Economic and Revenue Forecasts...MI Motor Vehicle Production & Employment 3.1 2.7 2.9 2.8 2.6 2.5...

January 2016 Consensus Conference

Economic and Revenue ForecastsFY 2016 * FY 2017 * FY 2018

Consensus Revenue Estimating ConferenceJanuary 14, 2016


Outline

• Economic ForecastJim Stansell, House Fiscal Agency

• Revenue Estimates for Major Taxes David Zin, Senate Fiscal Agency

• Revenue Estimates by Fund Jay Wortley, Department of Treasury

2


0.2%

3.1% 2.7%

1.4%

-2.7%

2.0%

-1.9%

-8.2%

-5.4%

-0.5%

1.3%

3.9%

1.7%

3.9%

2.7% 2.5%

-1.5%

2.9%

0.8%

4.6%

2.7%1.9%

0.5%0.1%

1.9%1.1%

3.0%3.8%

-0.9%

4.6% 4.3%

2.1%

0.6%

3.9%

2.0%

2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012Q1 2013Q1 2014Q1 2015Q1

GDP Quarterly Growth Rates

Real GDP Growth

Figures are annualized percent change from preceding quarter in 2005 chained dollars.Source: Bureau of Economic Analysis. 3


U.S. Employment Increasing

129,000

134,000

139,000

144,000

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: Bureau of Labor Statistics.

U.S. Payroll EmploymentThousands Dec 2015

143,242

Jan 2008138,365

Feb 2010129,649

4

January 2016 Consensus ConferenceSource: Bureau of Economic Analysis.

Light Vehicle Sales at Historically High Levels

Millions of Units

910111213141516171819

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Dec. 201517.2

Note: Sales rates are shown as an annual average sales rate.

5


ISM Indices Show Manufacturing Contracting

30

35

40

45

50

55

60

65

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

ISMManufacturing Index

Dec 2015 = 48.2

ISMNon-Manufacturing Index

Dec 2015 = 55.3

Source: Institute for Supply Management. 6

January 2016 Consensus ConferenceSource: New Privately Owned Housing Units Started, U.S. Department of Commerce.

Housing Starts Increasing From Historical Lows

Thousands

400600800

1000120014001600180020002200

Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15

Jan 20062,273

Nov 20151,173

7


Michigan Employment is Increasing

3,600

3,800

4,000

4,200

4,400

Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

Source: Bureau of Labor Statistics.

Michigan Payroll EmploymentThousands of Jobs

Nov 20154,279

March 20103,830

8


Real Estate Transfer Tax Reflects Increased Activity

-50%

-30%

-10%

10%

30%

50%

70%

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Year-Over-Year Change in 6 Month Trailing Average

Dec 20158.8%

Source: Michigan Department of Treasury. 9


GDP Forecasts

Annual Percent Change

2.6% 2.8% 2.5%2.5%1.9% 2.0% 2.2%

2.9% 2.9%2.5%

2015 2016 2017 2018

HFA SFA Admin.Estimate10


Light Vehicle Sales Forecast

17.8 18.1 17.917.4

18.0 18.0 17.918.1 18.0 17.8

2015 2016 2017 2018HFA SFA Admin.

Millions of Units

Actual

11


Vehicle Sales Up, Big 3 Market Share Stabilizes

15.617.0 17.4 17.2 16.8 16.6 16.9 16.9 16.5 16.1

13.1

10.411.6

12.7

14.415.5

16.417.4

18.0 18.0 17.9

30%35%40%45%50%55%60%65%70%75%

0.02.04.06.08.0

10.012.014.016.018.0

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Mill

ions

of U

nits

U.S. Light Vehicle Sales Big 3 Share

Average Agency ForecastsSource: Automotive News. 12


MI Motor Vehicle Production & Employment

3.1

2.72.9 2.8

2.6 2.52.3 2.3

1.8

1.1

1.6

1.9

2.32.5

2.4 2.4

0

50

100

150

200

250

300

350

400

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2002 2004 2006 2008 2010 2012 2014

Tho

usan

ds o

f Em

ploy

ees

Mill

ions

of U

nits

Production Employment

Source: Michigan Department of Treasury & U.S. Bureau of Labor Statistics. 13


Inflation Remains Low

1.1%

2.2% 2.3%

-1.1%

1.0%

2.4%2.6%

1.1%

2.2%2.4%

2015 2016 2017 2018

HFA SFA Admin.

