3-Year Budget Forecast FY 2021 FY 2023

2y ago
22 Views
2 Downloads
1.29 MB
24 Pages
Last View : 14d ago
Last Download : 2m ago
Upload by : Ophelia Arruda
Transcription

3-Year Budget ForecastFY 2021 – FY 2023Commission on GovernmentForecasting and AccountabilityMarch, 2020

Commission on GovernmentForecasting and AccountabilityCOMMISSION CO-CHAIRSSenator Heather SteansRepresentative C.D. DavidsmeyerSENATEHOUSEDonald DeWitteDavid KoehlerElgie SimsDave SyversonJil TracyThomas BennettSonya HarperElizabeth HernandezAnna MoellerJoe SosnowskiEXECUTIVE DIRECTORClayton KlenkeDEPUTY DIRECTORLaurie EbyREVENUE MANAGERJim MuschinskePENSION MANAGERDan HankiewiczAUTHORS OF REPORTBenjamin L. VarnerEXECUTIVE SECRETARYBriana JacksonEric Noggle

TABLE OF CONTENTS3-Year Budget Forecast(FY 2021 – FY 2023)March 2020SectionPAGEIntroductioniI.Illinois Budget History1II.Threats and Opportunities5III. 3-Year Budget Forecasts13TABLES:Table 1.Table 2.Table 3.Table 4.Table 5.General Funds Revenue Growth RatesGeneral Funds Expenditures Growth RatesService Tax EstimatesCGFA Estimates FY 2020 - FY 20233-Year Budget Scenarios24111417CHARTS:Chart 1. FY 2019 Base General Funds RevenuesChart 2. FY 2019 Base General Funds ExpendituresChart 3. General Funds Revenue History137APPENDIX:ABDetailed General Funds Revenue History FY2010 – FY2019General Funds Expenditures History by Agency FY2010 – FY20191819

INTRODUCTIONAs part of Public Act 96-0958, the Commission on Government Forecasting andAccountability has been directed to “ develop a 3-year budget forecast for theState, including opportunities and threats concerning anticipated revenuesand expenditures, with an appropriate level of detail.”This report represents the Commission’s mandated 3-year budget forecast. Itbegins with an examination of the State of Illinois’ General Funds revenues andexpenditures over the last 20 years, and then considers threats and opportunitiesto Illinois’ budget. Finally, it concludes with potential 3-year budget results basedupon scenario analysis.i

I.Illinois’ Budget HistoryTo begin analyzing Illinois’ budget, an assessment of historical General Fund revenues andexpenditures was conducted. The examined data was from the Illinois State Comptroller’sannual report entitled “Traditional Budgetary Financial Report.” The composition of baserevenues and expenditures was evaluated. In addition, growth rates for both revenues andexpenditures were calculated over various time periods. These assessments were then usedto assist in the Commission’s 3-year budget forecast.RevenuesBase General Funds revenue totaled 39.195 billion in FY 2019. This was an increase of 817 million, or 2.1%, from FY 2018’s level of 38.378. The largest component of baserevenue came from the Personal Income Tax (Net) which totaled 19.2 billion after refundsand mandated transfers. Personal Income Tax (Net) made up just under 50% of Total Stateand Federal Sources. Sales tax accounted for just over 20% of total revenue at 8.4 billion.Together these two sources were up over 2.1 billion in FY 2019 but this was somewhatoffset by Federal Sources. Federal Sources contributed 3.6 billion which was a significantdecline from the 5.2 billion in FY 2018. The chart below illustrates the major sources ofrevenue for the State.Chart 1. FY 2019 Base GeneralFunds RevenuesPersonal Income Tax (Net) 19,23649%( Million)*Total 39,195Public Utility Taxes 8632%Corporate Income Tax (Net) 2,3896%Transfers (includes Lotteryand Gaming) 2,0455%Sales Taxes (Net) 8,40922%Other State Sources 2,6537%Federal Sources 3,6009%Source: Illinois Comptroller*Excludes interfund borrowing and treasurer's investments-1-

