News
State’s long-term revenue outlook gloomy
January 13, 2010
State’s long-term revenue outlook gloomy
Economist says falling sales tax may mean more cuts
By Tim Smith
Capital Bureau
COLUMBIA — State government faces a “long-term revenue deterioration,” in part because of an increasing reliance on sales and income tax, according to the state’s chief economist.
That means that legislators can expect future swings in revenue as the state continues to shift from a manufacturing economy to a service economy, said Bill Gillespie, chief economist for the state Board of Economic Advisors.
More than 80 percent of the state’s general fund is now dependent on sales and individual income tax, he said, which are volatile.
The state’s high unemployment and slump in retail sales combined to reduce revenues in the last fiscal year by more than $1 billion, he said, a “disaster” that continued into the current fiscal year with a drop in revenue projections of more than $450 million.
The decreased revenue projections have translated into huge cuts for agencies, reduced or eliminated programs, layoffs and furloughs for state workers and the threat of more cuts in coming months.
“This committee has got to face up to the fact that this state is facing a long-term revenue stream deterioration,” he told members of the House Ways and Means Committee. “Manufacturing used to save us. We don’t have that fall-back position any more.”
Gillespie said the sales tax numbers for November and some of December are down from the year before and the board may have to adjust its revenue projections again.
“Another cut is not off the table,” he said.
Gillespie’s warnings came as lawmakers returned to work to face a shortfall for the coming year’s budget of $575 million, according to figures released Tuesday.
That shortfall includes repaying a $98 million deficit from last year, debt service of $23 million to allow the state to borrow $270 million for Boeing’s new aircraft plant, a $100 million shortfall in the homestead exemption fund that pays for the school operating portion of property tax bills with a penny sales tax, and increases in state employee health insurance.
The State Budget and Control Board this morning is expected to approve bonds for the Boeing deal.
Gillespie said that before what he describes as “the great recession” hit the state, lawmakers could expect to see revenue growth of 6 to 8 percent. Those figures won’t reappear, he said.
“I’m telling you to forget it,” he said. “It’s not going to happen.”
