Vermont's growth engine is sputtering as recession drags on... and on

Chittenden County usually out-performs the rest of the state in most economic indicators, but it's begun to lag in at least a couple of metrics. Retail sales tax receipts, for example, dropped more precipitously in the first quarter of this year in the Burlington area than in Vermont as a whole. The tax collector's take was down 13.5 percent in Chittenden County and 7.5 percent statewide in comparison to a year earlier.

“I don't think you can make the case that in recent times it's been the growth engine,” economic consultant Dick Heaps says in regard to Burlington and its suburbs. State economist Jeffrey Carr agrees, suggesting in an interview from his office in Williston that, “It's very hazardous to say this part of the state is doing better than any other.”

Heaps points to employment statistics for the third quarter of last year showing that Vermont lost 0.5 percent of its jobs while the falloff for Chittenden County measured 0.6 percent. “Take away the university and the hospital, and the Burlington economy is shrinking,” Heaps says.

Still, the Vermont Labor Department's latest monthly joblessness report indicates that Chittenden is managing to fare less poorly than any other county in the state. Vermont's seasonally unadjusted unemployment rate stood at 7.7 percent in April, compared to 6.2 percent in Chittenden County.

In addition, meals and rooms tax receipts have been stronger for the Burlington area than for the state generally. Meals tax collections fell 1.1 percent overall in Vermont in the first quarter while they remained flat in Chittenden County. Taxes paid for rooms slid by 17.6 percent during the same period statewide and by 5.5 percent in Burlington and environs.

In the Queen City itself, consumption-tax receipts are “holding steady,” says Larry Kupferman, director of the Community and Economic Development Office. It's a fragile situation, however. Kupferman cautions that the loss of a single large employer or further deterioration in the state's economy “will affect the city significantly.”

The direction of Burlington's economy will be largely determined by how well the tourism sector performs this summer. Tourists account for about 25 percent of retail sales downtown on a year-round basis, notes Church Street Marketplace Director Ron Redmond. And he expects a big boost from the Quadricentennial celebrations in the first half of July. “It'll be huge,” Redmond predicts. “It will be like stretching out Mardi Gras for a period of several days.”

Heaps says he also heard upbeat forecasts for the winter tourism season – and they proved wrong. “Right now people are feeling kind of good,” Heaps said in mid-June, “but that's only because things have been so bad.”

Lake Champlain Regional Chamber of Commerce chief Tom Torti is among those with an optimistic outlook, but he acknowledges that a rainy week in early July would confound expectations for record-setting tourist spending in the Burlington area.

The federal fightback against the recession may not be weather-dependent, but the Obama administration's stimulus package has yet to foster a sunny outlook in Vermont. Carr doesn't think the state's economy will feel much stimulation from Washington until sometime this fall, even though a pickup is “really needed now.”

Some money has begun to flow into infrastructure projects in Chittenden County and elsewhere in the state, notes Lisa Ventriss, director of the Vermont Business Roundtable. Burlington, for example, is getting about $1 million for energy-efficiency initiatives, community-development projects and public-safety enhancements, Kupferman reports. The city has also launched its own “mini-recovery program” through the two-cent tax hikes voters approved in March for street repairs and park upgrades, Kupferman notes.

Some private construction is also underway in Burlington, with more scheduled to begin this summer. Champlain College is converting Perry Hall into a welcome center, while Fletcher Allen Health Care is building a radiation oncology unit. “It's a good time for nonprofit institutions to do this kind of work,” Kupferman observes, noting that contractors eager for jobs are submitting lower bids in the current period of scarcity than in times when projects are plentiful.

Hotel development is proceeding in Burlington as though there was no recession. The Courtyard by Marriott plans to start work on a 34-room expansion in August, with groundbreaking for a new adjoining 124-room hotel scheduled for later in the year.

But any general “defrosting” of construction activity in Chittenden County is still 12 to 18 months away, Torti suggests. “There's a lot of money sitting on the sidelines,” he says, “but it's waiting for clear signs of a recovery.”

A recent rise in lending strikes Ventriss as “worrisome.” She says that “just when we were seeing movement in real estate markets, this is cooling things off again.”

No one can say with certainty when a sustained recovery will get underway. Economic forecasting is an inherently risky enterprise, as indicated by Carr's prediction one year ago that the recession would prove “short and shallow.” This year, he's offering a more pessimistic appraisal.

“The free fall has stopped,” Carr says, “but this will still be the longest recession since the 1930s.” The impact on employment in Vermont will prove severe, he adds. In a May presentation in Boston to the New England Economic Partnership, Carr suggested that by late 2010 payroll losses in Vermont will be more severe on a percentage basis than will be the case for the nation or for the region.

The state will be facing daunting job-related and demographic challenges even after the recession comes to an end, Torti points out.

