REPORT
OF THE MAINE STATE
REVENUE
FORECASTING COMMITTEE
March
2005
EXECUTIVE SUMMARY
This
report summarizes the Maine State Revenue Forecasting Committee’s review and
revisions of the current revenue estimates of General Fund, Highway Fund, Fund
for a Healthy Maine (Tobacco Settlement revenue) and the Medicaid/MaineCare
Dedicated Revenue Taxes for the fiscal years ending June 30, 2005 (FY05)
through June 30, 2009 (FY09). This
forecast updates the base revenue forecast established as part of the
committee’s December 2004 report. With
no change in the economic forecast of the Consensus Economic Forecasting
Commission in its February 2005 update, this forecasts includes some technical
changes and some updates based on more recent data affecting a relatively
small number of revenue sources.
SUMMARY
TABLE OF MARCH 2005 FORECAST
|
General
Fund ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$2,723.6
|
$2,719.1
|
$2,828.6
|
$2,918.0
|
$3,022.8
|
| Legislative
Changes (PL 2005, c. 2) |
$0.0
|
($15.9)
|
($16.2)
|
($17.7) |
($19.9) |
| Budgeted
Amount |
$2,723.6
|
$2,703.3
|
$2,812.5
|
$2,900.3
|
$3,002.9
|
| Net
Change – March Forecast |
$2.0
|
$4.5
|
$13.6
|
$14.8 |
$18.3 |
| Revised
Amount |
$2,725.6
|
$2,707.8
|
$2,826.0
|
$2,915.1
|
$3,021.3
|
| Annual
% Growth |
1.6% |
-0.7% |
4.4% |
3.2% |
3.6% |
| |
|
|
|
|
|
|
Highway
Fund ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$321.4
|
$330.4
|
$340.2
|
$348.8
|
$358.1
|
| Net
Change – March Forecast |
$1.9
|
($0.4)
|
($0.4)
|
($0.4) |
($0.4) |
| Revised
Amount |
$323.3
|
$330.0
|
$339.8
|
$348.4
|
$357.8
|
| Annual
% Growth |
3.6% |
2.1% |
3.0% |
2.5% |
2.7% |
| |
|
|
|
|
|
|
Fund
for a Healthy Maine ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$48.5
|
$48.8
|
$59.4
|
$72.0
|
$73.1
|
| Net
Change – March Forecast |
$0.0 |
$0.0 |
$0.0
|
$0.0 |
$0.0 |
| Revised
Amount |
$48.5
|
$48.8
|
$59.4
|
$72.0
|
$73.1
|
| Annual
% Growth |
-0.7% |
0.5% |
21.8% |
21.2% |
1.6% |
| |
|
|
|
|
|
|
Medicaid/MaineCare
Dedicated Revenue Taxes ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$97.2
|
$100.2
|
$103.5
|
$106.9
|
$110.4
|
| Net
Change – March Forecast |
($2.3) |
($1.6) |
($3.7)
|
($5.8) |
($8.1) |
| Revised
Amount |
$94.9
|
$98.6
|
$99.8
|
$101.1
|
$102.4
|
| Annual
% Growth |
95.6% |
4.0% |
1.2% |
1.3% |
1.3% |
Note:
FY05 equals the fiscal year ending June 30, 2005; FY06 equals fiscal year
ending June 30, 2006; etc.
Amounts may not add due to rounding.
General
Fund: General Fund revenue was reduced by the recent enactment of PL 2005,
c. 2, the property tax reform bill. The
reduction of General Fund revenue from this legislative change is budgeted to
be $15.9 million in FY06, growing to a $19.9 million revenue loss in FY09.
The table above reflects that legislative change and then shows the
adjustments from that revised budgeted amount.
The major change in this forecast involves an oversight in the December
2004 forecast that excluded fiduciary income from the Individual Income Tax in
tax years 2006 and thereafter. This
forecast corrects that oversight and adds that revenue back into the forecast.
A review of some of the other revenue sources with variances greater
than +5% or –5% through January 2005 resulted in some additional changes
that primarily added to the General Fund revenue forecast.
The largest changes are a one-time revision in FY05 related to the Real
Estate Transfer Tax (this tax continues to outperform expectations, but it is
not expected to continue) and an on-going change in the amount of revenue from
registration fees for securities. In
FY05, this forecast recognizes some other unexpected audit recoveries and
legal settlements and also recognizes a recovery of aeronautical gas tax.
