Wednesday, April 8, 2020

Independent Fiscal Office Projects $2.7 Billion To $3.9 Billion Reduction In Revenues Over Current, Next Fiscal Year

On April 8, the Independent Fiscal Office issued a special report projecting a $2.7 billion to $3.9 billion reduction in state revenues in the current and FY 2020-21 combined under two different scenarios of how long the COVID-19 shutdown will remain in effect-- a six-week closure ending April 27 and a 10-week closure ending May 25.
More specifically, the IFO projects a decline in revenues for each scenario--
-- Corporate Net Income Tax Of $517 million and $754 million
-- Sales Tax revenue decline by $46 million and $366 million
-- Personal Income Tax revenue declines by $803 million and $997 million
-- Total General revenue declines by $1.4 billion and $2.2 billion
Both estimates exclude a potential gain of $400 million to $500 million from federal stimulus.
The FY 2019-20 total revenue numbers under both scenarios are projected to be $32.383 billion and $31.872 billion. The IFO had been projecting total revenue of $35.518 billion in February.  
The enacted FY 2019-20 budget totals $33.9 billion, but as noted there are an estimated $800 million to $1.4 billion in supplemental appropriations needed to pay for actual expenses. Read more here.
The FY 2020-21 total revenue numbers under both scenarios are projected to be $37.754 billion and $36.989 billion.
Both scenarios assume 1.1 million workers-- excluding self-employed that receive unemployment compensation-- are impacted by business closures increasing unemployment to 8.7 percent and employment contracts by 264,000 jobs.
In the six-week scenario, it is assumed one-half of those 1.1 million workers return to work after the six-week closure and the other half remain unemployed through June. A similar pattern would occur in the 10-week scenario only lasting longer.
Both scenarios assume certain economic projections that have net profits falling by 10 to 15 percent and corporate profits decline by 15 to 25 percent.  
As a point of comparison, the IFO said during the 2009 tax year, net profits declined by 9.5 percent.  Corporate profits declined by 9.5 percent in 2007, by 11.3 percent in 2008 and 14.3 percent in 2009.
The report also includes an estimate of how much Pennsylvania will receive from federal and state stimulus measures adopted so far under the six-week and 10-week  scenarios--
-- Rebates/Cash Payments                   $10.4 billion $10.4 billion
-- UC Paid by State Government           $4.5 billion $6.0 billion
-- UC Paid by Federal Government     $10.1 billion $11.7 billion
-- Various Business Tax Cuts                 $4.3 billion $4.3 billion
-- Forgivable Small Business Loans     $12.5 billion $12.5 billion
-- Federal Grants to State Government   $4.6 billion $4.6 billion
-- Federal Grants to Local Government  $3.4 billion $3.4 billion
    Total                                                   $49.8 billion $52.8 billion
The next scheduled update of state revenue estimates is now set for May 20.
[Posted: April 8, 2020]

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