The Independent Fiscal Office Tuesday cut its state revenue forecasts for FY 2016-17 by $695 million over its estimate from July of last year and confirmed the current year budget shortfall is over $1.21 billion, so far.
The IFO in November projected the deficit for FY 2016-17 would be $500 million and the deficit in FY 2017-18 would grow to $1.7 billion under current law and tax policies.Current Year
FY 2016-17 unrestricted General Fund revenues are estimated to be $31.82 billion, $695 million below the estimate issued by the IFO at the beginning of the fiscal year last July.
“The three largest General Fund revenue sources, corporate net income, sales and use and personal income taxes, are underperforming in FY 2016-17,” Knittel noted. “The downward revision in the estimate is largely attributable to a decline in corporate profits and weak consumer spending. Income shifting from 2016 to 2017 in anticipation of lower federal tax rates may have contributed to the weak collections.”
Knittel noted the net base growth rate in revenue is actually a negative 1 percent, in spite of strong job gains in the state in health care (23,700), professional services (14,400) and leisure/hospitality (13,100) sectors in 2016 for a net gain of 52,200 jobs.
There has been a decline in gas extraction and mining (9,000), manufacturing (9,300) and wholesale-retail (2,700) jobs in 2016.
Knittel said, however, the jobs increases in Pennsylvania are not translating into consumer spending even though consumer confidence remains high.
FY 2017-18 unrestricted General Fund revenues are projected to be $32.45 billion, an increase of $632 million (2.0 percent) over FY 2016-17. The projection is made on a current law basis, and it does not include the impact of proposed changes to statute.
“The Pennsylvania economy is expected to grow moderately in FY 2017-18,” Knittel said. “Revenue growth will be constrained by non-recurring revenues received in FY 2016-17 and various technical factors.”
Relative to the Executive Budget presented in February, these projections are $487 million lower for FY 2016-17 and $172 million lower for FY 2017-18, for a two-year difference of -$658 million. These amounts exclude the proposed statutory changes identified in the Executive Budget.
The IFO projects a 3.2 percent reduction in State Lottery ticket sales in FY 2016-17 due in part because of the lack of very large jackpots so far and a decline in instant ticket sales.
Click Here for the IFO presentation and full report.
The next IFO revenue estimate will be released on or around June 20.
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