New DOR Report Foreshadows Budget Challenges
An economic forecast issued Monday by the Department of Revenue (DOR) provides more evidence that Wisconsin will face substantial budget challenges in the current fiscal year and the next biennium. According to that document, which is the fall 2014 Wisconsin Economic Outlook, the nation’s economic growth will fall well short of what DOR assumed in its last report, which was issued in January. (These used to be known as the quarterly economic reports, but for some reason are now issued irregularly and just once or twice a year.)
The January economic report was issued in conjunction with increased state revenue projections, which helped persuade state lawmakers to enact substantial tax cuts. But over the last 10 months the estimates of the national* economy, i.e. the “gross domestic product” (GDP), have changed as follows:
- The anticipated GDP in 2014 is now $152 billion less (-0.9%) than assumed in January.
- The estimate for 2015 is $210 billion lower than previously anticipated (-1.1%).
- The anticipated 2016 GDP is now $234 billion less than estimated in January (-1.2%).
[*Correction: I initially wrote that these figures reflect state-level GDP estimates, but they are national figures. That doesn’t change their relevance, since the national economic trends are the most important factor in changes in a state’s “gross state product” (GSP).]
The implications of those downward revisions in the estimated size of the state economy should become somewhat clearer later this week when the Dept. of Administration (DOA) issues a biennial report with new revenue projections for the current fiscal year and the 2015-17 biennium. That report also generally compares the revenue projections for the next biennium to the agency budget requests.
In late August we learned that state tax revenue in fiscal year 2013-14 fell $281 million short of what the prior state budget documents had assumed. Of course that fueled significant concerns about the health of the current budget and the challenges in the next biennium, as well as considerable debate during the gubernatorial campaign. However, the DOR Secretary and the Governor argued the state was still in good fiscal shape because revenue would bounce back and would reach the amount projected for the current fiscal year.
The new Wisconsin Economic Outlook doesn’t contain revenue estimates, but the downward revisions to the national GDP seem to me to be clear indicators that state revenue will be far less than the amount DOR projected in January (and stood by just a month or so ago). I hope I’m wrong about that. We should learn a lot more in the next few days, when DOA issues its biennial report.
[Update: Read about the DOA report in our Nov. 27 blog post.]