The committee was
concerned about the recent below-budget performance of the Sales Tax, but did
not feel an adjustment was warranted at this time.
While auto sales have been lagging in recent months, sales of building
supply materials have been very strong. The
hope is that this negative variance is temporary and that after the winter,
the drag effect of higher heating oil prices will go away and spring sales
will recover. The committee will
watch the Sales Tax carefully over the next 2 months and may decide to revisit
this line, if it does not recover and the overall General Fund revenue
performance is below expectations after April’s income tax filings.
Highway
Fund: Highway Fund revenue is
projected upward on a net basis in FY05, primarily a result of a $2.5 million
increase in the current year only within the Motor Vehicles Registration and
Fees revenue line. That amount
more than offsets the other FY05 downward adjustments and the on-going
downward revisions of Highway Fund revenue from Judicial Department fine
revenue and revenue from the sale of autos.
Fund
for a Healthy Maine: The Fund for a Healthy Maine was not revised in this
forecast, although the committee did discuss possibly revising the assumptions
about the start-up of the Racino initiative.
There is some uncertainty regarding the start date for this assumption.
There is a potential downside risk to Fund for a Healthy Maine revenue
derived from the Racino (currently $9.9 million in FY07).
Note: the General Fund is also subject to this downside risk from the
Racino (currently $12.9 million in FY07 for the General Fund).
Medicaid/MaineCare Dedicated Revenue Taxes: The forecast for these taxes has been revised downward overall for each year of the forecast, FY05 through FY09. An increase of the FY05 base for the Nursing Facilities Tax bumped up the revenue throughout the forecast and a one-time increase of the estimate of the Residential Treatment Facility Provider Tax in FY05 based on updated data were more than offset by negative adjustments to the Hospital Tax and the Private Non-Medical Institutions (PNMI) Service Provider Tax. The adjustments to the Hospital Tax and the PNMI Service Provider Tax are technical corrections to the assumptions in the previous forecast.
I.
INTRODUCTION AND BACKGROUND TO REVENUE FORECAST
This
report represents an update of the base revenue forecast developed for the
December 2004 Report. This
forecast provides an update during the legislative session to provide budget
decision makers with a revenue forecast based on the most recent data
available, but timely enough to be considered during this legislative session.
This forecast considers the updated economic forecast of the Consensus
Economic Forecasting Commission (CEFC), an additional quarter of revenue data
and any other new information that may have become available after the closing
of the December 2004 Revenue Forecast. Presented
in this report are the updates to forecasts for the General Fund, Highway
Fund, Fund for a Healthy Maine and Medicaid/ MaineCare Dedicated Revenue Taxes
(included for the first time in December 2004 forecast).
The Consensus Economic Forecasting Commission (CEFC) met January 26, 2005 to review its November 2004 forecast and make any necessary changes to that forecast. These economic assumptions become the basis of the Revenue Forecasting Committee’s revenue projections, particularly for the projections of the major tax lines that use Maine Revenue Services’ tax models. At that meeting, the CEFC made no adjustments to the economic variables that were revised in the late fall. The major economic growth assumptions underlying the December 2004 and the March 2005 revenue projections are as follows (also see Appendix B):
|
Summary
of Consensus Economic Forecasting Commission Economic Forecast |
|||||||||
| Calendar
Years |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
|||
| •
W&S Employment (Annual Percentage Change) |
|
|
|
|
|||||
|
> Consensus 2/2005 |
0.9 |
1.7 |
1.5 |
1.1 |
1.3 |
1.3 |
|||
| •
Personal Income (Annual Percentage Change) |
|
|
|
|
|||||
|
> Consensus 2/2005 |
5.5 |
4.0 |
4.0 |
4.0 |
4.0 |
4.0 |
|||
| •
CPI (Annual Percentage Change) |
|
|
|
|
|
|
|||
|
> Consensus 2/2005 |
2.8 |
2.0 |
2.0 |
2.0 |
2.0 |
2.0 |
|||
B.