Appendix A, at the back of this report, shows historical totals for General Funds revenuefrom FY 2010 to FY 2019. Three sources, Personal Income Tax, Sales Taxes, and FederalSources, annually contributed approximately 75% to 80% of total revenue. The proportionalmake up of General Funds revenue has been relatively steady over the last decade thoughFederal Sources is highly dependent on reimbursable Medicaid spending. Federal Sourceshave varied from about 8% to 20% of base revenues depending upon the fiscal year. FederalSources comprised over 20% of base revenues in FY 2009 and FY 2010 due to the federalstimulus plan but have made up only 8% to 9% in recent fiscal years. In FY 2018, theFederal Sources grew to over 13% due to increased spending made possible through bondsale proceeds but fell back to around 9% in FY 2019.Due to the passage of P.A. 100-0022 in 2017, both the personal and corporate income taxrates were increased. As these changes were fully implemented, the growth rates for GeneralFunds Revenue increased significantly. Overall, total base General Funds revenue grew over30% in FY 2018. Over half of this growth was due to an almost 5 billion increase fromthe Personal Income Tax. The other major source of growth was Federal Sources whichcontributed an additional 2.7 billion in growth. This single year of extraordinary growthhas significantly increased long-term growth rates.In FY 2019, General Funds revenue grew only 2.1%. This is below the longer termaverages. The 5-year average is 2.4%, while the 10-year average is a more robust 3.7% peryear. The 15-year and 20-year averages are very similar at 3.4% and 3.3%, respectively.Average growth rates for the individual revenue sources can be seen in Table 1.GENERAL FUNDS REVENUE GROWTH RATESFY 2000 - FY 2019*Revenue 5.5%-0.7%State TaxesPersonal Income Tax (Net)Sales TaxesOther State TaxesTransfers (includes Lottery and Gaming)Corporate Income Tax (Net)Public Utility TaxesTotal State SourcesFederal SourcesTotal, Base %2.1%2.4%3.7%3.4%3.3%*Excludes short-term borrowing, interfund borrowing, and other cash flow transfers-2-

ExpendituresBase General Funds expenditures were 39.507 billion in FY 2019. This was an increase of 644 million, or 1.7%, over FY 2018’s expenditures of 38.863. The largest source ofexpenditures was the State Board of Education which had total expenditures of 8.4 billionwhich was an increase of 175 million from FY 2018. The next largest expenditures werefound in Healthcare and Family Services at 7.6 billion.The largest increase was seen in the All Other Agencies which rose 515 million from 5.1billion to 5.6 billion. The Teachers’ Retirement System increased 382 million, or 9.1%,to 4.6 billion. One agency actually had declines in FY 2019. Corrections declined 371million to 1.5 billion. This was a decline of almost 20%.For a more detailed look at expenditures over the last decade, please see Appendix B in theback of this report.Chart 2. FY 2019 Base GeneralFunds Expenditures( Million)*State Board of Education 8,37621%Children and FamilyServices 7802%Healthcare and FamilyServices 7,63319%Aging 9192%Corrections 1,5194%All Other Agencies 5,60214%Higher Education Agencies 3,2268%Teachers' RetirementSystem 4,59211%Total 39,507Human Services 3,7409%*Chart excludes a - 26 million prior year adjustment,repayment of 10 million in interfund borrowing, 700 millionin Tresusurer's Investments, and 50 million in Treasurer'sInvestments - Contingency Fund ExchangeSource: Office of the Comptroller-3-Transfers Out3,90610%

