Education Committee Economic Background and Issue Review Montpelier, Vermont January 22, 2014 Thomas E. Kavet State Economist and Principal Economic Advisor to the Vermont State Legislature Since 1996 Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting 985 Grandview Road Williamstown, Vermont 05679-9003 USA 26 Parker Road Brookline, Vermont 05345-9793 USA Telephone: 802-433-1360 Facsimile: 866-433-1360 Cellular: 505-433-1360 Website: www.kavetrockler.com E-Mail: tek12@columbia.edu
Nov-70 Nov-72 Nov-74 Nov-76 Nov-78 Nov-80 Nov-82 Nov-84 Nov-86 Nov-88 Nov-90 Nov-92 Nov-94 Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 Price Per Barrel - December 2014 Constant U.S. Dollars $150 Epic Oil Price Decline Will Enhance Other Consumer Spending (West Texas Intermediate Crude Oil, PPB in December 2014 Constant Dollars) $140 $130 $120 (June 2008 - $146 per Barrel) $110 $100 $90 $80 (April 2011 - $116 per Barrel) $70 $60 $50 $40 $30 $20 $10 $0 (February 2009 - $44 per (December 2014 - $59 per Sources: Wall Street Journal, Moody's Analytics, KRA
Petroleum-Based Energy Expenditures in Vermont, 2012 Millions of Dollars by Consumption Sector, Source: U.S. Energy Information Administration Commercial $186.2 9% Industrial $140.2 6% Total All Sectors = $2,229.1 Residential $427.8 19% Transportation $1,474.9 66%
Recommended Net Revenue Changes from July 2014 Forecast - Current Law Basis -$10.0 -$18.6 General Fund -$8.1 -$8.0 -$8.6 Transportation Fund FY2015 FY2016 FY2017 FY2018 FY2019 $0.0 $2.7 $3.4 $2.9 $3.1 $1.6 $2.8 Education Fund $3.7 $4.2 $4.6 -$20.0 -$15.0 -$10.0 -$5.0 $0.0 $5.0 $10.0 Millions of Dollars
Real Estate Markets have Bottomed Out but Full Recovery is a Long Way Off Real estate markets are characterized by pronounced cyclicality and regional variation For the first time in more than 8 years (since the first quarter of 2006), housing prices increased on a year over year basis in every U.S. state for two consecutive quarters. As of the third quarter of 2014 (the most recent available), 14 states equaled or exceeded their pre-recession peak levels (ND, DC, TX, CO, SD, NE, AK, IA, OK, LA, WY, KY, MT and KS) Exceptionally weak new construction activity over the past 6 years has accelerated absorption of excess building and set the stage for future growth, as rental vacancy rates are at 20 year lows and household formation rebounds Foreclosures have peaked in most states but are still substantial in some markets. Renewed price appreciation will be relatively slow for several years typical of extended real estate cycles Real estate markets attracting international investment especially large US cities - have experienced some of the strongest price appreciation of late The Vermont Property Tax base (Grand List) will not exceed 2009 peak levels until 2017, putting enormous pressure on tax rates to cover rising education costs
1984Q3 1985Q3 1986Q3 1987Q3 1988Q3 1989Q3 1990Q3 1991Q3 1992Q3 1993Q3 1994Q3 1995Q3 1996Q3 1997Q3 1998Q3 1999Q3 2000Q3 2001Q3 2002Q3 2003Q3 2004Q3 2005Q3 2006Q3 2007Q3 2008Q3 2009Q3 2010Q3 2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3 Vermont Housing Price Declines Are Probably Over, but E-Fund Tax Base Impacts Will Persist (FHFA Vermont Housing Price Index Percent Change Vs. Year Ago, Historical Data - Red, Forecast Data - Green) 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0%
Equalized Education Grand List - Billions of Dollars Home Price Index, 1980Q1=100 Macro-Economics Vermont Adjusted Equalized Education Grand List (thick red line) Vs. FHFA Vermont Home Price Index, (Index 1980Q1 = 100) Lagged Five Quarters (thin green line) State Revenues 85.000 477.4 75.000 426.1 65.000 374.7 55.000 323.4 45.000 272.1 35.000 220.7 25.000 169.4 15.000 118.1 5.000 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 66.7 Sources: PVR; FHFA Home Price data; Prepared for the Joint Fiscal Office by Kavet, Rockler & Associates, October 2014
