August 2020 Consensus Conference
Consensus Revenue Estimating Conference
August 24, 2020
Economic and Revenue Forecasts
FY 2020 * FY 2021 * FY 2022
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
August 2020 Consensus Conference
$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.
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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.
August 2020 Consensus Conference
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
August 2020 Consensus Conference
• 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
August 2020 Consensus Conference
FORECAST OF MAJOR TAXES
11
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
January CREC May CREC August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
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
January CREC May CREC August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
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
January CREC May CREC August Staff Recommendation
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%
August 2020 Consensus Conference
FORECAST OF GF-GP AND SCHOOL AID FUND
17
August 2020 Consensus Conference
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
January CREC May CREC August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
January CREC May CREC August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
Change From January Consensus
School Aid Fund
21
-$1.3-$1.1
-$0.7-$0.2 -$0.8-$0.6
2020 2021 2022
Change in May CREC Change in August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
Change From January Consensus
GF and SAF Combined
22
-$3.2-$3.1
-$2.1
-$0.9
-$2.5
-$1.7
2020 2021 2022
Change in May CREC Change in August Staff Recommendation
Fiscal YearBillions
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
August 2020 Consensus Conference
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
August 2020 Consensus Conference
Consensus Revenue Estimating Conference
August 24, 2020
Economic and Revenue Forecasts
FY 2020 * FY 2021 * FY 2022
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