behind the numbers: an expert look at the commonwealth’s economic and revenue outlook · 2015. 5....
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Pennsylvania Economy League Civic Leadership Education Program
May 2015 Independent Fiscal Office
Behind the Numbers: An Expert Look at the Commonwealth’s
Economic and Revenue Outlook
What is the Independent Fiscal Office? • Our role in the budget process.
The Short-Term Outlook.
• The economic outlook for 2015 and 2016. • The revenue outlook for this fiscal year and next. • The tax proposals from the Executive Budget.
The Long-Term Outlook.
• The demographic outlook. • The outlook through 2020 and beyond.
May.2015 2
Today’s Presentation
Act 120 of 2010 Creates Independent Fiscal Office. • Hiring starts September 2011; staff of 9 currently. • Similar to the Congressional Budget Office at state level.
Our Primary Duties:
• Annual revenue estimate: May 1 (initial) and June 15. • Five-Year Economic and Budget Outlook: November 15. • Mid-Year Budget Update: late January.
Office Does Not Make Policy Recommendations.
May.2015 3
Independent Fiscal Office
Two Regular Reports. • Monthly Economic Report. • Monthly Revenue Trends Report.
Special Studies (at request of Gen. Assembly):
• HB 1776 and SB 76 – Property Tax Reform. • Corporate Tax Base Erosion. • PA Turnpike Tolls. • Impact of Medicaid Expansion. • Taxation of Natural Gas in Pennsylvania. • York County School District Consolidation.
May.2015 4
Other Products and Releases
Short-Term Economic Outlook
Growth Accelerates Expanding Labor Market
Low Inflation Consumer Spending Improves
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Calendar Year Annual Growth Rates
2010 2011 2012 2013 2014 2015 2016
Real State GDP 2.3% 1.4% 1.2% 0.7% 1.3%
Philadelphia CPI-U 1.9% 2.7% 1.8% 1.2% 1.3%
Wages-Salaries 2.1% 3.9% 3.8% 1.9% 3.5%
Avg. Job Gains (000s) 5.1 64.8 40.3 14.7 45.8
May.2015 6
PA Economic Forecasts
Calendar Year Annual Growth Rates
2010 2011 2012 2013 2014 2015 2016
Real State GDP 2.3% 1.4% 1.2% 0.7% 1.3% 1.7% 1.8%
Philadelphia CPI-U 1.9% 2.7% 1.8% 1.2% 1.3% 0.5% 1.9%
Wages-Salaries 2.1% 3.9% 3.8% 1.9% 3.5% 3.8% 3.9%
Avg. Job Gains (000s) 5.1 64.8 40.3 14.7 45.8 54.9 55.6
May.2015 7
PA Economic Forecasts
2013 2014 2015 2016 Construction -0.2 5.2 6.0 7.2 Manufacturing -2.7 2.7 2.0 0.1 Wholesale-Retail -1.3 3.4 8.0 3.6 Professional Services 15.1 10.5 10.1 11.9 Health-Social 6.9 14.7 12.0 17.9 Leisure-Hospitality 8.1 6.0 9.5 9.8 Government -11.9 -9.0 -4.5 -1.5
Local -7.5 -7.9 -5.0 -1.2 State and Federal -4.4 -1.1 0.5 -0.3
All Other 0.7 12.3 11.8 6.6 Total 14.7 45.8 54.9 55.6 Professional Services includes the Management and Administrative sectors.
May.2015 8
PA Annual Job Gains (000s)
Gasoline Prices Drive Low Consumer Inflation. • Philadelphia CPI-U down -0.1% for February 2015. • Gasoline and utilities inflation both negative.
They Also Improve Consumer Confidence.
• At highest level since the recession.
Consumers Appear to Respond. • Delayed reaction to low gasoline prices. • Recent data from March are encouraging. Sales tax
collections picking up.
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Consumer Spending Picks Up
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Gas Prices Drive Low Inflation Year-Over-Year Change Oct-14 Dec-14 Feb-15 Weight All Items – Philly CPI-U 1.6% 0.6% -0.1% 100.0% Food and Beverage 2.5% 3.6% 2.1% 13.8% Housing Shelter 2.6% 2.2% 2.9% 35.1% Fuels and Utility -2.3% -3.1% -4.5% 6.0% Furnishings -3.1% -1.9% -0.7% 4.1%
Transportation Car, Public Transit 2.9% 2.0% 3.0% 9.5% Gasoline -4.1% -21.5% -33.8% 4.5% Medical Care 3.3% 3.5% 5.6% 7.1% All Other 3.0% 2.7% -1.2% 19.8% Core: All Items Less Energy 2.1% 2.0% 2.0% n.a. %
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Monthly Average Gas Price
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Feb 2015
June 2008 EIA Mid-Atlantic Price
June 2014
~$2.70
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Consumer Confidence Strong
50
55
60
65
70
75
80
85
90
95
100UM Consumer Sentiment Index
June 2008
aligns well with gasoline price drop
June 2014
Feb 2015
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U.S. Consumer Spending on Goods
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15
Excludes Gasoline
All Consumer Spending
Dining Out
U.S. Census Bureau Advance Retail Sales: Year-Over-Year Growth
Jan-15
Short-Term Revenue Outlook
Unexpected Revenues for FY 2014-15 Corporate Net Income and Escheats
Little Revenue Growth for FY 2015-16
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April April Dollar Percent 2014 2015 Change Change
General Fund $23,927 $25,715 $1,789 7.5% PIT – Withholding 7,380 7,662 282 3.8% PIT – Other 2,236 2,507 270 12.1% Sales and Use 7,485 7,819 333 4.5% Corporate Income 1,983 2,259 276 13.9% Gross Receipts 1,256 1,239 -17 -1.3% Cap. Stock-Franchise 270 188 -82 -30.5% All Other 3,316 4,042 725 21.9% Dollar amounts are in millions. PIT denotes personal income tax.
