June Monthly Briefing
REVENUE: FY 2020 ENDS WITH JUNE UPTICK--COVID-19 RESPONSIBLE FOR FISCAL YEAR BASE REVENUES DROPPING $1.135 BILLION--REVENUES FINISH VERY CLOSE TO REVISED EXPECTATATIONS
Jim Muschinske, Revenue Manager
Base June general funds revenues managed to post a gain of $208 million. The uptick was mostly due to higher federal sources that reflected reimbursable spending made possible by nearly $1.2 billion of short-term borrowing proceeds. Personal income tax receipts also made a strong showing despite COVID-19’s impact on job numbers. While official component breakdowns of income tax receipts will not be available from IDoR for a couple of days, it is assumed that the delayed final payment date resulted in some taxpayers filing after the usual April 15th deadline—but before the newly imposed July 15th date. The spreading out of those final payments has disrupted usual receipt patterns over the last several months. In addition, the enhanced unemployment benefits from the CARES Act [an additional $600 per/wk thru July] has temporarily softened the blow to withholding taxes, as unemployment benefit income is taxable. June benefited from two extra receipting days as compared to the same month last year.
Excluding proceeds from the Treasurer’s Investment program as well as interfund and short-term borrowing, FY 2020 base general funds revenues ended $1.135 billion below last year’s levels. As discussed in previous briefings, through the first three-fourths of the fiscal year, revenues had performed quite well. That all changed in the final quarter as economic and subsequent revenue impacts related to COVID-19 abruptly manifested. In addition, receipt timing related to income tax deadline changes also factored into the year-over-year revenue loss.
The “Big Three” revenue sources felt the brunt of COVID-19. For the fiscal year, gross personal income taxes fell $947 million, or $765 million net. Gross corporate income taxes dropped $430 million, or $308 million net, while gross sales taxes were off $206 million, or $154 million net from last year’s levels. In total, the combined net drop of the “Big Three” was $1.227 billion.
The summary table as well as a more detailed table on page 6, displays and compares the last official estimates of both CGFA and GOMB/IDoR that were presented during the early stages of the COVID-19 crisis [April/May]. In an attempt to reflect the uncertainty of economic conditions, subsequent tax receipt implications, and policy decisions at both state and federal levels, both agencies adjusted their previous respective forecasts for FY 2020 down approximately $2.2 billion. As shown, excluding borrowing related items, the Commission’s revised estimate was only $125 million, or three-tenths of a percent below FY 2020 actuals. The GOMB/IDoR revision was nearly as accurate, with a differential from actuals of $218 million, or six-tenths of a percent.
RECESSION TO EXPANSION ALREADY?
Benjamin L. Varner, Senior Analyst and Economic Specialist
On June 8, 2020, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) made official what almost everyone already believed, the U.S. had fallen into a recession. The question now turns to how long will the economy be in recession. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Surprisingly, some economic commentators think we might have already seen an economic trough and have begun the next expansion based primarily on the jobs report for May.