made some one-time investments and things that will not reoccur with that money but we have to assume that sort of that's not available next year then we take into account our sort of long-term liabilities and our debt payments that we have to make so we got to pay speaking about credit card debt we got to pay our debt first of all if we don't pay the debt this year it just makes borrowing and our debt more expensive in future years so we got to meet those obligations this year and we think about those as the teacher's pension and OPEB contributions but also our debt service so after we think about those the debt that we have to pay on an annual basis and we look at the Medicaid program in FY 2024 the Medicaid program was nearly 650 million dollars was the state share so once we pay for the Medicaid program then we put we thought about the corrections system so to the extent there is a population of folks that we have to take care of in the correction system that's another 180 million dollars of general fund to pay for that after that there's about 400 million dollars that goes to other human services programs so that's everything from childcare subsidies to GA and emergency housing child protective services etc so those six things so that's only six gets us to 1.8 billion dollars which is about over three quarters of the general funds available so on the one hand that's six items 75 percent that's a lot but then you may say well Emily that still leaves 551 million dollars that's a lot of money we can do a lot with 551 million dollars which is true except for we think of all the other things that state government is responsible for taking care of and that 551 million dollars has to pay for everything else so that's all of the elected offices in the executive branch in the legislature the attorney general's office treasurer etc public safety including the state police housing natural resources programs economic development programs the agency of agriculture labor and workforce development the judicial system including the courts the state's attorneys the defender generals the general fund costs related to state employees higher education contributions made by the state the requirements that the state has to match federal funds the homeowner and rent to rebate to fund the tax department to make sure that the money actually comes into the state climate change mitigation and resilience expenses and other core services so just wanted to sort of demonstrate that yes 200 billion two billion dollars is a lot of money but once you actually look at and parse out where all that money has to go there isn't very much left at the end so at a high level just wanted to do you know talk generally about best budgeting practices best things to keep in mind when you're thinking about the budget we talk a lot about base versus one-time revenues base revenue are really the revenues that reoccur and you want to use those base revenues to cover your you know reoccurring costs so when I think about the budget I sometimes compare it to my own personal budget so that's thinking about my mortgage or peanut butter or groceries or gas right we want to make sure that I have money coming in all the time to pay for those sort of those reoccurring costs then we have these one-time revenues and you want to make sure you set aside the one-time revenues for things that aren't necessarily going to reoccur every year so I have to get my chimney reliant next week right I want to make sure that the money money that I've set aside and saved I can use to do things that are those like one-time expenses reserves so one thing that the state does have I just wanted to touch on we do have significant reserves and these are important this is money in our savings account for just in case you do need to get your chimney reliant so your house doesn't burn down right or other sorts of things that are unexpected a good example of this is say there was a global pandemic and we don't really know what's going to happen to state revenues when that happens knowing that we had cash in the bank and that we had money reserved to help continue to operate state government as we figured everything out was really critical it's also an important thing that rating agencies look at to make sure when they look at whether or not they're what the state's borrowing rate should be is the state being physically responsible and setting money aside it's just good financial planning to make sure that there's some money set aside in our savings account so there are several different types of reserves the big one is the statute stabilization reserve is sort of what we think of statutorily it's typically five percent of prior year appropriations there are other types of reserves that we have there's a rainy day reserve there's one up there that's called the 27 53rd reserve which is our sort of forward payment on the 53rd week of Medicaid and 27th payroll week that financial anomaly that happens every once in a while and rather than have a one-time expense we've decided to amortize that and set money aside so there's money set it aside in anticipation of the expenses we've also created a PCB reserve in the education fund to help school districts that find that they have PCBs in their buildings and need a little bit of extra financial help to take care of that so we'll do a real quick touch on federal funds we talked about you know a lot of additional general fund in the recent years there's also been a significant amount of federal funds but i'm not going to get too deep into it because marsha howard is going to speak in more detail about federal funds but so we're starting to return to business is normal when it comes to federal funds um vermont is often sort of a winner when it comes to federal funds because we receive what's called a small state minimum a lot of grants most federal grants are allocated on a per capita basis unless the population of your state is really small compared to other states so those states with small populations like vermont sort of receive a minimum amount of federal dollars so we get more on a per capita basis than larger states um federal grants typically typically have lots of strings attached and are used for very specific purposes so the feds don't generally just write us a check and say do whatever you want they