February 10, 2012
In its most recent monthly briefing, the State of Illinois Commission on Government Forecasting and Accountability (COGFA) published new revenue projections for FY2012 and an early preview of its FY2013 projections, both reduced from previous forecasts.
COGFA is a bipartisan joint legislative commission that provides analysis on State economic issues and the fiscal impact of legislative initiatives as well as reports on the State budget throughout the year.
As discussed in the Civic Federation’s analysis of the FY2012 enacted budget, the commission’s original General Funds revenue projections for FY2012 were $764 million higher than the estimate that the General Assembly based the budget on as of July 2011. This amount would have been sufficient to close the $508 million General Funds budget deficit projected for the current fiscal year, which ends on June 30, 2012.
COGFA’s new FY2012 projection of $33.4 billion will still exceed the current $33.1 billion estimate for FY2012 revenues from the Governor’s Office of Management and Budget (GOMB) but now is only $276 million higher. The only significant change that COGFA made to its projections for FY2012 was a reduction of $370 million in federal revenues to account for a lower level of Medicaid spending that will reduce the reimbursements in FY2012.
The briefing also includes a preliminary overview of the commission’s outlook for FY2013 revenues. Typically, COGFA does not release its revenue estimates for the coming fiscal year until March, after the Governor’s budget address. However, this year due to heightened interest COGFA included a brief table on its expectations for FY2013 revenues in its January 2012 briefing. The preliminary outlook did not include details of the individual General Funds revenues sources such as income taxes, sales taxes, public utility taxes. Instead it reported on three revenue categories: State sources, transfers and federal sources.
COGFA’s General Funds projections for FY2013 totaled $34.3 billion, a $900 million increase from FY2012. The growth in revenue is attributed to a $531 million increase in State source taxes and $370 million in additional federal resources. COGFA’s projection is $186 million more than the estimate of $34.1 billion included in the Governor’s three-year projections published in January. The difference between COGFA’s projection for the next fiscal year is due to $199 million in additional State-source revenues and $13 million less in transfers. Both projections use an estimate of $4.2 billion in federal revenues.
Although the latest GOMB and COGFA projections for FY2013 are not very far apart, the new projections from COGFA are significantly lower than the commission’s forecasts published in March 2011. Total General Funds revenues declined by $1.4 billion from the total of $35.7 billion included in COGFA’s three-year projections presented during the FY2012 budget process. The largest decline in FY2013 revenues is a reduction in federal revenues totaling $934 million. State-source revenues are also down from last year’s estimates by $584 million, while transfers increase by $103 million.
The following table shows the difference in COGFA’s FY2013 projections from March 2011 compared to February 2012 by source of funds.
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The lower federal revenues are based on a much lower level of Medicaid funding despite projections by the Illinois Department of Healthcare and Family Services that costs will continue to rise well above current funding levels.
The briefing does not provide a detailed explanation for the lower State source revenues other than to state that it takes into account continued modest growth in economic sources and recent legislative changes made in the fall veto session. The changes in the veto session included a large package of tax breaks for corporations and individuals approved in December 2011 that will take effect in FY2013.
Earlier this month, COGFA also published its annual economic outlook report for Illinois prepared for the State by Moody’s Analytics. The analysis includes a statistical review of the overall State economy including labor statistics, business trends and government policies. The study concludes that due to subpar demographic trends, deep rooted fiscal problems in the State budget and a worsening tax environment, Illinois’ economy will continue to lag behind regional and national growth trends. The report predicts that the unemployment rate will only improve slightly in 2013 to 9.2% from 9.9% in 2012. Growth in overall personal income in the State is expected grow to $615.3 billion in 2013, an increase of 4.9% over the 2012 total of $586.5 billion. This is slightly better than the growth from 2011 to 2012 when personal income only increased by 3.3%.