Economic and Revenue Forecasts...2,273 Mar 2015 926 7 May 2015 Consensus Conference Michigan Employment is Increasing 3,600 3,800 4,000 4,200 4,400 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

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May 2015 Consensus Conference

Economic and Revenue Forecasts

FY 2015 * FY 2016 * FY 2017

Consensus Revenue Estimating Conference

May 15, 2015


Outline

• Economic Forecast – David Zin, Senate Fiscal Agency

• Revenue Estimates for Major Taxes – Jay Wortley, Department of Treasury

• Revenue Estimates by Fund – Jim Stansell, House Fiscal Agency

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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%

2.3%1.6%

2.5%

0.1%

2.7%1.8%

4.5%

3.5%

-2.1%

4.6%5.0%

2.2%

0.2%

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

Jan-04 Mar-06 May-08 Jul-10 Sep-12 Nov-14

Source: Bureau of Labor Statistics.

U.S. Payroll EmploymentThousands

Apr 2015141,367

Jan 2008138,365

Feb 2010129,649

4

3

May 2015 Consensus ConferenceSource: Bureau of Economic Analysis.

Light Vehicle Sales Highest in 9 Years

Millions of Units

9

12

15

18

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

April 201516.5

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

5


ISM Indices Show Expansion

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

ISMManufacturing Index

April 2015 = 51.5

ISMNon-Manufacturing Index

April 2015 = 57.8

Source: Institute for Supply Management.6

4

May 2015 Consensus ConferenceSource: New Privately Owned Housing Units Started, U.S. Department of Commerce.

Housing Starts Increasing From Historical Lows

Thousands

400

600

800

1000

1200

1400

1600

1800

2000

2200

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

Jan 20062,273

Mar 2015926

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

March 20154,246

March 20103,829.8

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5


Real Estate Transfer Tax Reflects Increased Activity

-50%

-30%

-10%

10%

30%

50%

70%

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Year-Over-Year Change in 6 Month Trailing Average

April 201513.5%

Source: Michigan Department of Treasury.9


GDP Forecasts

Annual Percent Change

2.5%2.8% 2.8%

2.4% 2.1%2.6% 2.9%2.8% 3.1% 3.0%

2014 2015 2016 2017

HFA SFA Admin.

Actual

10

6


Light Vehicle Sales Forecast

16.8 17.1 17.216.4

17.0 17.2 17.016.8 17.1 17.2

2014 2015 2016 2017

HFA SFA Admin.

Millions of Units

Actual

11


Vehicle Sales Up, Big 3 Market Share Stabilizes

15.2 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

16.4 16.9 17.117.1

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

0.02.04.06.08.0

10.012.014.016.018.020.0

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Mil

lion

s of

Un

its

U.S. Light Vehicle Sales Big 3 Share

Average Agency Forecasts

Source: Automotive News.12

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MI Motor Vehicle Production & Employment

3.1

2.72.9

2.82.6 2.5

2.3 2.3

1.8

1.1

1.6

1.9

2.32.5

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

Th

ousa

nd

s of

Em

plo

yees

Mill

ion

s of

Un

its

Production Employment

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


Inflation Remains Low

-0.6%

1.6%2.1%

1.1%

-0.4%

1.5%1.9%

-0.5%

1.6%2.2%

2014 2015 2016 2017

HFA SFA Admin.

Detroit Consumer Price IndexFiscal Year Growth

Actual

14

8


Michigan Wage and Salary Employment

Annual Percent Change

2.4%

1.3% 1.1%1.7% 1.5%

0.9% 0.7%

2.1%

1.4% 1.2%

2014 2015 2016 2017

HFA SFA Admin.Actual

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Michigan Job Gains Expected Through 2017

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 70.4 83.051.1 43.5

Avg.

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9


Forecast of Major Taxes

• Individual Income Tax revenue is expected to increase each year due to continued growth in employment and earnings.

• The drop in gasoline prices is expected to slow the growth in sales tax receipts.

• SET is expected to continue to grow, but the rate of growth will be slowed in FY16 by low inflation.

• MBT net refunds are expected to peak in FY16 and CIT is expected to grow through FY17.

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Baseline Income Tax Growth

4.4%3.7% 3.3%

-0.4%

2.8% 3.3%2.6%

3.5%

9.3%8.5%

2014 2015 2016 2017

HFA SFA Admin.

Fiscal Year Growth

Actual

18

10


Net Income Tax Revenue Estimates

$8.57$8.89

$9.18

$8.01

$8.75$9.00

$9.30

$8.69$8.91

$9.22

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

19


Baseline Sales Tax Growth

3.2%3.7% 3.5%3.6%

1.4%

3.1%2.8%

4.2% 4.0%

2.5%

2014 2015 2016 2017

HFA SFA Admin.Actual

Fiscal Year Growth

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11


Net Sales Tax Revenue Estimates

$7.56$7.89

$8.17

$7.36 $7.43$7.67

$7.90$7.53

$7.90$8.21

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

21


Net SET Revenue Estimates

$1.84 $1.84 $1.88$1.80 $1.83 $1.86 $1.90$1.85 $1.88 $1.93

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

22

12


Net CIT/MBT Revenue Estimates

$0.20$0.09

$0.28$0.18

$0.35$0.24

$0.43$0.26

$0.16$0.35

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

23


Net CIT Revenue Estimates

$0.95 $0.98 $1.02$0.91

$1.10 $1.13 $1.16$1.01 $1.04 $1.07

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

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13


Net MBT Revenue Estimates

-$0.76-$0.89

-$0.73-$0.72 -$0.75-$0.89

-$0.73-$0.75-$0.89

-$0.73

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

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Michigan Business Tax & Certificated Credits

• The MBT was repealed in 2012 for most business taxpayers and replaced with the CIT.