say you got a target it for specific purposes they may require that the state have skin in the game and includes matching requirements and additionally sometimes it says you've got to maintain your level of service to two citizens of vermont otherwise we won't continue to provide the funds and federal funding is always complicated by things we hear in the news um so well what's going on in congress and how federal agencies are interpreting the congrats what congress has passed luckily right now we're sort of past another shutdown window but there is another one coming in january and february and how those federal funds will get dealt with in continuing resolutions is something i'm sure marcia will go into way more detail on um so this slide is just like a high level reminder of what we did with all of the one-time federal funds that came through so those federal funds had specific limitations on what they could be used for and this chart just shows where they were appropriated in 20 in the fy 22 and the fy 2023 budget so economic the economy workforce development housing broadband climate change and clean water programs so one of the major pieces of federal legislation that we hear a lot about is the american rescue plan act often called referred to as arpa one of the arpa funds were given to the states vermont got over a billion dollars um and given a certain time frame to spend those dollars and there's a lot of terminology that's thrown around around these federal funds and just wanted to make it sort of clarify what those are so um by the end of december 31st of 2024 the state has to obligate all of the american rescue plan act and what obligate means is that it's committed in a grant or a contract or a purchase order where there's been a commitment to buy something with those dollars is what obligated means obligated does not mean appropriated so the role of the general assembly is to give the executive branch the spending authority to make those obligations and for the most part most of those dollars have been appropriated by the general assembly and the executive branch is out obligating those dollars the arpa funds must be expended by december 31 of 2026 and expended means is that we've paid an invoice we've written a check we've said somebody has completed the grant or contract work that state government has asked them to do and we have given them the money for that currently um most of the funds have been have been appropriated they are working on obligating and expending those dollars as we speak um and one of the things that's important about the arpa funds chris alluded to the fact that interest rates the interest income for the state has gone up significantly this is because unlike most federal grants the federal government with arpa gave states the cash upfront typically what happens with federal grants is the state spends the money tells the federal government we did what you asked you to do and they pay us back in this case they've given us the money upfront which means and they have allowed states to keep any interest that they earn on that money which is great for our balance sheet however that at the end of this us treasury will come and look and see what we've actually expended and they are to recapture those funds that haven't been expended or obligated so we will have to give back anything that we haven't spent at the end of 2024 so a quick look at fy 2025 so each summer so in august the governor sends budget instructions to agencies and departments the budgets instructions that went out this fall this summer asked agencies to keep their spending increases to three percent of their fy 2024 appropriations so it gave them a little bit of an increase but just for context there were a lot of there are a lot of cost increases that these agencies and departments must manage that includes a 15 percent increase in health benefit costs the pay act in fy 2024 included a two percent COLA and a 1.9 average step increase for state employees there's also inflationary costs that impact the cost of doing business for state agencies internal service funds which cover the sort of internal overhead operations of state government from everything from buildings to the HR to HR and IT services costs are going up additionally the child care the state government has to pay the child care payroll tax that was passed last year so they need to absorb the increased expense associated with that there's the new family medical leave insurance program and increased retirement system costs all need to be absorbed within that three percent increase that was outlined in the governor's budget instructions so just to bring this point home again right after several years with additional federal stimulus an extra robust general fund our revenue growth is projected to kind of go to go back to normal and those additional federal funds we've received over three billion will not reoccur going forward jfo sat down and you know sort of went through what are the some of these big spending pressures that are facing vermont that will have to be managed in the budget and this list is not meant to be everything but just at a high level some things that are spending pressures that will be challenging in the next budget development so we continue to have unfunded liabilities and there continues to be cost pressures associated with those flood recovery and required FEMA match to help communities that were impacted by the floods in July additional housing initiatives issues associated with the opioid epidemic there's continued caseload and programmatic pressures and diva and the Medicaid program and dcf emergency housing and in the reach out program as we although apparently time didn't know the letter came out yesterday we all know that education spending has gone up is going up significantly and will be a cost pressure i'd be remiss if i didn't know that that December letter is the sort of starting place for education spend the education spending conversation it sort of says you know based on what we know and the information we have today this is what we anticipate education spending to be and what tax rates will be as a as a result of that obviously local school districts take that information and go back and do work and come up with actual budgets and those budgets and ed spending will be