Table 2 illustrates the growth of base general funds expenditures over the last 20 years. Aftertwo fiscal years (FY 2015 and FY 2016) with declines in total expenditures associated withthe budget stalemate, the State increased spending significantly the following two fiscal yearsas the backlog of bills was reduced. The five-year average growth in base general fundsexpenditure stands at 1.9%, while the 10-year rate has grown at 2.2%. The 15-year averagerises to 3.6%. The 20-year growth rate is a bit lower at 3.3%.Looking at the individual agencies, the Teachers’ Retirement System has a very large annualgrowth rate but this is due to an outlier fiscal year. In FY 2012, the State returned to fundingthe Teachers’ Retirement System by using General Funds after two years of using mostlyrevenue from pension notes. This led to an increase of 874% in FY 2012. Trying to accountfor the years affected by the use of pension notes, expenditures have grown more in the rangeof 10% to 15% per year, which is still high, but not as high as when including FY 2012’soutsized effect.Long term growth rates at the State Board of Education funding has been around 3.1%, whileHealthcare and Family Services has grown 3.4% to 4.0% per year. While the Departmentof Corrections was down in FY 2019, the department has averaged growth of 9.5% per yearover the last five years though the long term rate is around 3.5%. While small, theDepartment of Aging has grown at over 8% per year over the last ten years and is likely tocontinue to grow quickly in the near term as the Illinois population continues to age.For a more detailed look at expenditures over the last decade, please see Appendix B in theback of this report.TABLE 2. GENERAL FUNDS EXPENDITURES GROWTH RATESFY 2000 - FY 2019WARRANTS ISSUEDBY AGENCYState Board of EducationHealthcare and Family ServicesTeachers' Retirement System*Human ServicesHigher Education AgenciesCorrectionsAgingChildren and Family ServicesAll Other AgenciesPrior Year AdjustmentsTotal Warrants Issued (14 %48.6%3.5%TransfersTransfers OutTotal, Base 3.3%* Teachers' Retirement System expenditure growth rates are extremely high due to FY 2012 growth of over 874%. This largeincrease was due to the return of using General Funds revenue to fund the Teachers' Retirement System after mostly using pensionnotes in FY 2010 and FY 2011.-4-

II.Threats and OpportunitiesThe Threats and Opportunities section of this report highlights those issues that pose a threator create a negative outlook, or on the contrary, provide or offer a positive opportunity, toIllinois’ economic or financial condition. As Illinois’ financial troubles have been acontinuing matter of concern and uncertainty in recent years, several topics in this sectionare recurring issues from previous year’s reports, but for which we have provided updatedinformation.Threats Recession. At the time of the Commission’s release of its FY 2021 Economic Forecast andRevenue Estimate in early March 2020, the outlook for Illinois’ economy was good. Whileeconomic related growth was expected to slow somewhat from previous levels, Illinois wasdescribed by Moody’s Analytics as “in decent shape for a state facing a slowdown inmanufacturing, poor agricultural conditions, and numerous demographic and fiscalproblems” and that Illinois’ economy is “doing better than it has in some time”.Similarly, IHS Markit in its February 2020 economic forecast outlook estimated that the U.S.had only a 25% chance of a “pessimistic” scenario (a slowdown in the GDP to 1.9% in 2020with a 3rd quarter recession starting in the 2nd quarter of 2021), whereas the “baseline”forecast (continued moderate growth in the GDP) had a 65% chance of occurrence and the“optimistic” scenario (stronger growth in the GDP) had a 10% chance of occurrence.However, the value of each of these scenarios has been put into flux due to the recentdevelopments related to the COVID-19 virus. In recent days the price of oil has dropped,markets have experienced significant falloffs, and travel bans have been set into place. Theimpact that this will have on Illinois’ economy and its economically-tied revenue sources isimpossible to determine right now. However, the longer this period of uncertainty continues,the higher the chances that the U.S. (and therefore, Illinois) will enter into a recession in thenear future.Obviously, the extent of the impact of a potential recession in Illinois due to this pandemiccannot be accurately determined at this time due to the numerous unknowns that persist. Withthat being said, a look back at recent recessions can provide some guidelines on how thiscould possibly impact tax revenues in Illinois.Early 2000s RecessionBetween FY 2001 and FY 2003, overall tax revenues fell a combined 5.5% (see followinggraph on page 7). Revenues from the “Big 3” fell a similar 5.7% during this time frame.The Commission estimates that if the State were to experience a similar recession over theupcoming fiscal years, a falloff in revenues of near 2 billion would be expected. Again, thetiming of how this would affect particular fiscal years is difficult to predict, but it is likelythat the impact would be felt over more than one fiscal year.-5-