North Dakota District of Columbia Texas Colorado South Dakota Nebraska Alaska Iowa Oklahoma Louisiana Wyoming Kansas Montana Kentucky West Virginia Tennessee Indiana Arkansas Vermont Hawaii Pennsylvania Mississippi Missouri North Carolina Alabama Utah Ohio South Carolina Wisconsin Maine Massachusetts New York Oregon Minnesota Virginia Washington Georgia New Mexico Idaho New Hampshire Michigan Illinois Delaware Connecticut New Jersey Maryland California Rhode Island Arizona Florida Nevada -37.2% Real Estate Update: Housing Values Relative to Last Peak (pink) and Trough (grey) Percent Change, 2014Q3 vs. Peak Price by State Reached Between 2005Q3 and 2009Q2 - Pink and 2014Q3 vs. Trough Price Reached Between 2009Q3 and 2014Q3 - Grey Source: FHFA H -31.8% -27.6% -23.7% -21.8% -19.9% -17.0% -17.4% -15.3% -15.5% -13.9% -14.7% -15.1% -11.6% -12.0% -12.1% -12.6% -10.1% -11.1% -8.2% -9.0% -9.0% -7.2% -7.2% -7.3% -7.4% -8.0% -8.0% -6.0% -4.9% -4.9% -5.2% -3.3% -1.6% -1.6% -0.2% -1.0% -40.0% -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 0.7% 1.8% 1.7% 1.4% 2.8% 1.9% 3.3% 2.9% 3.7% 3.6% 3.7% 4.9% 4.3% 5.2% 5.4% 4.7% 5.2% 5.4% 5.3% 5.1% 5.1% 5.2% 4.9% 6.6% 5.9% 6.1% 6.3% 6.3% 6.2% 5.8% 7.4% 7.1% 7.0% 6.8% 6.7% 8.4% 8.1% 7.7% 9.1% 8.7% 9.9% 9.8% 9.7% 9.4% 12.0% 11.8% 11.5% 12.4% 13.0% 15.8% 15.0% 16.7% 16.7% 18.8% 18.2% 19.0% 21.4% 20.5% 22.4% 27.3% 30.9% 33.5% 33.9% 33.9% 40.8%
Equalized Education Grand List - Billions of Dollars Home Price Index, 1980Q1=100 Vermont Adjusted Equalized Education Grand List (thick red line, left scale) Vs. FHFA Vermont Home Price Index, (Index 1980Q1 = 100) Lagged Five Quarters (thin green line, right scale) Macro-Economics State Revenues 105.0 580.1 95.0 528.7 85.0 477.4 75.0 426.1 65.0 FORECAST 374.7 55.0 323.4 45.0 272.1 35.0 220.7 25.0 169.4 15.0 118.1 5.0 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 66.7 Sources: Vermont PVR; U.S. FHFA; Prepared for the Joint Fiscal Office by Kavet, Rockler & Associates, October 2014
Number of Dwelling Units 5000 Down 70% and Up 48%? Weak Home Prices Continue to Stall Vermont Residential Construction (Total Housing Starts, 12 Month Moving Totals, Source: F.W. Dodge Division of McGraw-Hill, Kavet, Rockler & Associates, LLC) 4500 4000 March 2006 = 3723 3500 3000 2500 2000 (-70% vs March 2006) November 2014 = 1143 (+48% vs July 2009) 1500 1000 500 July 2009 = 754 0 Jul-14 Jul-13 Jul-12 Jul-11 Jul-10 Jul-09 Jul-08 Jul-07 Jul-06 Jul-05 Jul-04 Jul-03 Jul-02 Jul-01 Jul-00 Jul-99 Jul-98 Jul-97 Jul-96 Jul-95 Jul-94 Jul-93 Jul-92 Jul-91 Jul-90 Jul-89 Jul-88 Jul-87
Dec-69 Dec-71 Dec-73 Dec-75 Dec-77 Dec-79 Dec-81 Dec-83 Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Millions of Dollars Vermont Construction Markets Will Benefit from Recent Surge in Nonresidential Starts (12 month moving totals) 700.0 650.0 600.0 550.0 Residential 500.0 450.0 400.0 Nonresidential 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Source: F.W. Dodge/McGraw-Hill
Percent Change 80.0% Growth In Real Household Income, By Income Class 1980 to 2013 (Orange) and 1990 to 2013 (Grey) 70.0% 60.0% 1980 to 2013 50.0% 1990 to 2013 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Source: U.S. Census Bureau
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 28.00 Ratio of Average U.S. Household Income of Top 5% to Lowest 20% (Source: U.S. Census Bureau) 27.00 26.00 25.00 24.00 23.00 22.00 21.00 20.00 19.00 18.00 17.00 16.00 15.00
