Although energy price shocks in the wake of Hurricane Katrina may have cost the State as much as $8 million in reduced tax revenues (primarily in Gasoline, Meals and Rooms, Property Transfer and Motor Vehicle Purchase and Use taxes), these losses were more than offset by first-half fiscal year gains in Estate and Corporate Income taxes. The net effect of these and other changes in the Vermont economic and revenue outlook is a relatively minor adjustment to prior revenue expectations. Per the below chart, the current update represents a slight upgrade in both FY06 and FY07 General Fund revenues of about $10 million and a slight downgrade in the energy price-sensitive Transportation Fund of about $1 to $2 million in FY06 and FY07. Net Education Fund revenues are virtually unchanged from prior July projections.
In the face of considerable headwinds in 2005 – including severe hurricanes, soaring energy prices, massive trade deficits and mounting consumer debt – the U.S. economy maintained remarkable growth throughout the year (see chart on next page). Even with rising real interest rates added to the mix in 2006, inflation-adjusted GDP growth is expected to remain steady at about 3.5% to 4.0% this year, before slowing to about 3% in 2007 and 2008. The Vermont economy has generally mirrored that of the nation, with nearly identical 2005 real GSP growth of 3.7%.