settled in this you know come winter and then ultimately at town meeting day we'll be able to finalize those numbers but the letter was really the starting place for that conversation for districts in the general assembly some other issues so the the pay and cost of state employees this is a year where the state employees union will be negotiating with the administration a new collective bargaining agreement it projects are constantly an area of spending need there are federal match requirements for FEMA and other places in state government inflation continues to be a pressure climate change mitigation and resilience discussions and there's also demographic and workforce challenges that sort of underlie revenue collections and a lot of things going on in the state so for the upcoming session just some things to keep in the back of your head in terms of best practices when it comes to budgeting so funding those base expenses with ongoing revenue and strategic investments with one time funding being diligent about the revenue outlook in future years in relation to inflationary costs and expense pressures not only do we have to think about what spending decisions mean for this year's budget but sort of what do they mean in the out years and going forward understanding and maximizing federal funds and where matches required assessing and understanding the status of current program investments and whether or not need changes need to be made going forward and continuing to pay down and manage the state's long-term liabilities so this is this slide is a repeat from the first the slide that Maria spoke about the beginning and just some key takeaways hopefully we've managed to drill some of these down through this presentation but so in the last few years we've received an unprecedented amount of both federal and state funds that aren't anticipated to reoccur in the coming years increased revenues in the past couple years have resulted in significant one-time investments and these funds will be spent over a period of years and we'll see the fruits of that labor in the future state revenues are effect or anticipated to return to a sort of more normal rate of growth in 2025 and there will be demographics will challenge that it may mean that requests for spending will likely outpace rev available revenues and producing a balanced budget may be a challenge this year i'd be remiss again if i didn't give a shout out to the jfo website at the very end of this you can get to it either by going to ljfo at vermont or davramont.gov or you can get to it directly from the general assembly's website and there's a lot of good information out there about a lot of the issues that we spoke about in budget documents but with that i will take any questions yeah thank you very much for your presentation so you spoke about the recapturing of funds in 2024 is there any way that the federal government could dispute funds that we have obligated and in addition to that is there anyway a new administration could claw back funding that we've already appropriated or recapture things that we might have expected sure so i think that um there will obviously be a lot of back and forth with the federal government when we get to that time period in terms of what will be you know state government has done its job to document and ensure that they have the paperwork that says we've obligated these funds um i can't speak to whether or not a future administration could do anything with funds that have already been allocated um that's that's a legal question i think do we have time for more is there one more okay yeah sure i haven't heard can you tell me where the cannabis revenue has ended up the cannabis revenue um i don't know off the top of my head but we can get back to you on that it is doing better than we anticipated yeah i just want to apologize to the people on zoom we are having some technical difficulties with the chat function so apologies up front um i'm just going to ask you one more time to use ask jfo if you have a question and we weren't able to get to it should we do peter okay peter representing anything yeah thank you very much emily uh has there been any kind of structural shift in the balance of expenditures between labor that is to say wage costs as opposed to capital expenditures or um investment uh as a result of some of the uh extraordinary investment by the federals in vermont's economy uh that's a good question and we haven't really looked into that i do know i mean most of the the one-time money was made in capital type investment so long-term infrastructure type projects rather than paying for you know the ongoing costs of state employees if that's i just ask that because to the extent to which that investment in the longer term is results in labor substitution then the structure has changed thanks great thank you please thank you that is some food for thought and now we're going to hear from marsha howard she's the executive director for the federal funds information for states she helps to translate federal proposals and and bills into terms that we can understand and marsha will be on zoom i think uh we'll see if we can take her live marsha are you there we'll see just a moment marsha are you there i am here yes wonderful there you please you it's all your show now okay once i figure out how to share we're going to be good there it is sorry that took too long good morning vermont legislature i happy to be with you again this year and sorry it's not in person i am mindful of the fact that i stand between you and lunch so um i will get right after it and and see if we can get through this and shave a few minutes off your um your agenda so i'm going to talk a little bit about the big picture and then you know start at 50 000 feet and then move on down getting you know closer to 10 000 5 000 to talk about some of the uh impacts that federal funds have on vermont at the very highest level you know we talk about grants but really federal funds find their way into states through four fiscal flows grants are one procurement or buying things when the feds buy things that's a second salaries federal salaries are a third and then the fourth and largest is direct payments and i mentioned these four just because we do so often focus on grants to the exclusion of the others even though the others