Detroit Consumer Price IndexFiscal Year Growth

Actual

14


Michigan Wage and Salary Employment

Annual Percent Change

1.1%

1.6%1.4%

2.2%

1.2%1.0%

0.7%

1.3% 1.4%

1.0%

2015 2016 2017 2018

HFA SFA Admin.Forecast

15


Michigan Job Gains Expected Through 2018

Change in Michigan Wage and Salary EmploymentThousands

Average Agency Forecasts

88.0

-112.7-76.8 -71.0

-16.9 -9.3

-63.2 -58.7

-105.7

-291.6

-7.2

88.5 81.5 71.2 70.489.5

51.6 57.2 44.8

Avg.

16


Forecast of Major Taxes

• Individual Income Tax Annual Payments are expected to decline in FY16 from the large one-time capital gains driven increase in FY15.

• Gasoline prices are not expected to drop again like they did in FY15, so sales tax revenue is expected to grow in FY16 - FY17.

• SET is expected to continue to grow, but it will grow at a slower rate in FY16 due to low inflation.

• MBT net refunds are expected to peak in FY16 and CIT is expected to grow through FY18.

17


Baseline Income Tax Growth

2.4%3.5% 3.1%

12.2%

3.0% 3.3%3.6% 3.1%3.0%3.8%

2015 2016 2017 2018

HFA SFA Admin.

Fiscal Year Growth

Actual

18


Net Income Tax Revenue Estimates

$9.03$9.35

$9.83

$9.27$9.52

$9.83$9.32

$9.65$9.93

$8.98

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

19


Baseline Sales Tax Growth

3.3% 3.4% 3.5%

-1.1%

2.5% 2.7%

4.2%3.8% 3.6%

2.7%

2015 2016 2017 2018

HFA SFA Admin.Actual

Fiscal Year Growth

20


Net Sales Tax Revenue Estimates

$7.54$7.78

$8.05

$7.25$7.50

$7.68$7.88

$7.59$7.87

$8.15

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

21


Sales Tax Collections Fall in FY 2015

Source: Michigan Department of Treasury. 22

dollars in millions

Type of Purchase FY 2014 FY 2015 % ChgGasoline ST $824.3 $603.6 -26.8%MV Purchases ST $906.3 $925.4 2.1%All Other Purchases $5,624.3 $5,717.4 1.7%

Total $7,354.9 $7,246.4 -1.5%


Net SET Revenue Estimates

$1.90 $1.94 $2.00$1.86 $1.89 $1.94 $2.00

$1.87 $1.92 $1.98

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

23


Net CIT/MBT Revenue Estimates

$0.07

$0.40

$0.53

$0.44

$0.13

$0.42

$0.53

$0.08

$0.40

$0.53

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

24


Net CIT Revenue Estimates

$1.11 $1.15 $1.17$1.08 $1.14 $1.16 $1.17$1.11 $1.14 $1.17

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

25


Net MBT Revenue Estimates

-$1.03

-$0.74-$0.64-$0.64

-$1.00

-$0.74-$0.64

-$1.03

-$0.74-$0.64

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

26


Michigan Business Tax & Certificated Credits

• The MEDC/Treasury system to track certificated credits is working well.

• MEDC notifies Treasury when a business qualifies for a certificated credit.

• Treasury builds this information into their revenue estimates.

• Businesses must file the certificate with Treasury to receive a refund.

• However, some certificates are not filed as soon as expected.

27


Estimating MBT Net Refunds

• In FY15, MBT net refunds were $112 million short of the May estimate.

• This reflects a timing issue, not a reduction in MBT refunds.

• Most of the $112 million in credits have already been filed in FY16.

• While MBT net refunds were smaller in FY15 by $112 million, they will be up by $112 million in FY16.

28


Insurance Tax

• Insurance companies pay into several special funds to help pay certain benefits.

• The Insurance Tax provides insurance companies credits for many of these payments.

• PA 204 of 2012 (amended Insurance Code) moved the administration of one of these funds from the Secretary of State to the MAIPF.

• No credit was provided for the payments to the Secretary of State, but payments to a fund administered by the MAIPF has qualified and continues to qualify for a tax credit.

29


Insurance Tax (continued)

• In FY15, insurance companies began claiming credits for their old and new payments to the MAIPF.

• This reduced insurance tax collections $60 million in FY15 and will reduce them an estimated $80 million in FY16 and after.

30


GF-GP and School Aid Fund Revenue

31

• Growth rate comparisons.• Level comparisons. • Budget Stabilization Fund calculation.• Constitutional Revenue Limit calculation.


GF-GP and School Aid Revenue

Baseline Growth Rates Before Tax Changes

Average Agency Forecasts32

1.1%

-2.7%

2.9%

6.5%

8.3%

6.0% 6.1%5.5% 5.9%

7.9%

6.1%

-1.7%-1.3%-0.9%

1.9%

3.8%

1.0% 1.1%

2.6%

-10.5%

-2.1%

7.1%

4.5%

7.4%

5.0% 5.1%

2.6%

3.0%2.9%


GF-GP Net Revenue Growth

-3.5%

3.9% 3.8%

11.3%

-2.1%

2.7%3.9%

-0.8%

3.9% 3.5%

2015 2016 2017 2018HFA SFA Admin.

