Key Takeaways
- Vermont’s major operating funds met revenue forecasts for FY 2026, bringing in 1.2 % more than projected—a modest but positive sign of fiscal stability.
- State economists Tom Kavet and Jeff Carr praised the overall “impressive” shape of the economy while warning that federal policies under the Trump administration are creating significant headwinds.
- The analysts cited restrictive immigration actions, mass deportations, unpredictable tariffs, and the U.S.-Israel conflict with Iran as factors that raise costs, fuel inflation, and deprive Vermont of needed workers.
- Massive private‑sector investment in artificial intelligence (AI) is acting as a counter‑weight, boosting stock‑market gains, increasing personal income tax receipts, and giving wealthy consumers more spending power.
- The economists caution that reliance on a single AI‑driven growth pillar creates systemic risk; a downturn in AI could trigger a “tidal wave of economic distress.”
- Benefits from the AI boom are uneven, with the top 1 % of households owning roughly half of all stocks and capturing most of the market’s recent gains.
- Governor Phil Scott acknowledged the need for regulatory oversight of AI development, noting that effective rules likely require federal or international action rather than state‑level measures alone.
Revenue Performance Matches Projections
Vermont’s fiscal analysts reported that the state’s major operating funds — General, Education, and Transportation — collected almost exactly the amount projected for the 2026 fiscal year. Total receipts were 1.2 % higher than forecast, amounting to roughly $44 million above the original estimate. Economist Tom Kavet summarized the result by telling the Emergency Board, “We’re holding the line,” noting that while the surplus is a small fraction of the state’s $9 billion budget, it signals that revenues are tracking expectations despite external turbulence.
Federal Policies Create Economic Headwinds
The economists warned that a series of Trump‑administration actions are threatening national and Vermont‑specific stability. In their written report they described “the president’s freezing of immigration flows, the mass deportation of productive immigrant workers, the costs and economic distortions from arbitrary and capricious tariffs and the instigation of expensive foreign wars.” They characterized the immigration enforcement campaign as “violent and performative,” arguing that reducing immigrant settlement harms a state already desperate for working‑age residents. Additionally, they linked the U.S.-Israel war with Iran to higher energy costs and rising inflation, asserting that “it’s hard to overstate just how much better the economy could be” were it not for these federal policies.
AI Investment Buffers the Shock
Despite those headwinds, Kavet pointed to several trends that are softening the impact. Chief among them is the surge of private capital flowing into artificial intelligence development. He told state leaders that “huge investments in artificial intelligence are driving economic growth around the country and, especially, spurring growth in the stock market.” This influx of wealth has enriched affluent consumers — including many Vermonters — giving them more disposable income to spend. The economists wrote that “AI, in all its varied economic manifestations, is the pillar of growth and promise that has, to date, largely powered the U.S. economy through these headwinds.”
Record Personal‑Income Tax Revenues
The AI‑fueled boom has translated directly into stronger state finances. Vermont collected a record amount of personal income tax over the past year, exceeding the economists’ earlier predictions. Kavet noted that this surge reflects both higher wages in tech‑related sectors and increased capital gains from stock‑market appreciation tied to AI companies. The higher tax haul helped push overall receipts above the forecast, reinforcing the view that the AI sector is currently a net positive for the state’s budget.
Concentration of Gains Raises Equity Concerns
However, the economists warned that the benefits of the AI rally are not broadly shared. They observed that recent stock‑market gains across the country are concentrated among the wealthiest 1 % of households, which own about 50 % of all stocks. This concentration means that while overall economic indicators look healthy, many Vermonters — particularly middle‑ and lower‑income residents — may not feel the uplift. The analysts cautioned that such disparity could exacerbate social tensions and limit the breadth of economic resilience.
Systemic Risk from Over‑Reliance on AI
A central theme of the report is the danger of depending too heavily on a single growth engine. The economists wrote, “Our economic dependence on this single pillar is such that if it falters, it could create a tidal wave of economic distress.” They noted that vast sums are being funneled into a relatively small number of firms competing to develop similar AI technologies, creating a vulnerability should investor sentiment shift, regulatory crackdowns occur, or technological breakthroughs stall. This concentration risk, they argue, warrants careful monitoring and contingency planning by state policymakers.
Calls for Regulatory Oversight
In the aftermath of the Emergency Board meeting, Governor Phil Scott echoed the economists’ concerns about AI’s unchecked expansion. He told reporters that while the technology is “exciting in some respects, terrifying in others,” he believes stricter regulations are needed to ensure responsible development. Scott referenced his May veto of a bill that would have established a state framework for regulating large data centers — many of which support AI workloads — arguing that effective oversight likely requires federal or even international coordination, given the global nature of the tech industry.
Looking Ahead: Cautious Optimism
Overall, the economists’ assessment paints a picture of cautious optimism. Vermont’s finances are currently on target, buoyed by AI‑driven wealth that has bolstered tax receipts and consumer spending. Yet the same forces that are propping up the economy also introduce substantial risks — both from volatile federal policies and from the potential fragility of an AI‑centric growth model. State leaders will need to balance celebrating present gains with preparing for possible downturns, leveraging the insights of Kavet, Carr, and their colleagues to inform budgeting, workforce development, and regulatory strategies in the years ahead.
Vermont’s economy is in good shape, state economists say, but AI boom is a threat