By: Mark Glennon*
COGFA, Illinois Commission on Government Forecasting and Accountability, on Tuesday released its three-year budget forecast. That forecast itself means little because it does not reflect the likely impact from the new downturn.
However, COGFA did provide some rough guidance on that impact: A revenue loss of $8 billion is a reasonable scenario – about 20% of the state budget – though it likely would be spread over several years. Specifically, COGFA said,
While the certainty of the country, and world, plunging into recession seems to grow each day, attempting to value the impact of COVID-19 on State revenues is virtually impossible. With that caveat, it seems reasonable to offer a scenario with more devastating impacts on revenues in the near-term than even the “Great Recession”. As a result, should revenues experience a peak-trough decline of 20%, a revenue reduction of over $8 billion would be experienced, although likely spread over multiple fiscal years.
That’s obviously very significant. For a little perspective, the estimated additional annual revenue from the pending progressive tax increase is about $3.5 billion, and it has already been promised away on other things.
COGFA provided this additional background from recent downturns:
[During the recession between FY 2001 and FY 2003] overall tax revenues fell a combined 5.5% (see following graphon page 7). Revenues from the “Big 3” fell a similar 5.7% during this time frame. The Commission estimates that if the State were to experience a similar recession over the upcoming fiscal years, a falloff in revenues of near $2 billion would be expected. Again, the timing of how this would affect particular fiscal years is difficult to predict, but it is likely that the impact would be felt over more than one fiscal year.
[During the Great Recession] overall revenues fell a combined 8.7% between FY 2008 and FY 2010 (see graph on page 7). During this timeframe, net revenues from the “Big 3” (personal income tax, corporate income tax, sales tax) fell a combined 16.6%. Since that time, due to recent income tax increases, their composition of overall revenues has grown from around 60% to near 78%. Because of the increased reliance on these sources, significant changes in these taxes will have a greater impact on overall revenue performance. Because of this, the Commission estimates that if Illinois were to have another severe recession similar to the “Great Recession”, the decline in total receipts could reach 11%. In terms of receipts, this would equate to a revenue loss of around$4.5 billion. This revenue reduction would likely be spread over multiple fiscal years.
It’s all a moving target, of course, because we don’t know how long the shutdowns will last.
*Mark Glennon is founder of Wirepoints.