Fiscal Year Growth

Actual

33


GF-GP Net Revenue Estimates

$9.69

$10.07$10.46

$10.03 $9.95

$10.22$10.62

$9.96

$10.35$10.71

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

34


School Aid Fund Net Growth

2.9% 2.8% 2.9%

1.7%

3.0%2.5% 2.6%

3.7%

3.2%

2.9%

2015 2016 2017 2018

HFA SFA Admin.

Fiscal Year Growth

Actual

35


School Aid Fund Net Revenue Estimates

$12.08$12.42

$12.78

$11.75$12.12 $12.42

$12.74$12.18

$12.57$12.93

2015 2016 2017 2018

HFA SFA Admin.

Fiscal YearBillions

Actual

36


Major Revenue Estimate Revisions Compared to May Estimates

• $112 million in MBT refunds were moved from FY15 to FY16.

• Additional credits being claimed by insurance companies is reducing insurance tax: $60 million in FY15 and $80 million in FY16 and after.

• Tax litigation court decisions are reducing use tax $60 million in FY16, $15 million in FY17 and $25 million in FY18 and MBT $18 million in FY16.

37


Major Revenue Estimate Revisions Compared to May Estimates (continued)

• Larger lottery jackpots will boost lottery revenuean estimated $20 million.

• Newly enacted data center sales and use tax exemptionwill reduce revenue $11 million in FY16, $15 million in FY17 and $16 million in FY18.

38


FY 2015 Changes Since May

Change From May Consensus EstimatesMillions

39

$309.4

-$136.1

GF-GP School Aid




40

-$194.3-$159.9

$63.8

-$119.0

$77.6

-$61.5

HFA SFA Admin

GF-GP School Aid




41

-$52.9

-$173.9

$96.8

-$177.4

$226.4

-$27.3

HFA SFA Admin

GF-GP School Aid


Revenue Forecast Comparison

Millions

42

FY 2016 FY 2017 FY 2018House Senate House Senate House SenateFiscal Fiscal Fiscal Fiscal Fiscal Fiscal

Revenue Treasury Agency Agency Treasury Agency Agency Treasury Agency Agency

GF-GP $9,959 $9,688 $9,946 $10,348 $10,069 $10,218 $10,714 $10,455 $10,619

School Aid $12,181 $12,083 $12,124 $12,572 $12,425 $12,421 $12,934 $12,780 $12,740

Combined $22,140 $21,771 $22,070 $22,919 $22,493 $22,640 $23,649 $23,235 $23,359

Difference From May

GF-GP $77 ($194) $64 $226 ($53) $97 --- --- ---School Aid ($62) ($160) ($119) ($27) ($174) ($177) --- --- ---Combined $16 ($354) ($55) $199 ($227) ($81) --- --- ---

MayGF-GP $9,882 $9,882 $9,882 $10,122 $10,122 $10,122 --- --- ---School Aid $12,243 $12,243 $12,243 $12,599 $12,599 $12,599 --- --- ---


Budget Stabilization Fund

• In FY 2016, the Agencies estimate pay-ins from $246 to $265 million.

• In FY 2017, the Agencies estimate pay-ins ranging from $171 to $229 million.

• In FY 2018, the Agencies estimate pay-ins ranging from $0 to $58 million.

• No BSF pay-outs are estimated by any of the Agencies during FY 2016, FY 2017 or FY 2018.

43


Constitutional Revenue Limit Calculation

Billions

-$0.6

$0.0 $0.2

-$2.4

-$3.9-$4.2-$4.4-$4.2-$4.9-$5.3

-$4.7

-$7.7-$7.6

-$5.6-$5.5-$6.5

-$8.5-$7.8

-$9.0-$9.6

-$10.2

Average Agency Forecasts 44


Forecast Risks

• International issues (political and economic)• At what pace will Fed raise interest rates?• Oil price uncertainty• How will consumers react to international issues,

interest rate increases, oil price changes, etc. and how will this impact sales tax?

• Housing: will more consumers take on financial commitment?

• MBT, CIT, Insurance Tax uncertainty• Income Tax Annual Payments

45


Economic and Revenue ForecastsFY 2016 * FY 2017 * FY 2018

Consensus Revenue Estimating ConferenceJanuary 14, 2016

Economic and Revenue Forecasts...MI Motor Vehicle Production & Employment 3.1 2.7 2.9 2.8 2.6 2.5...

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Transcript of Economic and Revenue Forecasts...MI Motor Vehicle Production & Employment 3.1 2.7 2.9 2.8 2.6 2.5...