Fiscal Year-to-Date Revenues
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One-time revenues ~+$700
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Net Change = +$594 million
Revised FY 2014-15 Forecast
Increases Decreases
Dollar amounts are in millions.
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Net Change = +$594 million
Revised FY 2014-15 Forecast
Increases Decreases Corporate Net Income $334 Escheats 220 Inheritance 93 Sales and Use 93 Personal Income 38 All Other 39 Subtotal 817 Dollar amounts are in millions.
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Net Change = +$594 million
Revised FY 2014-15 Forecast
Increases Decreases Corporate Net Income $334 Transfers -$95 Escheats 220 Casino Fees -75 Inheritance 93 Cigarettes -24 Sales and Use 93 Gross Receipts -16 Personal Income 38 All Other -13 All Other 39 Subtotal 817 Subtotal -223 Dollar amounts are in millions.
May.2015 19
Major Sources of Revisions
$0
$100
$200
$300
$400
$500
$600
$700
All Other +$40
Escheats +$220
Corp. Net Inc. +$334
Dollar amounts are in millions.
$594 million
May.2015 20
IFO Forecast
2014-15 Percent 2015-16 Percent Revenue Source Amount Change Amount Change
General Fund - Total $30,551 6.8% $30,722 0.6%
Corporate Net Income 2,818 12.6% 2,818 0.0%
Sales and Use 9,557 4.7% 9,897 3.6%
Personal Income 12,064 5.5% 12,568 4.2%
Other Tax Revenue 5,033 0.1% 4,875 -3.1%
Non-Tax Revenue1 1,079 122.0% 564 -47.8% Dollar amounts are in millions. 1 Includes $50 million Category 2 casino license fee for FY 2015-16.
May.2015 21
General Fund Revenue Comparison
2014-15 2015-16 IFO (May 2015) $30,551 $30,722 Growth Rate 6.8% 0.6%
Executive Budget (Mar 2015)* $30,177 $30,625 Growth Rate 5.5% 1.5%
Dollar Difference $374 $97 Two-Year Total $471 Dollar amounts are in millions. *FY 2015-16 Executive Budget, General Fund Financial Statement, p. C1.5. Excludes proposed revenue changes.
Proposals from Executive Budget
Increase Sales and Personal Income Taxes Lower Property Tax
Renter Relief Lower Corporate Net Income Tax
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2015-16 2016-17 2017-18 2018-19 2019-20 Sales and Use – Base1 $1,172 $2,979 $3,207 $3,423 $3,599 Sales and Use – Rate1 399 991 1,024 1,058 1,093 Personal Income2 2,243 2,396 2,509 2,631 2,759 Net Severance3 176 855 993 1,322 1,584 Tobacco Taxes4 523 606 588 581 575 Bank Shares 397 147 155 164 173 Total Revenues 4,908 7,974 8,476 9,179 9,783 Dollar amounts are in millions. 1 Expands tax base to many services and products. Increases rate from 6.0% to 6.6%. 2 Increases rate from 3.07% to 3.70%. Expands tax forgiveness credit. 3 Equal to new severance tax less existing impact fee ($225 million per annum) starting in FY 2016-17. 4 Raises cigarette tax from $1.60 to $2.60 per pack. New 40% tax (retailers) on other tobacco products.
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Revenue Raisers
2015-16 2016-17 2017-18 2018-19 2019-20 School Property Tax Relief $0 -$2,732 -$2,732 -$2,732 -$2,732 Philadelphia Tax Relief1 0 -452 -452 -452 -452 Renter Relief2 0 -369 -383 -396 -388 CNIT – Tax Rate Reduction3 -280 -965 -1,144 -1,261 -1,324 CNIT – Combined Reporting 0 366 276 261 273 Total Tax Relief -280 -4,152 -4,435 -4,580 -4,624 Dollar amounts are in millions. 1 Includes cigarette, sales, wage and property tax relief. 2 Provides up to a $500 rent rebate for qualified households with income below $50,000. 3 CNIT denotes corporate net income tax. Reduces the tax rate from 9.99% to 4.99% over several years.
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Tax Cuts and Tax Relief
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Revenue Impact Summary
2015-16 2016-17 2017-18 2018-19 2019-20
Revenue Increases $4,908 $7,974 $8,476 $9,179 $9,783
Revenue Decreases -280 -4,152 -4,435 -4,580 -4,624
Total Revenues 4,628 3,822 4,041 4,599 5,159
Dollar amounts are in millions.