“Great Recession”A look back at the revenue performance of the State’s general funds during the “GreatRecession” shows that overall revenues fell a combined 8.7% between FY 2008 and FY 2010(see graph on page 7). During this timeframe, net revenues from the “Big 3” (personalincome tax, corporate income tax, sales tax) fell a combined 16.6%. Since that time, due torecent income tax increases, their composition of overall revenues has grown from around60% to near 78%. Because of the increased reliance on these sources, significant changes inthese taxes will have a greater impact on overall revenue performance. Because of this, theCommission estimates that if Illinois were to have another severe recession similar to the“Great Recession”, the decline in total receipts could reach 11%. In terms of receipts, thiswould equate to a revenue loss of around 4.5 billion. This revenue reduction would likelybe spread over multiple fiscal years.Uncertainty of a “COVID-19 Recession”While the certainty of the country, and world, plunging into recession seems to grow eachday, attempting to value the impact of COVID-19 on State revenues is virtually impossible.With that caveat, it seems reasonable to offer a scenario with more devastating impacts onrevenues in the near-term than even the “Great Recession”. As a result, should revenuesexperience a peak-trough decline of 20%, a revenue reduction of over 8 billion would beexperienced, although likely spread over multiple fiscal years.-6-

-7- 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 18,854 19,984 24,106 23,379 22,786 25,428 26,160 27,359 28,640 29,659 29,144 27,090 30,488 33,797 36,718 36,372 36,064 31,289 30,333Revenue Declines due toa Temporary Reductionin Tax Rates and Not Dueto a Recession 38,378 39,195 40,129 40,645Net Personal Income TaxesNet Corporate Income TaxesNet Sales TaxesAll Other State SourcesFederal SourcesFY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021estest 17,002 17,936 21,674 23,250Early 2000s RecessionMar'01 - Nov'01Overall Revenue Declineof 5.5% betweenFY 2001 and FY 2003"Great Recession"Dec'07 - Jun'09Overall Revenue Declineof 8.7% betweenFY 2008 and FY 2010 in millions(FY 1995 - FY 2021 est)General Funds Revenue History

Outstanding Bill Backlog. The accumulation of a bill backlog is a threat to the State ofIllinois due to the high cost of either having to borrow from the financial community athigher rates or through incurring late-payment interest penalties. The backlog of billshad grown to a high of approximately 16.7 billion during the fall of 2017. As of March12, 2020, the Comptroller reported a General Funds backlog of 7.6 billion which isdown from 8.8 billion from a similar time last year. Interest Penalty Payments. Illinois is mandated to pay interest for late payments to theState’s vendors and providers. There are two types of interest paid, depending on theassociated bill type. Timely Pay Interest (215 ILCS 5/368a) accrues at 9% annually forself-insured providers of the State Employees Group Insurance Program. PromptPayment Interest (30 ILCS 540) accrues at 12% to other State vendors for goods andservices purchased by any state official or agency authorized to expend from appropriatedstate funds. According to the Office of the Comptroller, in calendar years 2017 and2018, the Office of the Comptroller released more than 143 million and more than 711million, respectively, in late payment interest penalties. In 2019, the amount of latepayment interest penalties paid by the Comptroller was 236 million.As of January 31, 2020, the aggregate of outstanding accrued and pending late paymentinterest penalties at agencies and the Office of the Comptroller totaled approximately 324 million for the reporting period which was down from 470 million in 2019. Thesepayments are a threat to the State because any money needed to pay late payment penaltiesis money that cannot be used for other purposes. General Obligation Bond Ratings. Illinois has had one of the lowest credit ratingsamong the States for years. Illinois’ GO Bond ratings have been downgraded fifteen timessince 2010. The major consequence of the rating downgrades is that debt ratings are oneof the factors that are strongly considered when determining the interest rate the Statemust pay to issue debt (sell bonds). Consequently, declines in the State’s rating lead to acorresponding increase in debt service costs for Illinois. Unfunded Pension Liabilities. As with previous years, the unfunded pension liabilitiescontinue to pose a threat to the current fiscal outlook. As of June 30, 2019, the unfundedliabilities of the State retirement systems totaled over 137 billion, led by the Teachers’Retirement System (TRS), whose unfunded liability was about 78 billion. The combinedfunded ratio for the retirement systems for FY 2019 was 40.6%.The 2019 Report of the State Actuary, issued in December of 2019, noted that thestatutory funding method "does not adequately fund the systems" as the State is requiredto make contributions such that the systems become 90% funded by FY 2045, which doesnot satisfy "generally accepted actuarial principles and practices." The State Actuary also“recommend[s] that the funding method be changed to fully fund plan benefits anddiscontinue[s] the systematic underfunding of the systems. [.] Continuing the practice-8-