Income Class - Thousands of Dollars Percent Change in Adjusted Gross Income in Vermont, 2012 vs. 2009 by Income Class $1,000+ 73.0% $500-$1,000 51.8% $300-$500 43.5% $200-$300 $150-$200 $125-$150 24.3% 23.8% 28.4% $100-$125 12.9% $75-$100 7.5% $60-$75 1.4% $50-$60-0.3% $45-$50 $40-$45 $35-$40 $30-$35 $25-$30 $20-$25 $15-$20 $10-$15 2.1% 3.7% 3.9% 3.7% 2.0% -1.6% -2.3% -2.7% Average Percent Change for All Vermont Residents = 14.6% $5-$10 $0-$5-3.2% -2.6% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Percent Change Source: Vermont Department of Taxes
Number of Pupils 108,000 Vermont Public School Enrollment Declines Not Likely to be Reversed Soon... 102,000 96,000 17% Decline In Enrollments Between 1997 and 2014 19% Enrollment Decline Expected Between 1997 and 2025, With Little Prospect of Any Significant Reversal Beyond 2025 90,000 84,000 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 Sources: Vermont DOE and Consensus Administration and Joint Fiscal Office Projections - October 2014
9000 Demographics Vermont Population - Age 0 (Births) State Expenses 8500 8000 7500 7000 6500 6000 5500 5000 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 Source: U.S. Census Bureau, Vermont Legislative Joint Fiscal Office Estimates
New Hampshire Vermont Rhode Island Connecticut Massachusetts Maine District of Columbia Pennsylvania Oregon Florida Michigan New York New Jersey Maryland Illinois Alabama North Carolina West Virginia South Carolina Delaware Virginia Wisconsin Colorado Georgia Tennessee Ohio Nevada United States California Washington Mississippi Missouri Indiana Kentucky Minnesota Montana Iowa Louisiana Arkansas Arizona New Mexico Wyoming Texas Oklahoma Hawaii Nebraska Kansas Idaho North Dakota Alaska South Dakota Utah 2012 Fertility Rates (Preliminary data, Source: National Center for Health Statistics U.S. DHHS) 50.3 51.6 51.7 53.2 53.5 53.9 55.3 58.8 59 59 59.6 59.7 60.4 60.8 60.9 60.9 61 61.3 61.4 61.4 61.7 61.8 62 62.4 62.6 62.6 63 63 63.3 63.5 64.2 64.3 64.7 65.4 65.7 66.6 66.8 67 67 67.5 67.8 69.5 69.9 70.5 71.6 72.3 72.3 74.1 74.6 75.9 35 40 45 50 55 60 65 70 75 80 85 Births Per 1000 Females Age 15-44 78.1 83.1
Age 85+ Vermont Population by Age - July 1980 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age 85+ Vermont Population by Age - July 1990 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age Vermont Population by Age - July 2000 85+ 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age Vermont Population by Age - July 2005 85+ 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age Vermont Population by Age - July 2010 85+ 80 Age 85+ = 13,018 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red) 85+ 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Age The Aging of the Vermont Population - July 1980 (blue) vs. July 2005 (red) vs. July 2020 (clear) 85+ 80 75 Year 2020 85+ Population = 16,699 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 2000 4000 6000 8000 10000 12000 Number of Persons Source: U.S. Census Bureau
Percent Change vs. Year Ago Source: U.S. Department of Commerce, Vermont Joint Fical Office and Administration Consensus Forecasts Cost Pressures Recede, But Revenue Growth Will Still Lag Behind... (Implicit State and Local Government Deflator, Percent Change vs. Year Ago) 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
For Further Information, Contact The Joint Fiscal Office or: Thomas E. Kavet State Economist and Principal Economic Advisor to the Vermont State Legislature Since 1996 Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting 985 Grandview Road Williamstown, Vermont 05679-9003 USA 26 Parker Road Brookline, Vermont 05345-9793 USA Telephone: 802-433-1360 Facsimile: 866-433-1360 Cellular: 505-433-1360 Website: www.kavetrockler.com E-Mail: tek12@columbia.edu