“We have a paucity of jobs in sectors young people are looking to fill,” he says. “The creative economy isn't a strong point. We have all the cultural and social attributes that young people want, but we don't have jobs at the pay they can get elsewhere.”

When job growth does resume, it's likely to be at a sluggish pace, Vermont economists say.

“Nobody thinks the turnaround will have anywhere near the velocity of the downturn,” Carr says. And Heaps expects unemployment levels will still be well above average in Vermont a year and a half from now.

Carr suggests, though, that an uptick in consumer spending is possible in the coming months. “People have been at such a level of self-denial that there may be pent-up demand that will start being met,” he says.

States are meanwhile competing with one another more intensively than ever to lure job-creating investments. Vermont persuaded ASK-inTAG, a maker of radio-frequency identity devices, to open a plant in vacant space at IBM's Essex complex by giving it $553,000 in tax breaks – a better deal than was offered by Ohio, which also sought to land the French-American company. Similarly, Project Graphics, a manufacturer of banners, is opening a factory in South Burlington in response to the $230,000 in tax incentives that state officials have agreed to provide to the Connecticut company. Project Graphics says it had considered relocating to Maine or New Hampshire but was wooed by Vermont's offer.

The state is currently seeking to entice Terry Precision Cycling to relocate from Rochester, NY, following its purchase by Elisabeth Robert, former CEO of Vermont Teddy Bear.

“They'd love to be here,” says Frank Cioffi, head of the Greater Burlington Industrial Corp. “It depends on whether we're competitive with economic incentives.”

Five other manufacturing firms are considering opening facilities in Vermont as well, Cioffi adds. Some are based in Quebec, he says, which represents “the first prospects we've had from there in years.”

The Burlington area could certainly use some added manufacturing activity. The growth rate for that sector in 2008 was the second-lowest in the 15 years that commercial development has been tracked by the Allen & Brooks real estate analysis firm. Expansion this year is projected to be even more anemic. Industrial vacancies are now well above the 15-year average, Allen & Brooks reports, citing as a major contributing factor the idling of 150,000 square feet of space leased in Williston by Resolution, an e-commerce firm.

A couple of major manufacturers appear to be doing well, however, despite the fade-out of consumer demand. Health-care reform initiatives, likely to involve a broad switchover to electronic record-keeping, bode well for GE Health Care in South Burlington, Cioffi says. IBM, described in the latest Allen & Brooks survey as “the engine of economic stability for Chittenden County,” meanwhile appears to be in a recovery mode following the layoff of an estimated 400 workers in January. In addition to its deal with ASK-inTAG, Vermont's IBM operation will receive a boost from Ramtron International Corp., which has agreed to install its semiconductor process technology in the Essex Junction plant.

“You hear rumors related to IBM, but they look to be stable and innovating again,” Carr says. ASK-inTAG says it aims to employ 90 workers in Vermont by 2012, and it's not yet clear how many jobs the Ramtron deal may generate. Hiring would have to occur on a large scale, however, in order to compensate for the recent rounds of job cuts at IBM-Essex, which has seen its workforce shrink below 5,000 from a height of 7,500 a few years ago.

Conditions in the Burlington-area office market are not favorable for owners or builders, the Allen & Brooks report finds. The addition of more than 300,000 square feet of space to the market this year has added to a local oversupply, evident in a vacancy rate that is nearly twice the 15-year average. Much of that empty space is in the suburbs. The downtown office market remains comparatively strong, with below-average vacancies, according to Allen & Brooks.

The picture is similar for retail, the report indicates.

The closings of two big-box stores in Williston, along with the loss of Ashley's Furniture on Shelburne Road, has moved the Burlington-area retail market closer to a glut of space. And unless consumer spending rises in the coming months, “a further shakeout of retail” is possible in Chittenden County, Carr says.

Allen & Brooks forecasts an average rate of retail expansion next year, though the report describes this as an “upside” estimate based largely on the projected buildout of a shopping center in Milton owned by Pomerleau.

Retail has likewise proved stronger downtown in recent months than in the suburbs, Torti says. Location is now an especially crucial factor, with shops and restaurants “doing better in places where people congregate, such as on Church Street.” The presence there of students and staffers from the University of Vermont, Champlain College and Saint Michael's College, as well as Fletcher Allen Health Care, “is reinforcing the value of those institutions in terms of our economy,” Torti comments.

Residential real estate in Chittenden County continues to avoid the Depression-like collapse it has suffered in some states. Sales prices of existing homes in the Burlington area have dropped only slightly during the past year, says Joe Sinagra, director of the Home Builders and Remodelers Association of Northern Vermont. He points, however, to a trend that is helping to keep housing construction at a standstill. “People aren't upgrading the way they used to – from, say, a $200,000 house to one that goes for $250,000,” Sinagra says. “They're either staying in the same bracket or they're going back to the rental market.”

Kevin Kelley is a freelance writer from Burlington.