while they don't necessarily contribute to the state budget resources directly they certainly contribute to the state's overall economy and we can see from this chart over time that the trend has been very heavily for direct payments to drive those federal dollars into states you'll see on some of these slides that my data end at 2019 and the reason for that is that through the covid pandemic federal funds were so different from what they are on a baseline year that we have tried to take those out of some of these numbers just to give more of a sense of what things are like absent some extraordinary event like the pandemic and the effect that had on the flow of federal funds generally so let's get down to what we do talk about at federal funds information for states which is the grants piece of those flows we'd like to present this slide and again this is from 2019 if it were from any year after that these high pieces would be very different but this is more what they're likely to be over so when we talk about federal we're really in the federal budget process mostly talking about that slice at the bottom that's non-defense discretionary the other pieces are mostly already set in federal law and they think the congress doesn't have that much say over them except in unusual circumstances so of course we know social security and medicare you know account for a large share of the federal budget but we have Medicaid well and of course those are grants to states but they're very targeted to a specific purpose then other mandatory there that that's some of your larger entitlement programs that you do run and of course defense is down there and that's a large piece and the other one that you know really bears consideration now is net interest because as the congressional budget office does projections of future communities on federal spending that net interest money uh sliced going to get bigger and bigger both because the federal government spent so much money during the COVID pandemic but also because interest rates are rising and so the modest interest that federal government has had to pay up to now is probably going to start to grow rather significantly going forward it was mentioned in previous presentations that the federal government you know really stepped in to help states during the pandemic and it's often true that the federal government steps in to help states during recessions so if you look at this chart the blue cars show the federal funds that are spent by states in each year and what they represent as a share of state spending and if you go back to the far left you can see that there was a recession around the 2003 number of extra federal fiscal relief of fiscal years 2009 2011 and 2013 we have some of the money from the recovery act after the great recession and then we see of course a big spike in federal funds spent by states in fiscal year 2021 and that those federal funds counted more than 40 percent of state spending in that year so really a huge increase in the role of federal funds in state spending during the pandemic when we look at how states do on grant funding and which states get a lot in which states and again this was referenced in earlier presentations there are really four major determinants one is your state Medicaid program do you run a robust program how what's your federal matching rate look like there are about a dozen federal or a dozen states that receive the minimum matching rate of 50 but for the other states those Medicaid matching rates vary and of course the more the federal government pays that means you're getting more money into your state for that program and did you adopt the American the Affordable Care Act Medicaid expansion when we look at how states do on grant funding in general the states that have adopted that expansion receive more federal funds on a per capita basis which makes sense the second is income and poverty and so many federal grant programs are driven by formulas and so many of those formulas have components that look at income and look at poverty as criteria formula factors for distributing federal funds so everything else being equal a lower income state will receive more federal funds a state with high poverty will receive more federal funds the third criteria or factor is population and this just came up in the previous presentation about these small state minimums these ensure that states that have you may have a low share of the national population but the small state minimum guarantees every state say at least two and a half percent of funds and in a state like Vermont your population is well less than two and a half percent of the national total so you really benefit from these small state minimums but in addition it's the demographics of your population we talked about Vermont being an older state and so as an older state you'll end up doing you know more of the funds that target that type of population in a state like Utah that's a very young state it may do better on formula grant programs that target school age population for example and then the final one is geography and this is not such a big factor in Vermont and other states east of the Mississippi in general but a big issue out west and we just put out a brief today on federal minerals management payments and if you're New Mexico or Wyoming that's a huge source of income for those states if you have large federal land holdings you get fair some of the income that's derived from extracting minerals from those lands so natural resources can really drive a different federal funds and how this plays out for each state is shown here and this is from fiscal year 2022 so it's a little more up to date and you can see that nationally grant federal grant funding per capita was just over $2,700 and then there to the right you see Vermont which does do well at $33.59 and of course the District of Columbia is an outlier because it has a special relationship with the federal government but next to the District of Columbia you'll see New Mexico which I mentioned and New Mexico has sort of a perfect storm in this regard because it gets a high Medicaid matching rate it has a high poverty rate as low income so it sort of wins it under all the criteria as you see there Vermont sounds quite well and many of the states that benefit from that small state minimum