Leading Issues
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December 2012 Indiana State Revenue Forecast Summary
By John Grew
Indiana University Office of State Relations
State revenue and economic forecasts are typically produced in December and April (prior to the beginning of a new biennium) and the following December after the biennium has begun. Thus, this December forecast is the third in the cycle of biennial forecasts. The forecast includes an updated revenue projection for the partially completed FY 2012 as well as updated projections for the second year of the biennium, FY 2013. A summary of both the revenue and the economic forecasts are presented below.
Revenue Forecast
The forecast for FY 2012 was increased by $334 million over the amount projected in April, 2011, an increase that was influenced by several factors, which are discussed in detail below. FY 2013 revenues were increased by $183 million above levels forecast last April. Here are the amounts forecast for each of the fiscal years:
Actual
FY 2011 FY 2012 FY 2013
Total Forecast Revenue $13,274 $14,075 $14,432
Year over Year Growth 1,106 801 357
Year over Year % Change 8.9% 6.0% 2.5%
Increase from April Forecast 334 183
The increase in revenue forecast for FY 2012 is due to several factors. First, changes to state revenues accruing to the state general fund that were incorporated in bills enacted during the 2011 legislative session (but after the April, 2011 forecast), impacted revenues positively. These changes collectively added about $90 million to FY 2012 revenues. Of course, the recently discovered “lost” corporate tax revenue is another positive influence, adding about $102 million. Thus, nearly $200 million in revenue was added to FY 2012 as special adjustments. The remaining addition of $134 million for FY 2012 is in line with actual year-to-date revenue collections, which through November are $118 million above target. The revenue expectations for FY 2013 are modest, reflecting the updated Global Insight economic forecast, as discussed below. It is also important to mention that the special adjustments discussed above “inflate” the FY 2012 revenue growth rate and conversely “deflate” the FY 2013 growth rate.
Economic Forecast
An essential component of the state revenue projection process is an independent economic forecast. In addition to providing a general economic outlook, this forecast, prepared by Global Insight (GI), provides key economic data that are used in the equations that produce the various individual state tax revenue projections. Key economic projections are summarized in the table that follows:
FY 2011 FY 2012 FY 2013
Real GDP Growth 2.6% 1.7% 1.9%
IN Personal Income 4.7% 3.2% 3.3%
Inflation (GDP Implicit Deflator) 1.7% 1.9% 1.1%
Indiana Unemployment Rate 9.2% 8.6% 8.6%
Global Insight (GI) believes that the U. S. economy will continue to grow at a very modest pace. While domestic threats have eased some, GI believes that the largest threat remains the debt challenge faced by the Eurozone. In concert with the anticipated continued slow national economy recovery, GI expects modest economic growth in Indiana. GI projects that Indiana employment growth will be greater than most states, although Indiana’s unemployment rate is forecast to remain high, but falling slowly over the forecast period to 8.5% by the 2nd quarter, 2013.
Conclusion
While the increase in FY 2012 revenues initially seems substantial, the “real” increase is mitigated by special circumstances discussed above and otherwise reflects revenue performance for the first five months of the fiscal year. Modest revenue growth numbers for FY 2013 reflect continued uncertainty about the economy and an expectation for slow improvement in the economy.
