Commission on Government Forecasting and Accountability
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Donald Moffitt, Co-Chair
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Donne Trotter, Co-Chair
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March 2015 Monthly Briefing
ECONOMY: EFFECTS OF A STRONGER DOLLAR
Edward H. Boss Jr., Chief Economist

As the U.S. economy continues to advance, albeit at a modest pace, its performance exceeds that in many European countries. As a result, the dollar has strengthened against the Euro reaching its strongest position in 12 years. The sharp and quick strengthening of the dollar has both winners and losers. Among the winners are those traveling abroad who are seeing their dollars buying more and at lower prices. Also benefiting are goods producers abroad who have increased their competitiveness. Among the losers of a stronger dollar may be the United States as it is likely to decelerate tourism and cause it to lose competitiveness.

The United States is the world’s third biggest exporter, although exports account for only about 13% of GDP. Within the country, Illinois is the fifth largest exporter. After declining during the recession, Illinois’ exports began to expand sharply, reaching a high around mid-2012 before leveling out. Early this year, however, exports fell to their lowest level since September 2013. While a strengthening dollar may be partly responsible, another severe winter coupled with the coastal dock strikes also may be partly to blame.

Despite the relatively small share of GDP accounted for by exports, it joins other sectors that have softened. Retail sales have fallen in each of the past three months, measures of both manufacturing and non-manufacturing, while continuing to expand, have weakened, housing remains less than robust while both federal and state and local spending suggest fiscal restraint. As a result, many economists are lowering their growth projections for the first quarter of 2015, either with no acceleration, stalled at the previous quarter’s 2.2% rate, to no growth at all, or 0.0%. The pattern early this year thus is likely to resemble last.

REVENUE: MARCH RECEIPTS DOWN AGAIN DUE TO LOWER INCOME TAX RATES
Jim Muschinske, Revene Manager

Overall base revenues fell $330 million in March. Income tax receipts reflect the lower rates that went into effect January 1st. In addition, the distribution of income tax now includes monies going to the Fund for Advancement of Education and the Commitment to Human Services Fund. Federal sources finally experienced a small gain, after falling each of the first eight months of the fiscal year.
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Through the first three-fourths of the fiscal year, overall base revenues fell $1.421 billion. However, much of that decline was expected and due to: the much lower Refund Fund transfer into GRF; lower income tax rates; and, the change in income tax distribution [the new distribution to the aforementioned education and human services fund primarily impacts personal income, as very little corporate income meets the statutorily definition of the type of income tax that falls under the new distribution].
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COMMISSION RELEASES FY 2016 ESTIMATE
On March 10th, the Commission released its forecast of FY 2016 general funds revenue, along with an updated FY 2015 estimate. As shown in the following table, CGFA’s estimate of FY 2016 revenues is $32.139 billion, which reflects a falloff of $1.960 billion from the revised FY 2015 estimate. A full discussion of the forecasts can be seen by going to the Commission’s website.