Economic and Revenue Forecasts...2020/08/24 · 3 August 2020 Consensus Conference Michigan Revenue...

August 2020 Consensus Conference

Consensus Revenue Estimating Conference

August 24, 2020

Economic and Revenue Forecasts

FY 2020 * FY 2021 * FY 2022


Outline

2

• FY 2020 Revenue Update

Eric Bussis, Department of Treasury

• Revenue Estimates for Major Taxes

Jim Stansell, House Fiscal Agency

• Revenue Estimates by Fund

David Zin, Senate Fiscal Agency


Economic Summary: Baseline Scenario

Michigan Economy

• Michigan was hit harder from the recession

• Economic recovery will take many years

• Modest economic recovery is forecast to continue

State Revenue Collections

• Summer 2020 revenue collections included

positive surprises that are unlikely to continue

3


Michigan Revenue Falls but by Less than Expected

4.4

million3.7

million

0.0

1.0

2.0

3.0

4.0

5.0

Payroll JobsAverage from April to July

Down 743,000 jobs (-16.8%)

$3.30

billion$2.80

billion

$3.44

billion

$2.53

billion

$0.0

$1.0

$2.0

$3.0

$4.0

Income Tax

Withholding

Sales Tax

Major Tax Revenue

Withholding: $130 million (+3.9%)

Sales Tax: Down $270 million (-9.6%)

4

Between April and July, key Michigan economic indicators have

declined more than revenue

2019 2020 2019 2020 2019 2020

Source: Michigan Bureau of Labor Market Information and Strategic Initiatives; Michigan Department of Treasury


$8,000

$10,000

$12,000

$14,000

$16,000

$400

$500

$600

$700

$800

$900

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Withholding (Left Axis) Sales and Use (Left Axis) Earnings (Right Axis)

5

Major Taxes Depart from Economic Trend

Source: Michigan Department of Treasury; U.S. Bureau of Labor Statistics

All amounts are a 12-month moving average in millions of dollars

Monthly earnings estimated with payroll employment and weekly wages

Data not seasonally adjusted

15200

15250

15300

15350

15400

15450

15500

15550

15600

15650

15700

15750

15800

15850

15900

15950

16000

16050

16100

16150

16200

16250

16300

16350

16400

16450

16500

16550

16600

16650

800

810

820

830

840

850

860

870

880

Jan-20 Apr-20 Jul-20

Historically, employment and earnings drive income tax withholding, sales tax, and use tax.

Over the summer of 2020, income tax withholding has continued to grow while employment and earnings fell. Sales and use tax have rebounded more quickly than earnings.


Analyzing the May CREC Forecast

The May economic forecast was essentially on target, but FY 2020 state revenue forecasts were significantly too low

1. Delayed payments for individual and corporate income taxes were stronger, which accounts for $200 million

2. Manufacturing and automotive production recovered more rapidly than expected

3. The impact of the CARES Act on revenue was underestimated

4. Spending on taxable goods is higher than expected• Consumer reaction to the pandemic increased collections, including shifts

from nontaxable services and increases from remote sellers and marketplaces

6


CARES Act Programs Support Economy

Three programs added nearly $43.3 billion to the Michigan

economy during 2020 Q2, which is about 8.5% of annual state

personal income or $4,350 per capita

1. Paycheck Protection Program • Nearly $16 billion has been loaned to Michigan businesses

2. Economic Impact Payments

• $8.3 billion paid to Michigan residents

3. Pandemic Unemployment Insurance Compensation

• $19 billion in benefits, of which $13.4 billion was federally funded

• Unemployment benefits expanded to many previously ineligible individuals

7

August 2020 Consensus Conference 8

Withholding on Unemployment Benefits

Source: Michigan Unemployment Insurance Agency

Withholding on unemployment benefits in FY 2020 is over three times the level in FY 2009 or FY 2010. The support for withholding from unemployment benefits is completely unprecedented.

UIA withholding made up a significant portion of total withholding in the past four months, accounting for 18.0% in May. Historically, the highest level was 2.7% in February of 2010.

$989

$824$937

$777$652

$783 $784

$67

$143

$121 $113

$0

$200

$400

$600

$800

$1,000

$1,200

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20

2020 Monthly Withholding(in Millions)

Non-UI Withholding Withholding on UI

$134

$451

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

Fiscal Year Totals(in Millions)

Withholding on UI FY 2020 is through July.


9

Michigan Consumer Spending More than U.S.

-4.38%

5.43%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Consumer Spending

U.S. Michigan

Source: Affinity Data Solutions, Opportunity Insights Economic Tracker Tracktherecovery.org


• Restaurants have recovered slightly since the early stages of the crisis, but sales tax for

July was still 23% below the prior year

• The spring months have seen strong growth at stores that sell building materials and

garden supplies, including big home improvement centers

• Sales tax from remote sellers has been strong in 2020 and accelerated after the pandemic

10

Growing Sectors Offset Many Sales Tax Losses

Source: Michigan Department of Treasury

-$36-$31

-$19 -$19

$1

-$10

$22 $19$21$30

$46 $43

-$6-$13

$6$11

-$81

-$22

$33$24

-$100

-$50

$0

$50

April May June July

Sales Tax by SectorChange from 2019 to 2020

Food/Drinking Places Building Material & Garden Supplies Remote Sellers General Merchandise Stores Automobiles


