1

MissouriFiscal Update

June 2014

MISSOURI FISCAL UPDATEJune 2014

Economic Data – Actual & Projected

State Revenue Update

State Spending Update

Current Status and Future Outlook2

MISSOURI FISCAL UPDATE

Economic Data – Actual & Projected

3

Personal Income jumped at the end of 2012 as investors closed out positions in an effort to avoid tax increases on capital gains. This contributed to artificially slower growth at the end of 2013

Wage and business growth will accelerate as the economic recovery strengthens in 2014.

2008q1

2008q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

(10%)

(6%)

(2%)

2%

6%

Growth in MO Personal IncomeQ/(Q-4)

Personal IncomeWages & Salaries

4

5

2007q1

2007q3

2008q1

2008q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

4%

5%

6%

7%

8%

9%

10%

11%

US & MO Unemployment RatesSeasonally Adjusted Data

US MO

US rate is expected to decline slowly but steadily through 2014. In general, MO rate follows the national trend, but has remained below

the national average since late 2009.

6

Jan-09M

ay-09Sep-09Jan-10M

ay-10Sep-10Jan-11M

ay-11Sep-11Jan-12M

ay-12Sep-12Jan-13M

ay-13Sep-13Jan-14

2,600

2,625

2,650

2,675

2,700

2,725

2,750

2,775

(5.0%)

(4.0%)

(3.0%)

(2.0%)

(1.0%)

0.0%

1.0%

2.0%%-ChangeEmployment

Empl

oym

ent

(Tho

usan

ds) C

hange from Year-A

goMissouri Current Employment

Source: US BLS

7

2007q1

2007q3

2008q1

2008q3

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

(2%)(1%)

0%1%2%3%4%5%6%

Inflation (CPI)Q/(Q-4) CPI

Inflation remains subdued.Growth in “core” inflation, excludes food & energy, remains low.

8

2009q1

2009q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

17,500,000,000.0

18,000,000,000.0

18,500,000,000.0

19,000,000,000.0

19,500,000,000.0

20,000,000,000.0

(10.0%)(8.0%)(6.0%)(4.0%)(2.0%)0.0%2.0%4.0%6.0%8.0%10.0%Sales ($ - Seas. Adj.)

Percentage Change

Fiscal Quarter

Total Taxable Sales

Source: DOR Quarterly Reports,Seasonally Adjusted by B&P

Consumers continue to regain confidence as employment and income improve.

9

State Revenue Update

Recent general revenue collections Historical comparisons

10

Total $8,082.7

FY 2013 NET GENERAL REVENUE COLLECTIONS($ in millions)

Individual In-come, $5,488.5

68%

Sales $1,872.0 23%

Corporate $415.5 5%

County Foreign $151.9

2%

All Other $154.8

2%

11FY

2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

6,6007,0007,4007,8008,2008,6009,0009,4009,800

7,332.27,716.4

8,003.98,284.0

8,573.98,874.0

9,184.69,506.1

7,450.8

6,970.97,109.67,340.6

8,082.7

Typical Growth Actual

$M

MO General Revenue Collections

12

General Revenue as % of Personal Income

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20133.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%4.1%

3.8%

3.6%3.7% 3.7%

3.9% 3.8%3.8%

3.4%

3.1%

3.2% 3.2%

3.4%

.

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

FY 2012

FY 2013

6,750

7,350

7,950

8,550

9,150

9,750

450

500

550

600

650

479.3504.5

584.7

522.9545.2

629.5

512.9

General Revenue Collections& Tax Credit Redemptions

Actual Revenues Tax Credit Redemptions

Net

GR

Tax Credits

Figures in millions

13

14

State Spending Update

The official spending pie

Key Initiatives

Summary of Savings

15

FY 2014 General Revenue Operating Budget Total Appropriations $8.28 Billion

Elementary and Sec-

ondary Ed-ucation$2.9B 35.0%

Higher Education$864M 10.4%

Judiciary, Elected Officials, General Assembly

$291M 3.5%

Corrections and Public

Safety$687M 8.3%

Human Services

$2.5B30.1%

All Other$1.04B 12.6%

16

FY 2015 General Revenue Operating Budget Total Appropriations $8.84 Billion

Elementary and Sec-

ondary Ed-ucation$3.15B 35.6%

Higher Education$948M 10.7%

Judiciary, Elected Officials, General Assembly

$308M 3.5%

Corrections and Public

Safety$753M 8.5%

Human Services$2.58B29.2%

All Other$1.11B 12.5%

17

FY 2014 General Revenue Higher Ed Budget Total Appropriations $864 Million

2-Year Insti-tutions

$122.8M 14.2%

4-Year Insti-tutions

$650.9M 75.3%

Scholarships$61.9M

7.2%

Institution Initiatives$28.4M

3.3%

18

FY 2015 General Revenue Higher Ed Budget Total Appropriations $948 Million

2-Year Insti-tutions

$135.5M 14.3%

4-Year Institutions$689.8M

72.8%

Scholarships$88.6M

9.3%

Institution Initiatives$34.2M

3.6%

19

Summary of Savings Since FY 2009State reduced 4500 FTE.

Pension and Health Care reform.

Medicaid - trend held to 3.7%, inc PTD, less than 2% without PTD.

11% reduction in leased space.

Energy usage down 22%.

20

Summary of Savings Since FY 2009(Continued)

Travel mileage down 8%.

Debt Restructuring (PV savings $80M).

Similar saving strategies by higher education institutions, schools, and other local entities.

21

FY 2014 Budget – Key Initiatives

$100M increase for K-12 Classrooms.$25M for higher ed performance funding.$11.3M new initiative to train more health

care professionals.$10.2M increase for Partnership for Hope.$10.1M investment to meet unmet mental

health needs.$14M increase for early childhood initiatives.

MISSOURI FISCAL UPDATE

Current Status and Future Outlook

22

CURRENT STATUSThe revised revenue forecast estimated 4.8%

growth for GR for FY13; actual collections at 10%.

Biggest growth - declarations and remittances. Investment income & federal tax changes.One-Time revenue bump.

Withholding up 3.5%, right on forecast.

23

CURRENT STATUS FY2014 Revenue through May up 0.2%.

Individual Income Tax Collections – down 0.7%₋ Decline is in remittances – down 14%₋ Withholding tax up, but modest – up 1.2%₋ Seeing same impact as most states of really good

capital gains in FY2013 having “borrowed” money from FY2014

Sales Tax Collections – up 2%

Corporate – up 5.3%.24

FUTURE OUTLOOKHighly unlikely that FY2014 revenue will achieve the

2% growth assumed for FY2015. Likely going to end FY2014 with a decline in

revenue.

Would require FY2015 to grow at a faster pace to hit budgeted target for FY2015 budget -- about 7%.

Even more significantly, tax cut legislation will negatively impact FY2015 revenue collections.

25

FUTURE OUTLOOKTax Cuts include 8 bills passed on last day of session.

GR impact estimated at over $280 million. FY2015, impact estimated at $250 million.

Also would impact other state and local revenue.

Other state funds include Prop C for K-12 educ, conservation, parks/soils, and state hwy.

Local impact large because hits sales tax base.

Total impact state and local is estimated at over $770M. 26

FUTURE OUTLOOK

Base revenue would likely turn around as economy continues to improve.

However, combination of new legis that will immediately impact collections and SB509 that will begin impact in FY2017 will result in lower revenue growth for foreseeable future.

Will not have the $s to invest as planned.

27

28

MISSOURI FISCAL UPDATEJune 2014

Questions?