Georgia’s Revenue Outlook

Joint Appropriations CommitteesJanuary 21, 2009

Ken HeaghneyOffice of Planning & BudgetGeorgia State University – Fiscal Research Center

Agenda

• FY 2009 YTD Revenue Performance

• Economic Outlook

• Revenue Estimate – Amended FY 2009 & FY 2010

YTD DOR Revenue Growth Equals -2.7%

-6.6% -7.0%

4.5%

-0.1%

1.4%

-8.9%-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr* May* Jun

DOR Revenue Growth

FY08 FY09 *Apr/May Results Averaged

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-07

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-08

Dec

-08

Growth in DOR Revenues(Yr/Yr % Change - 3 Month Moving Average)

Improving Performance Through November But December was Very Weak

Individual Income Tax: YTD Growth Equals -3.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%Ju

l-06

Au

g-0

6

Sep

-06

Oct

-06

No

v-06

Dec

-06

Jan

-07

Feb

-07

Mar

-07

Ap

r-07

May

-07

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-07

Dec

-07

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-08

Dec

-08

% C

han

ge

Ove

r Pri

or Y

ear

(3 M

on

th M

A)

Individual Income Tax Revenue Growth

Sales Tax: YTD Growth Equals -0.9%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Sept. 2006

Oct. 2006

Nov. 2006

Dec. 2006

Jan. 2007

Feb 2007

Mar 2007

Apr 2007

May 2007

June 2007

Jul. 2007

Aug. 2007

Sept. 2007

Oct. 2007

Nov. 2007

Dec. 2007

Jan. 2008

Feb. 2008

Mar. 2008

Apr. 2008

May 2008

June 2008

July 2008

Aug 2008

Sep 2008

Oct 2008

Nov 2008

Dec 2008

Sales Tax Revenue Growth 3 Month Moving Average

Gross Net

Corporate Income Tax: YTD Growth Equals -18.4%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Jul-

06

Sep

-06

No

v-06

Jan

-07

Mar

-07

May

-07

Jul-

07

Sep

-07

No

v-07

Jan

-08

Mar

-08

May

-08

Jul-

08

Sep

-08

No

v-08

% C

ha

ng

e -

3 M

on

th M

ACorporate Income Tax Revenue Growth

Agenda

• FY 2009 YTD Revenue Performance

• Economic Outlook

• Revenue Estimate – Amended FY 2009 & FY 2010

US and Georgia are Mired in Deep Economic Recession

• Housing correction led to massive losses on mortgage backed securities and undermined global financial markets

• Unprecedented government intervention has improved conditions in financial markets but markets remain unsettled

• Labor markets weakened precipitously in late 2008

• Consumers have pulled back sharply on spending, particularly on durables such as autos

• Global slowdown has harmed domestic manufacturing as exports have fallen

• Countervailing forces

• Massive liquidity injection to free up financial markets and stimulate investment and spending

• Massive fiscal stimulus expected early in the new administration

• Commodity prices, including gasoline, have plummeted reducing pressure on household budgets

