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Update Jul
Update Jul
FY 2013 Revenues Exceed Forecast by $463 Million; Closing Balance will be Allocated to School Shift Buy Back
Minnesotas net general fund receipts for FY 2013 are now estimated to total $17.927 billion, $463 million (2.7 percent) more than Februarys forecast. State revenues for the final quarter of FY 2013 were $318 million more than forecast. (See page 4) Both individual and corporate income tax receipts exceeded forecast in fiscal 2013, while sales tax receipts fell below projections. Other tax and non-tax revenues were also above forecast. About 70 percent of the fiscal 2013 forecast variance was from the individual income tax. General fund revenues in fiscal 2013 are now estimated to be 9.2 percent greater than in fiscal 2012.
Actions taken in the 2013 Legislative session require that Minnesota Management and Budget estimate the FY 2013 closing balance by September 30, 2013. The entire closing balance, which includes both final revenue and expenditure variances, is then to be used to reduce the $874 million in school shifts currently outstanding. Before the action by the 2013 Legislature any school shift buy back would not have occurred until after Novembers official budget forecast and been based on the projected ending balance for the 2014-15 biennium. More than one-half of the $335 million individual income tax variance appears to come from higher than anticipated tax year 2012 liability. Payments accompanying extensions were $136 million more than projected and tax year 2012 individual income tax refunds, $60 million less than anticipated. Stronger than expected economic growth in late 2012 likely explains some of the additional 2012 liability. But, much of the observed increase is believed to be attributable to high income taxpayers choosing to move even more income into 2012 than was projected in Februarys forecast.
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Economic Update
July 2013
The income shift into 2012 was triggered by the anticipation of higher federal income tax rates on the earnings and capital gains of upper income taxpayers. Moving income from future years into 2012 to benefit from lower tax rates does not produce a permanent gain for state revenues. Other things equal the acceleration produces one-time, additional state income tax revenue in fiscal 2013, followed by offsetting reductions in later years. Withholding through June was $90 million (1.3 percent) above forecast. Individual estimated payments for the month of June were $47 million (21 percent) more than projected. Gross sales tax receipts ended fiscal 2013 $52 million (1.0 percent) below forecast. Some of that gap may be timing related, since June payments were the source of much of the shortfall. Lower than projected sales tax refunds partially offset the lower sales tax revenues leaving net sales tax receipts $33 million below forecast. Corporate tax receipts, buoyed by generally strong corporate profits exceeded forecast by $124 million or 10.0 percent. The insurance gross premiums tax, the estate tax, and departmental earnings were the sources of much of the positive variance in other tax and fee revenues. All FY 2013 results are preliminary and subject to change. As in past years the forecast for some revenue sources have been adjusted to reflect anticipated accruals. A complete reporting of FY 2013 revenues will be part of Octobers Economic Update. The next official forecast will be released in December, 2013. Economic Outlook for FY 2014-15 Is Much the Same as in February The U.S. economy continues to struggle to break out from the slow growth path it has been on since the end of the Great Recession. Signs of strength are certainly evident in recent months. Employment reports show good job growth, with job increases averaging nearly 200,000 per month during the past three months. Housing is rebounding from its 5 year crash. The auto industry continues its recovery with light vehicle sales in 2013 now projected to be the highest since the slump in 2008. And, consumer sentiment is back in its normal range after more than five years of recession-like readings. But, real GDP growth continues to be disappointing. Real growth in the first quarter is now reported to have been at a sluggish 1.8 percent rate, and economists expect the second quarter growth rate to be well below the 2.5 to 3.0 percent range generally considered to be sustainable for the U.S. economy over the long term. Most forecasters expect that slow growth pattern to continue through the second half of 2013 as the fallout from federal fiscal policy decisions made in late 2012 restrains economic activity. Januarys payroll tax increase and the federal spending reductions required by the sequester are generally believed to be reducing real GDP growth in 2013 by about one percent. The short-term (12 to 18 month) outlook is further clouded by ambiguities surrounding future actions by the Federal Reserve, particularly when it will begin tapering its bond purchasing program and the impact that tapering will have on the U.S. and global economies. Global Insight Inc. (GII), Minnesotas macro-economic consultant, is only slightly less optimistic about the short term outlook than they were in February, modestly lowering their outlook for 2013 and 2014. The GII July baseline now calls for real GDP growth rates of 1.6 percent in 2013 and 2.7 percent in 2014. In February growth rates of 1.9 percent and 2.8 percent were projected. Differences between the GII baseline and the Blue Chip Consensus 2
Economic Update
July 2013
are small. For 2013 the Blue Chip panel expects real growth of 1.8 percent; for 2014 a 2.7 percent growth rate is projected. Both GII and the Blue Chip panel see no problems from inflation. Global Insights July baseline calls for CPI growth to remain below two percent thorough 2018. Global Insight assigns a probability of 65 percent to their July baseline scenario. In February the baseline was given a 60 percent probability. A more pessimistic scenario in which the economy barely avoids a recession in 2014 is given a probability of 20 percent, while a more optimistic scenario is given a probability of 15 percent. In February both alternatives were set at 20 percent.
Economic Update
July 2013
156,000 84,630 191,060 204,900 304,900 42,800 230,850 19,418 816,701 47,900 0 3,600 165,144 247,899 78,131 51,854 0 178,608 6,792
167,461 83,248 189,060 215,515 332,808 38,908 225,009 22,988 809,768 51,326 0 3,044 170,060 267,954 80,737 55,081 805 164,851 6,226
11,461 (1,382) (2,000) 10,615 27,908 (3,892) (5,841) 3,570 (6,933) 3,427 0 (556) 4,917 20,055 2,606 3,227 805 (13,757) (566)
35,773 25,424 47,879 60,099 69,500 17,391 65,194 18,431 436,391 9,536 0 647 0 41,275 24,932 13,043 291 32,895 2,264
45,243 24,731 37,515 68,419 77,402 14,537 62,881 22,005 429,435 11,602 0 (384) 4,916 65,450 29,268 16,605 392 16,147 1,698
9,471 (693) (10,364) 8,321 7,902 (2,853) (2,314) 3,574 (6,957) 2,066 0 (1,030) 4,916 24,175 4,336 3,562 101 (16,748) (566)