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Revenue Impact Summary
2015-16 2016-17 2017-18 2018-19 2019-20
Revenue Increases $4,908 $7,974 $8,476 $9,179 $9,783
Revenue Decreases -280 -4,152 -4,435 -4,580 -4,624
Total Revenues 4,628 3,822 4,041 4,599 5,159
Federal Offsets 236 -91 -170 -200 -201
Dollar amounts are in millions.
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Revenue Impact Summary
2015-16 2016-17 2017-18 2018-19 2019-20
Revenue Increases $4,908 $7,974 $8,476 $9,179 $9,783
Revenue Decreases -280 -4,152 -4,435 -4,580 -4,624
Total Revenues 4,628 3,822 4,041 4,599 5,159
Federal Offsets 236 -91 -170 -200 -201
Non-Residents 567 931 980 1,230 1,453
Dollar amounts are in millions.
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Revenue Impact Summary
2015-16 2016-17 2017-18 2018-19 2019-20
Revenue Increases $4,908 $7,974 $8,476 $9,179 $9,783
Revenue Decreases -280 -4,152 -4,435 -4,580 -4,624
Total Revenues 4,628 3,822 4,041 4,599 5,159
Federal Offsets 236 -91 -170 -200 -201
Non-Residents 567 931 980 1,230 1,453
PA Residents 3,826 2,983 3,230 3,569 3,907
Total Revenues 4,628 3,822 4,041 4,599 5,159 Dollar amounts are in millions.
Long-Term Demographic Outlook
Further Budget Challenges Diminishing Revenue Growth
Elderly Population Needs
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Broad Demographic Trends 2010 2015 2020
Number Number Growth Number Growth PA (000s) 0 – 19 3,173 3,128 -1.4% 3,092 -1.2% 20 – 64 7,575 7,609 0.4 7,571 -0.5 >= 65 1,963 2,212 12.7 2,540 14.9 Total 12,711 12,949 1.9 13,203 2.0
US (millions) 0 – 19 83.2 83.4 0.3 84.7 1.6 20 – 64 185.7 190.3 3.1 193.2 1.5 >= 65 40.4 47.7 17.8 56.0 17.3 Total 309.3 321.4 4.3 333.9 3.9 Sources: U.S. Census Bureau and Penn State Data Center.
May.2015 31
PA Demographics 2010 thousands of residents
0
200
400
600
800
1,000
5.7% 2.4%
Gen Y or Millennials
26.1%
Gen X or Baby Bust
24.6% Silent Generation
13.0%
Baby Boomers
28.1%
Born 1946 - 64
Born 1965 - 84
Born 1985 - 04
May.2015 32
PA Demographics: 2010 vs. 2020
0
200
400
600
800
1,000
Age 20-39 +258k +8.2%
Age 40-59 -440k
-12.0%
Age >59 +755k
+27.8%
+230 organic growth +29 net dom. migration +232 net int’l migration +491 net increase
2020 2010
May.2015 33
International Migration Fuels Growth components of population change
2010-20 2020-30 2030-40
Start of Decade 12,711 13,203 13,701
Organic Growth 230 174 -32
Net Domestic Migration 29 29 31
Net Int’l Migration 232 296 331
End of Decade 13,203 13,701 14,032
Cumulative Growth 3.9% 3.8% 2.4%
Source: Pennsylvania State Data Center.
May.2015 34
Cumulative Growth Rates Through 2040
-10%
10%
30%
50%
70%
90%
2010 2015 2020 2025 2030 2035 2040
> 84 +98%
65 to 84 +61%
All Ages +10%
20 to 64 +0%
0 to 19 +1%
Short and Long-Term Budget Challenges. • Short-term: temporary measures boost revenues. • Long-term: stagnation of the working age populace
and expansion of age 65 and older.
Not Possible to “Grow Out” of Challenges. • Many budget issues are structural. • Tax base and revenues grow slower than economy. • Will require difficult policy choices over several years.
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Wrap Up
May.2015 36
Thank You!
Independent Fiscal Office Rachel Carson State Office Building, 2nd Floor
400 Market Street Harrisburg, PA 17105
(717) 230-8293
www.ifo.state.pa.us
2016-17 2017-18 2018-19 2019-20 Distributions for Tax Relief $3,800 $3,800 $3,800 $3,800 Less: Existing Tax Relief -616 -616 -616 -616 New Tax Relief Distributions 3,184 3,184 3,184 3,184
SD Property Tax – Homestead -1,473 -1,506 -1,538 -1,570 SD Property Tax – Millage -1,259 -1,226 -1,194 -1,162 School District Subtotal -2,732 -2,732 -2,732 -2,732
New Philadelphia Tax Relief -452 -452 -452 -452
Total New Distributions -3,184 -3,184 -3,184 -3,184
Renter Rebates -369 -383 -396 -388
Total New Tax Relief -3,553 -3,567 -3,580 -3,572 Dollar amounts are in millions.
May.2015 37
School District Property and Local Tax Relief