State Gets $7 Billion Revenue Bump

The forecast, completed late Monday, will give lawmakers more money to play with as they piece together a budget for the 2023-2024 fiscal year, which will start in July. General revenue plays a critical role in funding programs such as education, health care and prisons.

The economists, meeting as the state Revenue Estimating Conference, added $4.27 billion in estimated general-revenue collections to the forecast for the current fiscal year, which ends June 30. They also added $2.78 billion to projected collections in the 2023-2024 year.

The projected increases were driven mostly by inflation-elevated sales tax collections. But the economists also cautioned about parts of the economy, including the housing market.

The panel meets periodically during the year to revise revenue estimates. As part of Monday’s forecast, they lowered estimates by $1 billion for revenue from real-estate transactions and intangible taxes, a further sign of a slowdown in housing sales.

“That’s a signal that we need to be concerned about the entire forecast,” Amy Baker, coordinator of the Legislature’s Office of Economic & Demographic Research, said after the meeting. “The Fed (Federal Reserve) actions to raise their interest rates, the federal funds rate, feeds through to the mortgage interest rate. So, once you saw that, and you saw the high (housing) prices that were existing prior to that happening, and the two just collided. It made it very difficult for people to qualify for financing and get a house.”

Economists built a decline into a forecast issued in the summer, and Baker said “we deepened it” with the new numbers.

Also, a large portion of the increased revenue estimates are tied to one-time funding streams, rather than recurring sources of money.

Nearly 14 percent of the increased projection for the current fiscal year stems from efforts to rebuild areas hit by the deadly Category 4 Hurricane Ian in September.

A March 7 conference report estimated total damages from Ian will reach $53.51 billion, based on data from the Office of Insurance Regulation and updates from the National Flood Insurance Program.

“This translates into a theoretical gain of over $1.55 billion in sales tax,” the March 7 report said. Of that total, $481.4 million has already been received.

Also, unlike in a summer forecast, when an economic downturn was anticipated, a “mild” recession is built into the new model.

“The risk associated with the national economic forecast continues to be skewed to the downside, with an 80 percent probability that the new forecast will unfold as predicted,” a conference summary said Monday.

As for the overall uptick in revenue, the numbers are based on collections since August that far exceed expectations. A key issue is that increased prices related to inflation have helped boost sales-tax collections.

With tourism among the state’s biggest economic drivers, projections for sales-tax collections were upped by $3.66 billion for the current fiscal year and $2.73 billion for 2023-2024.

But questions also remain on the course of future sales-tax collections.

Consumers have been digging into personal savings, and the state could see a return to a more “typical purchasing mix of goods and services and managing personal budget constraints in a period of persistent inflation,” the conference summary said.

Economists have expressed concerns for months about consumers’ use of personal savings. People saw their savings grow during the initial stages of the COVID-19 pandemic. But savings now are below the rate from the pre-pandemic 2018-2019 fiscal year.