Legislative Changes
The Revenue Forecasting Committee bases the revenue forecast on current law. This forecast does not include any of the Governor’s proposed revenue adjustments that are included in the various budget bills submitted to the Legislature. However, this forecast is revised from the December 2004 forecast to reflect the recent enactment of the Property Tax Reform initiatives in Public Law 2005, c. 2. The reductions of Individual Income Tax revenue and the increase of the budgeted transfers for municipal revenue sharing are included in the current budget columns in the General Fund summary tables. The effect of the Property Tax Reform initiatives is included in the General Fund narratives in Section III.
II. OVERVIEW OF REVENUE
PROJECTIONS
This section provides narrative descriptions of each of the updates/revisions to the forecasts of the major revenue sources of the General Fund, Highway Fund, Fund for a Healthy Maine and the Medicaid/MaineCare Dedicated Revenue Taxes. The Tables in Appendix A provide some recent historical data of actual revenue collections for each of these funds, a comparison by major revenue source of actual FY04 revenue compared to final budgeted amounts, and a comparison of current projections to revised projections for FY05 through FY09. In these tables, the General Fund “Other Revenue” component, which had become a substantial and largely unexplained piece, has been again been broken out into some additional categories for the first time to help explain the forecast of “Other Revenue” in the General Fund. The amounts in the tables in the narratives that follow may not add due to rounding.
A. General Fund
|
General
Fund ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$2,723.6
|
$2,719.1
|
$2,828.6
|
$2,918.0
|
$3,022.8
|
| Legislative
Changes (PL 2005, c. 2) |
$0.0
|
($15.9)
|
($16.2)
|
($17.7) |
($19.9) |
| Budgeted
Amount |
$2,723.6
|
$2,703.3
|
$2,812.5
|
$2,900.3
|
$3,002.9
|
| Net
Change – March Forecast |
$2.0
|
$4.5
|
$13.6
|
$14.8 |
$18.3 |
| Revised
Amount |
$2,725.6
|
$2,707.8
|
$2,826.0
|
$2,915.1
|
$3,021.3
|
| Annual
% Growth |
1.6% |
-0.7% |
4.4% |
3.2% |
3.6% |
The
March 2005 revisions to the major sources of General Fund revenue are
summarized in the following as narrative descriptions of the major
assumptions. Recent legislative changes (PL 2005, c. 2
- the Property Tax Reform initiative) are also summarized in the
following narratives. Given that
the Consensus Economic Forecasting Commission did not revise the economic
forecast, the changes made in the major tax lines are technical corrections.
Some current year data is updated to recognize unforeseen events based
on 3 months of additional data. Some
of these have resulted in on-going revisions throughout the forecast period.
The
committee was concerned about the recent performance of the Sales Tax (see
discussion below) and will be carefully watching the overall performance of
General Fund revenue over the next 2 months through April’s Individual
Income Tax filings. At that
point, if Sales Tax and overall performance are below expectations, the
committee will likely revisit the General Fund forecast.
|
Sales
and Use Tax ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$914.7
|
$954.9
|
$994.3
|
$1,035.6
|
$1,079.8
|
| Net
Change – March Forecast |
$0.0
|
$0.0 |
$0.0 |
$0.0 |
$0.0 |
| Revised
Amount |
$914.7
|
$954.9
|
$994.3
|
$1,035.6
|
$1,079.8
|
| Annual
% Growth |
-0.3% |
4.4% |
4.1% |
4.1% |
4.3% |
The Sales and Use Tax line is extremely close to the revised forecast through January 2005, consequently, it is not revised in this forecast, despite some discouraging performances in the last 2 months. The committee was concerned about this recent below-budget performance, but did not feel an adjustment was warranted at this time. While auto sales have been lagging in recent months, sales of building supply materials have been very strong. The hope is that this negative variance is temporary and that after the winter, the drag effect of higher heating oil prices will go away and spring sales will recover.
Service Provider Tax
|
Service
Provider Tax ($'s in millions) |
|||||
| |
FY05 |
FY06 |
FY07 |
FY08 |
FY09 |
| Dec.
2004 Budgeted Amount |
$46.7
|
$48.8
|
$51.1
|
$53.2
|
$55.3
|
| Net
Change – March Forecast |
$0.0
|
$0.0 |
$0.0 |
$0.0 |
$0.0 |
| Revised
Amount |
$46.7
|
$48.8
|
$51.1
|
$53.2
|
$55.3
|
| Annual
% Growth |
0.0% | ||||