100.0

120.0

140.0

160.0

180.0

200.0

220.0

Jan-

04

Mar

-04

May

-04

Jul-0

4

Sep-

04

Nov

-04

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep-

05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

S&P / Case- Shiller Home Price Index

Atlanta Composite-20

Median Home Price Down Over 23% from the Peak

Financial Markets are Improving But Remain Stressed

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1990

M1

1990

M6

1990

M11

1991

M4

1991

M9

1992

M2

1992

M7

1992

M12

1993

M5

1993

M10

1994

M3

1994

M8

1995

M1

1995

M6

1995

M11

1996

M4

1996

M9

1997

M2

1997

M7

1997

M12

1998

M5

1998

M10

1999

M3

1999

M8

2000

M1

2000

M6

2000

M11

2001

M4

2001

M9

2002

M2

2002

M7

2002

M12

2003

M5

2003

M10

2004

M3

2004

M8

2005

M1

2005

M6

2005

M11

2006

M4

2006

M9

2007

M2

2007

M7

2007

M12

2008

M5

2008

M10

Spread Between LIBOR and 90 Day Treasury Bill Rate

Job Markets have Plunged

Unemployment has Risen Rapidly

Consumer Expenditures are Growing Very Slowly

Durables are Bearing the Brunt of the Slowdown

Exports have Dropped as Global Economies have Slowed

Countervailing Forces: Monetary Policy• Fed Funds target rate reduced to a range of 0 to 25 basis

points

• Created new lending facilities to provide short-term liquidity to sound financial institutions

• Term Auction Facility, Term Securities Lending Facility, Primary Dealer Credit Facility

• Currency Swap Agreements with foreign central banks

• Provision of credit directly to borrowers and investors in key credit markets

• Purchase high quality commercial paper

• Lend against AAA-rated asset-backed securities

• Purchase longer-term securities

• $100 billion in government sponsored entity (GSE) debt

• $500 billion in GSE mortgage-backed securities

Countervailing Forces: Fiscal Stimulus• Large fiscal stimulus effort expected from the new

administration – press reports suggest $750+ billion spread over 2 years.

• Details are uncertain, speculation is that the stimulus will consist of tax cuts, aid to state & local governments, direct spending on infrastructure and other programs

• On a per capita basis, Georgia’s share would be on the order of $11.9 billion per year – or about 3% of Georgia’s GDP

Countervailing Forces: Falling Commodity Prices

At Current Levels, the Decrease in Gasoline Prices will Free Up about $10.7 Billion in Annual Spending Power in

Georgia

Economic Scenario

1. Recession will continue through end of fiscal year

2. Job losses will continue but should moderate and consumer expenditures will grow slowly

3. Global downturn will harm manufacturing

4. Economy should begin to recover in second half of calendar 2009 but recovery will be slow

5. Risks to the outlook are large. Policy makers continue to wrestle to calm financial markets. Size, timing and composition of fiscal stimulus is uncertain. Oil prices are very low but could spike on geopolitical concerns.

Agenda

• FY 2008 YTD Revenue Performance

• Economic Outlook

• Revenue Estimate – Amended FY 2009 & FY 2010

% Growth % GrowthAmended versus versus

FY 2008 FY2009 FY2009 FY 2008 FY 2009Reported Estimated Estimated Reported Estimated

Total Taxes $17,695,117,754 $19,144,419,118 $16,920,041,585 -4.4% -11.6%

Total Regulatory Fees $1,032,694,869 $973,169,321 $983,955,258 -4.7% 1.1%

Total General Fund $18,727,812,623 $20,117,588,439 $17,903,996,843 -4.4% -11.0%

Other Funds Available $1,061,990,695 $1,048,294,077 $1,299,249,167 22.3% 23.9%

Total Funds Available $19,789,803,318 $21,165,882,516 $19,203,246,010 -3.0% -9.3%

Amended FY 2009

Key Points

1.Revenue estimate includes $50 million from RSR

2.Revenue growth of -5.3% is required over January through June to reach revenue estimate

FY 2010% Growth

versusAmended AmendedFY2009 FY 2010 FY 2009

Estimated Estimated Estimated

Total Taxes $16,920,041,585 $17,288,273,764 2.2%

Total Regulatory Fees $983,955,258 $1,193,351,799 21.3%

Total General Fund $17,903,996,843 $18,481,625,563 3.2%

Other Funds Available $1,299,249,167 $1,712,349,327 31.8%

Total Funds Available $19,203,246,010 $20,193,974,890 5.2%

Key Points

1.Revenue estimate includes $408 million from RSR

2.Mild economic recovery to begin in second half of 2009 is projected to add about $368 million in revenue growth

3.Health care provider fee strategy and super speeder fine add about $240.7 million to funds available