Thursday, June 16, 2011

Revenue forecast shows state still struggling from global recession

The Economic and Revenue Forecast Council adopted a new General Fund-State revenue forecast this morning, showing our state's near-term economic outlook has weakened since the March forecast, but growth expected to pick up momentum later this year, as supply chain disruptions from Japan recede, and oil prices stabilize.

Revenue collections through June 10 were $93 million (2.5%) above what we had expected in the period since the March forecast. This surplus, however, was due to the success of the tax penalty amnesty program, which brought in $198 million more than forecasted, as well as a one-time assessment payment of $40 million. Without the extra amnesty money and other one-time large payments and refunds, collections would have been $142 million (3.8%) below the March forecast.

In summary, the new General Fund-State forecasts are:
2009-11 biennium: $28.2 billion, which is $171 million higher than our previous forecast.

2011-13 biennium: $31.7 billion, which is $183 million lower than our previous forecast.

Here are some of the main points from Dr. Arun Raha's executive summary:

  • The U.S. economy has entered another soft-patch in a recovery that is proving to be far more bumpy and fragile than usual.
  • The largest part of the increase in consumer spending in April was money spent on gas and other energy goods.
  • The repercussions from the disaster in Japan have turned out to be worse than we had thought.
  • The May employment report for the nation was disappointing and confirms the slowdown in the economy.
  • However, the economy is on the cusp of faster job growth if there is any increase in aggregate demand.
  • With state and local governments cutting spending across the nation and the federal government on hold, the level of government demand is shrinking. So the recovery must now necessarily depend on private demand from domestic and overseas consumers and eventually businesses.
  • The private sector added 11,100 jobs in March, April, and May but public sector employment declined by 2,700 jobs yielding a statewide gain of 8,400 jobs.

Here's the link to the forecast materials.

UPDATE: Some clarification to the numbers above...

The revenue forecast after a legislative session is often difficult to explain, because since the March revenue forecast, the Legislature adopted a number of changes that impact the revenue situation. This means the June forecast accounted for a number of changes which the Legislature had already assumed and a number of changes which were new.

For the current (2009-11) biennium, revenues were down, but amnesty receipts made it look positive since March. Compared to the balance sheet you'll see in the adopted budget, it was down by $184.7 million. That means that we are now negative $84 million in the State General Fund.

For the 2011-13 biennium, when compared to the legislative balance sheet (which can be found on page 8 here), revenues are down $387 million. Dr. Raha's comments made it sound better by saying it was only down by $183 million. The difference was not counted by the Legislature previously and was the impact of the amnesty program. He assumed that quite a bit of revenue that came in during the current biennium would have otherwise been part of the 2011-13 biennium.

Bottom line: The State General Fund is now negative $118 million. However, with over $281 million in the Budget Stabilization Account (rainy day) the total reserves are still positive – at $163.3 million.

When you add both biennia losses together, total revenues have dropped $571.8 million.