JFO Analyses: Linkages Between Economics and Public Policy Issues

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JFO Analyses Linkages BetweenEconomics and
Public Policy Issues

• Economics
• Macro-Economics
• Demographics
• Micro-Economics
• Data and Forecasts
• Policy Review and Commentary

• Public Policy Issues
• State Revenues
• State Expenses
• Tax Policy Impacts
• Public Policy Options
• Oversight Functions
• Special Studies

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Macro-Economics State Revenues
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Macro-Economics State Revenues
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Economic Forecasts State Revenues
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Economic Forecasts State Revenues

• Official State Revenue Projections Prepared
  Semi-Annually, in January and July
• Forecasts of 41 Revenue Concepts
• Consensus Forecast Process With Administration
  Economist, if Possible
• Forms Basis of Official State Budgets
• Available on JFO Website at http//www.leg.state.v
  t.us/jfo/nwslttr.htm

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The U.S. Economy is Again on a Slippery Slope
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Risks of a Double-Dip Recession are Now Close
to 50, Due to

• Lackluster business investment spending
• Sinking equity market values and attendant
  corporate accounting scandals
• Prospects of war with Iraq and oil price
  implications
• Little room for further monetary (or fiscal)
  stimulus
• Tepid international demand and global production
  overcapacity
• Growing concern over domestic consumer conditions

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As the Stock Market Tanks
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Consumer Confidence Wanes
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And Consumers May be All Tapped Out
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The Vermont Economy Enters Perilous Ground
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As Manufacturing Job Losses Wipe Out a Decade of
Growth
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And Unemployment Rises While Regional Economic
Differentials Persist
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Macro-Economics State Revenues

• In FY02, these external economic conditions led
  to the steepest 12 month drop in State revenues
  on record
• Although FY03 revenue projections were not
  lowered in November, virtually all risk remains
  on the down side and further reductions are
  possible
• This recession has been widespread, with
  virtually every state in the country witnessing
  similar revenue declines

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Despite Record Revenue Declines, Vermont
Projections Have Been Among the Best

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Demographic Forecasts State Expenses
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Demographics State Expenses
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Demographic Forecasts State Expenses
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Economics Tax Policy Impacts

• Tax Increases MV Fees, Cigarette Tax, etc.
• Tax Cuts Income Tax, Sales Use Tax
• Federal Tax Change Impacts
• Neighboring State Tax Changes (e.g., NH Income
  Tax, NY, et. al., Cigarette Tax Changes)
• Tax Collection and Compliance (e.g., Diesel Tax
  Change)
• Tax Credits, Tax Expenditures (e.g., VEPC, TIFs,
  etc.)

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Economics Tax Policy ImpactsThe Arizona
Alt-Fuel Debacle

• What Happens When Tax Policy Impacts Are Not
  Adequately Estimated?
• End-of-Session, last minute legislation
• Pet Project of Speaker of House
• No Party Opposition Governors Support
• Federal Highway Funds Threatened
• So-Called Minor Changes to Existing Policies

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Economics Tax Policy ImpactsThe Arizona
Alt-Fuel Debacle

• What Happens When Tax Policy Impacts Are Not
  Adequately Estimated?
• 1 Program Cap Changed to Registered Vehicles,
  Instead of New Vehicles
• Refundable Credit of 30-50 of a New Vehicle
  Plus Fuel Conversion Costs
• No Fuel Use Requirement
• No Resident Requirement for Credit
• Quick and Dirty Estimates of 2-11 Million

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Economics Tax Policy ImpactsThe Arizona
Alt-Fuel Debacle

• What Happens When Tax Policy Impacts Are Not
  Adequately Estimated?
• Potential 400-800 Million Out-of-Budget
  Expense!
• 5-10 of Total State Budget
• Possible 4 Year Budget Freeze
• Program Cancellation Lawsuits Abound
• Speaker Loses Re-election Bid
• Becomes Major Political Issue in Subsequent
  Elections

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Other JFO Economic Functions and Special Projects

• State Economic Model Specification and Management
• Legislative Oversight Functions (e.g., VEPC,
  State Agencies and Departments, Legislation
  Compliance Follow-up, etc.)
• Legislative Studies and Sub-Committee Support
  Functions (e.g., Property Tax Analysis, Livable
  Income, etc.)
• Special Topic Research/Analysis (Fiscal
  Cost-Benefit Models, Electric Utility
  Deregulation, etc.)

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For Further Information, Contact The Joint Fiscal
Office orThomas E. KavetEconomic Information
Systems ConsultingGrandview RoadWilliamstown,
Vermont 05679802-433-1360E-Mail
tek_at_columbia.edu