Missouri

Budget Update

June 2013

Missouri Division of Budget and Planning

MISSOURI BUDGET UPDATEJune 2013

Economic Data – Actual & Projected

State Revenue Update

State Spending Update

What’s Ahead for FY 2014 and FY 20152

MISSOURI BUDGET UPDATE

Economic Data – Actual & Projected

3

Personal Income jumped at the end of 2012 as investors closed out positions in an effort to avoid tax increases on capital gains.

Wage growth will slow somewhat thru mid-2013, but accelerate as the economic recovery strengthens in 2014.

2008q1

2008q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

(10%)

(5%)

0%

5%

10%

Growth in MO Personal IncomeQ/(Q-4)

Personal Income

Wages & Salaries

4

5

2007q1

2007q3

2008q1

2008q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

4%

5%

6%

7%

8%

9%

10%

11%

US & MO Unemployment RatesSeasonally Adjusted Data

US MO

US rate is expected to decline slowly but steadily through 2013. In general, MO rate follows the national trend, but has remained below

the national average since 2010.

6

20

07

q1

20

07

q3

20

08

q1

20

08

q3

20

09

q1

20

09

q3

20

10

q1

20

10

q3

20

11

q1

20

11

q3

20

12

q1

20

12

q3

20

13

q1

20

13

q3

(2%)(1%)

0%1%2%3%4%5%6%

Inflation (CPI)Q/(Q-4) CPI

Inflation remains subdued.Growth in “core” inflation, excludes food & energy, remains low.

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State Revenue Update

Recent general revenue collections

Historical comparisons

8

Total $7,691.7

FY 2013 NET GENERAL REVENUE COLLECTIONS($ in millions)

Individual In-come, $5,148.0

67%

Sales $1,888.0 25%

Corporate $345.0 5%

County Foreign $170.0

2%

All Other $140.7

2%

9F

Y 2006

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

FY

2012

6,600

7,000

7,400

7,800

8,200

8,600

9,000

9,400

Typical Growth Actual

$M

Typical Growth assumes an annual increase of 3.5%

MO General Revenue Collections

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The Hancock Gap

FY

1995

FY

1996

FY

1997

FY

1998

FY

1999

FY

2001

FY

2002

FY

2003

FY

2004

FY

2005

FY

2006

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

FY

2012

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

TSR Collected TSR Adjusted Limit

Coll

ecti

on

s ($

M) $3.7B

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General Revenue as % of Personal Income

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20123.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%4.1%

3.8%

3.6%

3.7%3.7%

3.9%3.9%

3.8%

3.3%

3.1%3.2% 3.2%

.

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

FY

2012

6,750

7,350

7,950

8,550

9,150

9,750

450

500

550

600

650

General Revenue Collections& Tax Credit Redemptions

Actual Revenues Tax Credit Redemptions

Net

GR

Tax C

redits

Figures in millions

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REVENUE COLLECTIONSHOW ARE WE DOING?

The revised revenue forecast estimated 4.8% growth for GR for FY 2013; actual collections at 10% at end of May.

- Individual income – 4.4% forecast, 9% end of May

- Sales tax – 2.2% forecast, 1.5% end of May

Doing well, however, the biggest growth is in declarations and remittances. Could largely be tied to investment income & federal tax changes.

Unknown: HB 253 (more later)

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14

State Spending Update

The official spending pie

Adding in tax credits

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FY 2014 General Revenue Operating Budget Total Appropriations $8.28 Billion

Elementary and Sec-

ondary Ed-ucation$2.9B 35.0%

Higher Education$864M 10.4%

Judiciary, Elected Of-ficials, Gen-eral Assem-

bly$291M 3.5%

Corrections and Public

Safety$687M 8.3%

Human Services

$2.5B30.1%

What's Missing? Tax Credits.

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Agency FY 13 Approp FY 12 Redm.Elementary and Secondary Education 2,917.5Social Services 1,499.4Higher Education 850.4

Total Tax Credits 629.5Corrections 602.5Mental Health 602.0

Non-Senior Tax Credits 511.9Employee Benefits 492.1Health 270.8Judiciary 170.8

LIHTC Redemptions 164.2Historic Redemptions 133.9

Senior Property 117.6Office of Administration 112.5Statewide Leasing & Property Mgmt 112.4Revenue 84.9Public Safety 62.9Elected Officials 49.6Public Debt 45.2Economic Development 36.6Public Defender 36.3All Other (Agric, Nat Res, etc) 67.9

Tax Credit Redemptions Compared to GR Approps (millions of $s)

$ 608.3M

$140.8M

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Tax Credit Redemptions by Fiscal Year

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

350

400

450

500

550

600

650

398.7

365.2 356

408.3 406.1412.2

479.3504.5

584.7

522.9545.2

629.5

$M

MISSOURI BUDGET UPDATE

FY 2014 and FY 2015 BUDGET

What’s Ahead?

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FY 2014 AND FY 2015

Base general revenue is doing well.

- Continued growth in economy will keep it on track.

General revenue growth for FY 2014 projected at 3.1%.

Higher than expected growth in FY 2013 will help get us there.

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FY 2014 AND FY 2015 (HB 253)

HB 253 casts a huge shadow on FY14 and future years.

One provision alone could cost an estimated $1.2 billion in the year it happens – Federal Marketplace Fairness Act (FMFA).

- .5% rate reduction on individual income tax.

- For year of passage plus retro refunds for three years.

- At least $300M per year.

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FY 2014 AND FY 2015 (HB 253)FMFA (continued)

Missouri tax cut automatic w/ congressional passage of FMFA.

Senate passed FMFA (69/27).

Fairness of taxes for bricks and mortar big issue.

The ½% rate reduction for income taxes would be retroactive to beginning of tax year = estimated $300 million cost.

Refunds for three years = estimated $900 million cost.

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FY 2014 AND FY 2015 (HB 253)

Other Issues:

Eventual cost (not including FMFA) is $800 million.

Triggers are not a safeguard.

- FMFA cut not tied to growth.

- Business exemption ($260M) not tied to growth.

- Cuts tied to the income trigger would have happened in FY 2009, despite steep decline ($553M).

- Triggers don’t count refunds.

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FY 2014 AND FY 2015 (other concerns)

Since Medicaid expansion on hold, won’t see anticipated savings.

- Over $40M in FY 2014.

- Over $100M in FY 2015.

No tax credit reform.

The TAFP budget assumes $316 million in lottery for FY2014, which would require about 8% growth.

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SUMMARYPositive signs in the economy.

Current collections looking good.

HB 253 has huge negative implications for revenue that could happen immediately.

Without tax credit reform and Medicaid expansion, we will lose those savings.

Lottery will struggle to hit TAFP budget.

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