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Oil prices taxing for Vermonters

first_imgOil prices taxing for Vermontersby Kevin KelleyVermonters have been whacked with the equivalent of a new $850 million tax as a result of the doubling of oil prices in the past year, said Tom Kavet, the State Legislature’s economist. That hit – heavier than the total $622 million impact from personal income tax payments – is bound to stagger the Vermont economy as consumers cut back on discretionary spending in order to pay for heating fuel and gasoline, Kavet reckoned.About 70 percent of the added charge for the 17 million barrels of oil consumed annually in Vermont is going overseas – to the Middle East, Africa and Latin America. “Almost none of it stays in-state,” he said.It’s largely because of that drain that Kavet expects a “severe” recession to occur in Vermont.Peter Shumlin, the 52-year-old leader of the Democratic majority in the State Senate, fears that the coming downturn will prove to be “the most difficult of my lifetime.” And Matt Cota, director of the Vermont Fuel Dealers Association, likened the approaching turbulence to a category-five hurricane. “We’ve had a 6-month warning to brace for it,” he said.The clouds do appear darkly ominous.An average Vermont household with an income of about $50,000 spent roughly $2,000 on heating fuel last winter, estimated Dick Heaps, vice president of Westford-based Northern Economic Consulting. According to Heaps, that four percent share of gross income could more than double this winter. “That’s going to have a large negative impact on the economy,” he said.Vermonters have already achieved considerable reductions in heating oil consumption by adopting conservation measures, Cota said. A typical home burned about 1,500 gallons of fuel per year a couple of decades ago, compared to around 850 gallons now, he said. Cota believes that further enhancements of furnace efficiency and a tighter buttoning up of homes, combined with still-lower settings of thermostats, could bring consumption down to as little as 600 gallons per household in the coming year. Even at that level, however, a Vermont household would still have to spend about $3,000 on heating fuel, based on the current price of about $5 a gallon.Cota expressed hope that emergency assistance initiatives by both the federal and state governments will prevent tragedies from occurring in Vermont during the sub-freezing months. In the meantime, some fuel dealers are playing the role of social workers, he said. Cota imagines a scenario in which a heating-oil delivery man telling a customer, “You live in this great big farmhouse by yourself. Maybe you should consider moving in with your daughter for the winter.”Businesses don’t have those sorts of options, said Duane Marsh, director of the Vermont Chamber of Commerce. “They can’t switch to wood-burning stoves,” he said, “but I’m sure they’ll be dialing down and buying lots of sweaters.”Because business owners are “pretty resilient in the short term,” Marsh expects that “tough decisions” will be deferred to the next fiscal year in many cases. “But the longer something like this goes on,” he said of the upward spiral in energy costs, “the more difficult it becomes to maintain the status quo.”The state government will also be seeking additional economies as energy-related expenditures rise and as tax revenues fall, said Susan Bartlett, chair of the State Senate Appropriations Committee. Travel plans for state officials are being scaled back or eliminated altogether. But the state can do little to economize on heating costs, most of which accumulate at schools, Bartlett added.Bartlett said firm estimates of the energy crisis’ impact on the state’s budget are not yet available. What’s already clear, Kavet noted, is that revenues from taxes on gasoline and on automobile sales and use are down by a total of about $15 million from last year. Rooms and meals tax receipts are dropping as well, mainly because tourists are either not coming to Vermont in the same numbers or are choosing to spend less when they do visit the state.Despite these strains, Vermont’s budget remains in comparatively sound shape, Bartlett said. The state’s economy has also not been ravaged nearly as much as Florida’s or Arizona’s, for example, where home sales have tanked due to speculative overbuilding. The housing market is still generally stable in Vermont, with far fewer foreclosures occurring here on a percentage basis than in many other states.According to Heaps, a continued positive performance by its housing sector may enable Vermont to survive a national downturn with few scars. He still adheres to the belief that the U.S. economy will not experience a deep or long-lasting recession.Cota takes an optimistic view as well. Because the run-up in oil prices amounts to a bubble, he said, the price of a barrel should drop back to $70 or $80, which would bring back the days of $2 per gallon heating oil.”The question is when this will happen,” Cota said.Kavet observed that not all business sectors will be badly bruised in Vermont. Due to the weakness of the U.S. dollar, he said, the “winners in the current situation will be those who export, and Vermont does have a fair number of companies that do a good export business.”According to Kavet, the governor and State Legislature have only limited abilities to stimulate Vermont’s economy or to mitigate the effects of a national recession. “We don’t have anything like the fiscal and monetary levers that are available to the national legislature,” he said.In the long term, however, Vermont’s political leaders could position the state to prosper more than it has in the past, Shumlin said. He described a switchover to renewable energy as an inevitable move for the country as a whole. Vermont could take advantage of that development by working harder to attract “creative new jobs in the energy sectors.”In the immediate future, Bartlett said, the legislature and governor can cooperate to “take a lot of little steps that, together, will help ordinary Vermonters make it through this winter and help Vermont businesses in the process.”last_img

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