• Taxpayers awarded certificated credits before 2012 may still pay the MBT and claim their credits.

• In FY 2014, MBT revenue totaled a negative $723 million (refunds/credits exceeded payments).

• In any given fiscal year, MBT returns are filed for several different tax years.

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14


Estimating MBT Net Refunds

Factors that make it difficult to estimate the MBT:

• Uncertainty of when credits will be claimed

• Uncertainty of the MBT/CIT liability businesses with credits will owe

• Uncertainty of resolution of prior-year issues

• Uncertainty of when prior year overpayments will be claimed.

• Uncertainty of non-credit refund amounts

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Actions Being Taken To Help Reduce Uncertainties

• MEDC is providing information on credit applications expected in near future

• Treasury is continuing to closely monitor MBT refunds and credits

• All of this information is being shared in aggregate with the Fiscal Agencies

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15


MBT Revised Estimates for FY15

• FY15 MBT net refund estimate is a negative $753 million, down $72 million from January.

• Transportation sector MEGA credit estimate is unchanged.

• Estimate of other credits and non-credit refunds is being lowered.

• Annual and quarterly MBT/CIT payments are being increased.

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GF-GP and School Aid Fund Revenue

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

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16


GF-GP and School Aid Revenue

Baseline Growth Rates Before Tax Changes

Average Agency Forecasts31

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% 4.9%

2.9% 3.0%

-12.0%

-7.0%

-2.0%

3.0%

8.0%

1990 1995 2000 2005 2010 2015


GF-GP Net Revenue Growth

6.4%

2.2% 2.3%

-5.7%

8.2%

1.5%2.6%

7.8%

1.6%2.5%

2014 2015 2016 2017HFA SFA Admin.

Fiscal Year Growth

Actual

32

17


GF-GP Net Revenue Estimates

$9.58

$9.79 $10.02

$9.02

$9.76$9.91 $10.16

$9.72$9.87 $10.11

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

33


School Aid Fund Net Growth

3.1%3.1%

2.8%2.2%

2.6%2.8%

2.6%

3.3%3.4%

3.2%

2014 2015 2016 2017

HFA SFA Admin.

Fiscal Year Growth

Actual

34

18


School Aid Fund Net Revenue Estimates

$11.88$12.25

$12.59

$11.52$11.82

$12.15$12.47

$11.90$12.30

$12.70

2014 2015 2016 2017

HFA SFA Admin.

Fiscal YearBillions

Actual

35


Major Revenue Estimate Revisions Compared To January Estimates

• Main Street Fairness: $60 million in FY16, not in Jan estimates but was included in FY16 Executive Budget.

• Individual Income Tax FY15 annual payments stronger than expected and refunds weaker.

• CIT collections are stronger than expected in FY15.

• Sales Tax receipts are lower than expected in FY15.

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19


FY 2015 Changes Since January

Change From January Consensus EstimatesMillions

37

$82.1

-$14.4

$257.9

-$68.5

$218.8

$8.1

HFA SFA Admin

GF-GP School Aid




38

$76.4

-$18.0

$194.7

-$115.1

$161.5

$38.2

HFA SFA Admin

GF-GP School Aid

20




39

$17.3

-$48.8

$160.7

-$171.9

$117.0

$58.4

HFA SFA Admin

GF-GP School Aid


Revenue Forecast Comparison

Millions

40

FY 2015 FY 2016 FY 2017

House Senate House Senate House Senate

Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal

Revenue Treasury Agency Agency Treasury Agency Agency Treasury Agency Agency

GF-GP $9,720 $9,583 $9,759 $9,875 $9,790 $9,908 $10,118 $10,018 $10,161

School Aid $11,897 $11,875 $11,821 $12,302 $12,246 $12,149 $12,699 $12,592 $12,469

Combined $21,617 $21,458 $21,580 $22,177 $22,036 $22,057 $22,817 $22,610 $22,630

Difference From January

GF-GP $219 $82 $258 $162 $77 $195 $117 $17 $161

School Aid $8 ($14) ($69) $38 ($18) ($115) $58 ($49) ($172)

Combined $227 $68 $189 $200 $59 $80 $175 ($32) ($11)

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Budget Stabilization Fund

• In FY 2015, the Agencies estimate pay-ins from $44 to $69 million.

• In FY 2016, the Agencies estimate pay-ins ranging from $209 to $250 million.

• In FY 2017, the Agencies estimate pay-ins ranging from $109 to $138 million.

• No BSF pay-outs are estimated by any of the Agencies during FY 2015, FY 2016 or FY 2017.

41


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

-$8.8-$8.2

-$9.0-$10.0

Average Agency Forecasts42

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Forecast Risks

• International issues

• Oil price uncertainty

• When will Fed raise rates and by how much?

• How will financial markets, consumers react to Fed action?

• Housing: will more consumers take on financial commitment?

• Business tax uncertainty

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Economic and Revenue Forecasts

FY 2015 * FY 2016 * FY 2017

Consensus Revenue Estimating Conference

May 15, 2015

Documents

Economic and Revenue Forecasts...2,273 Mar 2015 926 7 May 2015 Consensus Conference Michigan Employment is Increasing 3,600 3,800 4,000 4,200 4,400 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15