of underfunding the systems increases the risk of needing even larger contributions in thefuture that may make the systems unsustainable.” The inadequate funding of the pensionsystems is a threat to the State as pension needs will continue to crowd out other fundingneeds until this situation is rectified.1 Weak Demographics and Fiscal Instability. Moody’s Analytics prepared the State ofIllinois Forecast Report for the Commission in February 2020. The report highlightedrecent performance among various sectors of Illinois’ economy, as well as provided anear-term and long-term outlook, including risks that affect the Illinois forecast.The report identified weak demographic trends and deep-rooted fiscal problems, such asmounting pension obligations and a shrinking tax base which represent the biggest hurdlesto the longer-term economic outlook. The forecast anticipated that the state will grow astep behind the Midwest average and a few steps behind the nation over the extendedforecast horizon.The report stated that the state’s outlook is tarnished primarily by its budget woes andweak population trends, not its high costs relative to nearby states. Business costs in thestate are lower than they are nationally and have trended downward for the past fewdecades. Overall costs are similar to those in Ohio, lower than those in Michigan andWisconsin, but higher than those in neighboring Indiana and Iowa.Most economic gauges point to a performance gap with the Midwest and the U.S. due tothese issues. Income growth in key

Department of Aging has grown at over 8% per year over the last ten years and is likely to continue to grow quickly in the near term as the Illinois population continues to age. For a more detailed look at expenditures over the last decade, please see Appendix B in the back of this report. 1-Year 5-Year 10-Year 15-Year 20-Year

Related Documents:

Budget (Annual Budget) Revenues Expenses Multi-year (Actual; Budget; Budget) Project (program) Budget A project budget is the estimated financial plan for a project, for which funding is required. The total program budget is not just the grant r

Creating a Global Forecast Series 55 Creating a Departmental Forecast Series 56 Creating a Hybrid Forecast Series 58 Setting Up Customer Adaptive Forecasting 58 About Creating a Partner Forecast Series 59 Deactivating Auto-Forecast 59 About Configuring Revenue and Forecast Spreadsheets 60 Modifying Spreadsheet Applets for Forecasting 61

Climate/Weather Linkage Forecast Uncertainty Minutes Hours Days 1 Week 2 Week Months Seasons Years NWS Seamless Suite of Forecast Products Spanning Climate and Weather Global Ensemble Forecast System Climate Forecast System* Forecast Lead Time Warnings & Alert Coordination Watches Forecasts Threats Assessments

made to the Trial Budget when a proposed budget is presented on May 8. Latest General Fund Budget Status On Feb. 20, 2018, the Budget and Research Department presented a five-year General Fund forecast to the City Council. The multi-year forecast is a financial management best prac

forecast in both the 2017‑18 Budget and 2018‑19 Budget. Nominal GDP grew by 4.7 per cent in 2017‑18, which was stronger than the 2017‑18 Budget forecast of 4 per cent and the 2018‑19 Budget forecast of 4.25 per cent. This was the result of the stronger than expected real GDP g

Sep 27, 2019 · ISO’s long -term load forecast is a 10-year projection of . gross and net load . for states and New England region ‒Annual gross and net energy ‒Seasonal gross and net peak demand (50/50 and 90/10) Gross peak demand forecast is probabilistic in nature ‒Weekly load forecast distributions are developed for each year of forecast .

FY 2022 Budget Forecast Report Prepared for: Green Mountain Power Prepared by: Itron, Inc. 20 Park Plaza Boston, MA 02116-4399 617-423-7660 April 22, 2021 . developed as part of the recent VELCO long-term state energy and demand forecast. Revenue Forecast. Sales forecasts are generated at the customer class level for residential, small C&I .

FY 2023 under the executive budget baseline forecast. However, LBO economists anticipate FY 2021 total GRF tax revenue to grow 9.6% from FY 2020 compared with a growth rate of 7.4% in the executive budget forecast. Medicaid service expenditure forecast Medicaid services are an entitlement for individuals who meet eligibility requirements.