June 2016 Monthly Briefing
REVENUE: FY 2016 FEDERAL SOURCES WEAK WHILE OTHER REVENUES FINISH CLOSE TO EXPECTATIONS
Jim Muschinske, Revenue Manager
Excluding last year’s interfund borrowing as well as the Budget Stabilization Fund transfer, base general funds finished down $5.515 billion. The drop reflects comparatively lower income tax rates for the first part of the fiscal year, the one-time nature of some pharmaceutical court settlements recovered by the Attorney General‘s Office last fiscal year, no fund sweeps, and the dismal performance of federal sources.
The table on page 5 displays and compares the last official forecasts presented in Feb/March by both CGFA and the DoR/GOMB. Since the total of the two forecasts were separated by a scant $15 million, the overall variance of the estimates compared to actuals was virtually the same. However, for the most part, the Commission’s forecasts out performed those of IDoR/GOMB. On a net basis, CGFA’s estimate of net personal income tax was only off by 0.8 percent, as opposed to the IDoR/GOMB’s variance of 4.3%. While both forecasts overestimated corporate income tax by a similar amount, CGFA’s estimate of sales tax was only off by 0.2 percent, while IDoR/GOMB’s estimate was off by a still respectable 1 percent.
The demands placed on the general funds budget shifted much of reimbursable spending from the general funds to non-general funds, namely the Healthcare Provider Relief Fund. As a result, CGFA’s federal source estimate fell short by just over $1 billion, while GOMB’s estimate was nearly $1.5 billion short of expectations.
ECONOMY: MID-YEAR EVENTS RAISE NEW CHALLENGES
Edward H. Boss Jr., Chief Economist
The surprising vote in Britain to exit from the EU, increased uncertainty in the stock market; rising terrorist attacks; a delay in Federal Reserve implementation on its path to higher interest rates, combined with sluggish U.S. growth raise questions of how the second half of the year will evolve. The final revision to 1st quarter 2016 GDP growth showed that real GDP edged up at a modest 1.1%, following a 1.4% increase in the final quarter of 2015.
Even while 2nd quarter GDP may rise faster, no sharp rebound is anticipated. Beyond the 2nd quarter IHS Global Insight put odds of a mild recession in the U.S. at only 20%. For the year as a whole, its most likely GDP forecast for 2016 is for U.S GDP growth of 1.9%. This compares to 2.4% in both 2014 and 2015. This continues to be the slowest recovery in the post WWII period as well as being one of the longest.