Leading Issues

Indiana State December 2009 Revenue Forecast Summary

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, the forecast this December is being completed during the mid-point of the first year of the biennial budget and its purpose is to help state policymakers ensure that revenues are reasonably consistent with spending.  Unfortunately, with the continued unprecedented decline of state revenues, updating the forecast this December was anything but routine.  A summary of both the revenue and the economic forecasts are presented below.

Revenue Forecast

                                                                        FY 2010          FY 2011

Total Forecast Revenue                            $12,076           $12,836

Reduction from May Forecast                ($1,039)             ($797)

% Reduction from May Forecast                 (7.9%)             (5.8%)

Year over Year Growth                                    (830)                  760

Year over Year % Change                              (6.4%)                6.3%

These results can best be described as sobering, if not expected, due to continued shortfalls in monthly revenue receipts.  To put the situation in proper perspective, the updated revenue projection of $12.3 billion for FY 2010 represents the lowest level of state revenue collections since FY 2005. 

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 a private company, Global Insight, provides key economic data that are used in the equations that produce state tax revenue projections.

While economic growth has begun, Global Insight believes it is likely to be subdued due to an absence of robust consumer spending.  Modest economic growth is being nurtured by the federal stimulus, low business inventories, and relatively strong exports as Asian countries recover faster than countries in other regions.  Impacting consumer spending is high unemployment which is expected to remain at levels above 10% in Indiana into 2011, although Global Insight projects that it will peak during the first half of 2010.                               

Conclusion

There is no question that the current economic recession has harmed state revenues in a way not experienced since the Great Depression.  It may take several years for the state to recover from this recession and for state fiscal health to be restored.  In the meantime, the state will continue to face huge challenges to bring spending in line with significantly reduced revenues.

 

Indiana Innovation Alliance

The Indiana Innovation Alliance joins together the efforts of academia, business, and government to strengthen Indiana’s assets in biosciences and life sciences.