FORECAST OF MAJOR TAXES

11


Withholding Tax Revenue Estimates

12

$10.2

$10.5

$10.8

$9.4

$9.7

$10.3$10.4

$10.0$10.3

2020 2021 2022

January CREC May CREC August Staff Recommendation

Fiscal YearBillions


Income Tax Revenue Estimates

13

$10.6

$10.9

$11.2

$9.3$9.5

$10.3$10.4

$9.8

$10.5

2020 2021 2022


Fiscal YearBillions


Sales Tax Revenue Estimates

14

$8.7$9.0

$9.2

$7.5

$8.0

$8.5$8.2 $8.2

$8.5

2020 2021 2022


Fiscal YearBillions


Use Tax Revenue Estimates

15

$1.8 $1.9 $1.9

$1.5 $1.6$1.7$1.7 $1.7 $1.9

2020 2021 2022


Fiscal YearBillions

August 2020 Consensus Conference 16

Comparison to Prior Recession

Source: Michigan Unemployment Insurance Agency, 8/10/2020.

State tax revenue sometimes falls slower than the economy, which may be the case in this recession

Recession

Michigan

Payroll

Employment

Change

Year Sales Tax Use TaxIncome Tax

Withholding

December 2007

to June 2009

-411,600

(-9.7%)

FY 2008 3.4% -0.2% 10.4%

FY 2009 -10.1% -19.2% -6.0%

March 2020

to Present

-520,100

(-11.7%)

FY 2020

Forecast-0.3% -2.6% 4.7%

FY 2021

Forecast-0.8% -1.5% -4.2%


FORECAST OF GF-GP AND SCHOOL AID FUND

17


Revenue Estimates

General Fund-General Purpose

18

$11.0$11.2

$11.5

$9.0 $9.3

$10.2$10.3

$9.5

$10.4

2020 2021 2022


Fiscal YearBillions


Change From January Consensus

General Fund-General Purpose

19

-$2.0 -$1.9

-$1.4

-$0.7

-$1.7

-$1.1

2020 2021 2022

Change in May CREC Change in August Staff Recommendation

Fiscal YearBillions


Revenue Estimates

School Aid Fund

20

$13.9

$14.3

$14.6

$12.7

$13.2

$13.9$13.7

$13.5

$14.1

2020 2021 2022


Fiscal YearBillions



School Aid Fund

21

-$1.3-$1.1

-$0.7-$0.2 -$0.8-$0.6

2020 2021 2022


Fiscal YearBillions



GF and SAF Combined

22

-$3.2-$3.1

-$2.1

-$0.9

-$2.5

-$1.7

2020 2021 2022


Fiscal YearBillions


August Revenue Forecast Comparison

23

Total Revenue

(Values in Millions)

FY 2020 FY 2021 FY 2022

January May August January May August January May August

GF-GP $11,012.2 $9,028.2 $10,296.8 $11,194.4 $9,279.2 $9,536.7 $11,518.5 $10,149.7 $10,392.5

School Aid Fund $13,925.4 $12,676.7 $13,714.4 $14,317.5 $13,180.4 $13,501.9 $14,640.1 $13,920.4 $14,053.5

Combined $24,937.6 $21,704.9 $24,011.2 $25,512.0 $22,459.6 $23,038.6 $26,158.7 $24,070.1 $24,446.0

Change from January Estimates

FY 2020 FY 2021 FY 2022

Total Combined -$926.4 -$2,473.4 -$1,712.7

Change from May Estimates

FY 2020 FY 2021 FY 2022

Total Combined $2,306.3 $579.0 $375.9


Budget Stabilization Fund

24

Both pay-outs and pay-ins require an appropriation

The staff estimates calculate:

• No pay-ins in FY 2020 & FY 2021

• Pay-in of $133.5 million in FY 2022

• BSF pay-out of $287.2 million in FY 2020

• No BSF pay-outs during FY 2021 & FY 2022


Constitutional Revenue Limit Calculation

$0.0 $0.2

-$2.4

-$3.9 -$4.2 -$4.4 -$4.2-$4.9

-$5.3-$4.7

-$7.7 -$7.6

-$5.6 -$5.5

-$6.5

-$8.5

-$7.4-$8.1

-$9.2-$8.7

-$9.7

-$12.2

-$14.6-$14.0

25

Billions

Staff Forecast


Forecast Risks

Economic• Uncertainty from the path of the pandemic

• COVID-19 will have a short-term and long-term impact

• More federal stimulus spending could boost revenue short-term, while

the drop may cause the economy to fall

Michigan Tax Revenue• Uncertainty surrounds withholding, which may fall significantly from

job losses

• Large increases in FY 2020 taxable consumer spending creates

uncertainty about FY 2021

• Risks surround how Michigan’s economy, population, and workforce

recover from the recession

26


Consensus Revenue Estimating Conference

August 24, 2020

Economic and Revenue Forecasts

FY 2020 * FY 2021 * FY 2022

Economic and Revenue Forecasts...2020/08/24 · 3 August 2020 Consensus Conference Michigan Revenue...

Documents

Transcript of Economic and Revenue Forecasts...2020/08/24 · 3 August 2020 Consensus Conference Michigan Revenue...