are clustered on the right of that chart and the notable exception I guess is New York and New York mostly does as well as it does because it has a very large and very expensive Medicaid program looking at the grants and how they flow and where they come from most of them come in the area of health it Medicaid is the tail that wags the dog as it were in federal grant funding so that accounts for well more than half of all grant funding is in the area of health income security is also an important source transportation and that piece probably will grow a little bit as a result of the inflation I'm sorry the infrastructure and investment and jobs act that was passed education training employment and social services are another piece and then everything else is just 5% of that of that total federal grants are a little bit top-heavy so and again Medicaid right you know just as you can see on this graph is about 60% of the money states get is just in Medicaid but this lists the top 10 programs in dollar terms and then what they represent is a cumulative share grant funding that goes to states and so just these 10 programs together account for 80% of all federal funds we've had some questions on this and this has come up a little bit the next two in some of your discussions today about mandatory versus discretionary and I said most of the federal decisions they make are really on the discretionary side and we look at the 224 programs that we track in our grants database almost 80% of those programs are discretionary programs they are and 21% are mandatory programs so most of the programs that states get most of the grants states get from the federal government are part of this discretionary budgeting process on the other hand the dollars associated with it are much different we for this $680 billion here and most of that 76% of those dollars flow on the mandatory side so even though the discretionary decision making affects the majority of programs it affects a relatively small share of the funding that flows to states accounting for only 24% of the total and again this is 2019 so it's absent that that COVID infusion and then we get to non-formula or competitive and formula grants because one of the expenses of state especially in an environment where you're looking at fewer federal funds probably flowing by formula is to say well let's make sure we do any money on the table let's make sure we go after all the competitive grant funding that we can get and so this takes the same day and you can look here and see that if you look at all of the grants out there for which states are eligible the vast majority of them are non-formula grant or competitive grants but then on the flips look at the dollars associated with those grants you'll see that very few dollars are attached to the competitive grants rather almost all of the money really flows through formula programs and so formula programs are way more important to what's available to states but I'd like to say here that there are two really important exceptions to this for recent one is the bipartisan infrastructure law or the infrastructure investment and jobs act and second is the climate law or the inflation reduction act both of these pieces of legislation had large federal appropriations that will be made over four or five or six years and those appropriations fund many programs that are competitive programs for which states must apply to the fund so those are important sources not exactly one time funding but sort of one time funding because a lot of them are like capital type investments in resilience climate various infrastructure broadband those types of activities so there is a large amount of competitive grant funding out there right now that's Vermont and other states should be looking out for over the next few years so pivoting now to where we are in the federal budget process this year it was mentioned that we've avoided a shutdown so far we are now operating under a second resolution the federal fiscal year began on October 1st under this second continuing resolution four of the 12 major discretionary appropriations bills have been extended until January 19th and the remaining eight have been extended until February 2nd so those are listed here and I would call your attention in particular to two I'd say that really account for almost all of the money states get on the discretionary side one of those is transportation HUD and so that expires first batch and labor health and human services and education and that expires in this and under this continuing resolution there are other provisions that are relevant to states there are programs that must get funding outside of the appropriations process I'm sorry to say inside the appropriations process and if they don't get that funding they can't operate so TANF is an important one of those temporary assistance for needy families that program and the funding required for it were extended to February 2nd importantly in this continuing resolution the farm bill was extended through the end of the fiscal year so through September 30th of 2024 community health centers which received mandatory funding got funding through January 19 and those funds those mandatory funds were appropriated at 1.2 billion through that that date and then finally a few programs that are associated with the sort of community health public health center um project data sexual risk of lotus education and personal responsibility education program both received mandatory funds and that funding was provided through the 19th of January in continuing resolution and then secondly the CR delays the of the Medicaid disproportionate share hospital cuts these were passed as part of the affordable care act back in 2010 they were supposed to take effect I think in 2014 and they have been continually deferred deferred deferred so here we are almost 10 years later now and those cuts have still not taken effect and for now at least are deferred until January 29th but certainly likely to be deferred beyond that once final budget decisions are made one of the reasons that congress has been unable to resolve the budget that the house and senate were working from very different play cards may recall that a debt deal was passed earlier in the summer and it set spending targets for the budget process in 24 and 25 