Weekly Review

The Illinois Commission on Government Forecasting and Accountability (COGFA) recently updated their FY 2009 estimate of base general funds receipts to $27.356 billion. The forecast reflects a $2.303 billion falloff from the previous year, a decline of 7.8%, including (from COGFA):

The rate of decline of the most closely tied economically related sources (income and sales) is expected to accelerate further over the remainder of the fiscal year. Combined, the net year over year decline for personal, corporate, and sales tax is expected to total $1.569 billion.

Interest earnings are expected to continue to free-fall and end the year down $137 million as rates of return continue to be much lower.

Overall transfers are expected to post a combined decline of $323 million due to lower transfers from the lottery, riverboat gaming, and other transfers.

Base federal sources (unrelated to anticipated federal stimulus) are expected to fall $115 million from last year.

Fortunately, much of the base decline will be eliminated by an anticipated $2.154 billion in direct federal stimulus. Of that amount, $1.350 billion is from increased reimbursement related to Medicaid spending, while the remaining $804 million is connected to education.

When the $2.154 billion in federal stimulus monies are included, the year over year falloff is a much lower $149 million.

The resulting total of $29.510 billion reflects a decline of 0.5% from the previous year.

COGFA's updated revenue outlook for FY 2009 is $185 million higher than the forecast presented in the Governor's March budget. While the overall differences in the estimates represent only approximately 0.7%, a number of individual differences exist.
·

Both forecasts anticipate significant accelerations in declines for the estimates of personal, corporate, and sales taxes, although those rates of decline are more pronounced under the GOMB outlook.

Conversely, COGFA is significantly lower in the estimates of overall transfers.

While both estimates display the anticipated federal stimulus of $2.154 billion, they do not include $200 million in "fund sweeps" proposed in the Governor's budget plan.

Overall, the base growth rates used in forecasting FY 2009 revenues by GOMB seem quite conservative. Given the severity of the current recession, no doubt a conservative outlook is warranted. However, the degree to which base revenues must fall over the remaining months to reach the GOMB estimate is somewhat higher than what COGFA expects.

COGFA's FY 2010 ESTIMATE
Revenues are expected to slide again in FY 2010 as the deepening recession continues to manifest well into next fiscal year. COGFA estimates that base general funds (excluding federal stimulus) are forecast to fall $488 million from the previous year's estimate. The decline will mark two consecutive year's of base revenue declines totaling $2.816 billion, far worse than the $1.320 billion falloff experienced over the two-year period of the last recession (FY'02 and FY'03). While $1.882 billion in federal stimulus funds are anticipated in FY 2010, that amount is $272 million less than expected in FY 2009. As a result, when the federal stimulus funds are included in the year over year comparison, the falloff grows to $760 million less than the previous year.

For FY 2010 COGFA forecasts:

Personal income tax is forecast to tumble (5.7%) as the shedding of jobs will continue at least in the near term. Even if improvement occurs, it will be well into the fiscal year, too late to avoid another significant year of declines.

Corporate income tax is expected to suffer a second year of catastrophic declines (25.0%) as the business sector continues to contract and profitability continues to be elusive. During the last recession, gross corporate taxes experienced three consecutive years of decline before aggressively rebounding.

Higher proposed refund fund percentages will also serve to reduce net personal and corporate income taxes.

Sales tax receipts are expected to decline (1.5%).

Federal sources are expected to jump 18.2% as a concerted effort to maintain an anticipated improved Medicaid payment cycle results in increase spending and subsequent enhanced reimbursement. Since federal sources are largely dependent on spending, the estimate could change significantly based on enacted appropriation levels.

DETAILED CGFA/GOMB FY 2010 COMPARISON

COGFA's base FY 2010 estimate of $26.868 billion, or $28.750 billion when $1.882 billion in anticipated federal stimulus funds are included, is $82 million higher than the base estimate provided in the Governor's budget plan. While the difference represents a mere 0.3%, there are a number of areas where the estimates differ including:
·

COGFA's estimate of gross personal income tax is $200 million lower than the GOMB ($175 million net of refunds). COGFA anticipates another difficult year for personal income tax with receipts expected to fall 5.7%. GOMB anticipates growth to dip only 2.2%. In essence, GOMB has the worst part of the recession hitting earlier than COGFA.

COGFA's forecast of sales tax receipts is $281 million higher than the GOMB outlook. While the Commission foresees a continued falloff in FY 2010, the 1.5% rate of decline is not as severe as the GOMB's estimated drop of 4.2%.

COGFA is overall more conservative in other areas such as corporate franchise tax, lottery transfers, and riverboat transfers.