and so it appeared at that point that it was going to be pretty smooth sailing with agreement on top line discretionary budget figures but what happened is that the house came in and said we don't want to live with those numbers we want to cut further than that bill than that debt relief bill specifies so this chart shows the difference and it's not all 12 appropriations bills we just took the handful that really have the most impact on state and local governments but the first one is of course you know the elephant in the room and that's labor health and human services and education so the senate numbers abide by the what's it called the deficit reduction act and the house came in with the lower numbers and you can see in just this one bill there's like a 50 billion dollar difference between what the senate's appropriating to and what the house is appropriating to and it carries over into all of the others with the exception of homeland security where the house actually came in higher and the senate is at the lower amount and so look at these numbers you can see that getting to some agreement between the house and senate is going to be virtually impossible until they figure out what that top line would be and these are so far apart right now that it's really hard to know or predict forecast or even imagine how this gap is going to be closed in the coming weeks so the fiscal uh the fiscal responsibility act this law raised the provisions governing how this budget process is meant to go and it's I said it set targets for what discretionary spending could be but they're a little bit they have sort of incentives and disincentives and it's really kind of super complicated but I'm going to give it a shot anyway so the 767 billion is what 2023 non-discretionary spending is was and under the fr a for 2024 the cap spending is 704 billion and that's as I said the number that the senate is working off of and then the house is working off a lower much lower number but then the bill has this provision that says resolution in place as of january 1st then this bill is going to set the discretionary spending target at 1% less than the 2020 amount so that's the 736 so if you're in the you're looking at this and you're like well we can appropriate at the cap and that's 704 or oh sorry or we could just um keep on doing continuing resolutions knowing that eventually they'll impose this 1% cut it's like well we're almost better off doing the continuing resolutions and taking the 1% cut because that gives us more than the 704 gives us and importantly in that bill the 704 is what's specified but there was this side agreement that you may have read about that was sort of based on a handshake that says well we'll do these little gimmicks and we'll do these other little tweaks and other things to boost that 2024 number above 704 and bring it more or less in line with the 767 that agreement can't even they can't even live within what's in the law let alone what was done on a handshake with a former House Speaker outside the law so that side agreement I think is largely viewed as something that's going to fall by the wayside so what we really have here is these three laws and you can see why there could be an incentive for um at least the the Senate and the House Democrats to live these continuing resolutions knowing that the pain will be less from them than it would be from the underlying legislation looking at some more specific things that are happening for states going into the next budget cycle the federal matching rate for Medicaid has been recently announced for fiscal year 2025 and you can see here that most states are going to see decreases in their federal Medicaid matching rates however Vermont is to receive the second largest increase in its federal Medicaid matching rate so even while you're losing the additional federal funds that came from the the the bump up that came during COVID you will be seeing at least in federal Medicaid matching rate and that's a pretty good bump 1.44 on the other hand the flawback is the share of the savings that states received from the part D Medicare prescription drug benefit and every state has to pay to the federal government a share of those savings and it's calculated and the F map is part of what goes into those calculations and happened with the F map over the course of the pandemic what's going to happen in calendar year 24 is that those things are going to go up a lot for everybody and so I guess you know relatively speak this is good news for Vermont because you'll see that your increase is among the lower increases but it's still 15.9 percent so a big increase for all states but relative to many states Vermont is going to do get hurt a little less I guess I would say by that by that increase out there that can help you with this I know there was a lot of talk about matching and maintenance of effort requirements that the state has to fulfill we've just updated our publication that shows all the grants and whether they have these things and how much they are we put out a competitive grant update every week that highlights especially under the infrastructure bill and the climate new grant opportunities that are available to states for tracking appropriations so that when the House and Senate make decisions you can see and compare what those look like from relative to current funding and we have enormous spreadsheets that we've devoted especially the COVID one is actually enormous and then the infrastructure bill and the climate bill as well that track all the money states are getting through all this legislation by state by program by year whole bunch of stuff available to you the joint legislative fiscal office is a big user of our stuff and so I'm sure they can help any legislators who are interested in looking into any of this further and that is all I have to share with you today as I said I know it's lunchtime but if anyone has questions I'm more than happy to answer them thank you Marcia I knew thank you if there's one question I'm gonna I'm looking around quickly I think everybody wants well why don't we break for lunch if you have any questions you can come talk to me and I can connect with Marcia later and we can follow up with that that way and we will see you back here at one o'clock thank you again Marcia thank you everybody who's