An alternative financial forecast requested by the state’s top fiscal leaders shows that sustained job losses could drive state revenues down by $1.5 billion more than official estimates over the next two years.
The forecast, delivered to the Board of Revenue Estimates on Friday, shows the impact that a slower-than-anticipated labor market recovery would have on official projections unanimously approved by the panel last week.
That official revenue forecast showed a $1.4 billion projected revenue increase for the 2021 fiscal year and a $2.1 billion increase for 2022 from fiscal guidance presented in May. Still, the September figures showed a $672.6 million revenue decrease from earlier projections that were based on pre-pandemic data. The official estimates assume that a second wave of infection doesn’t shutter the economy, and that federal stimulus funds will continue to buoy decimated industries and working families ― two things that are far from guaranteed.
The alternative forecast includes the same assumptions, but forecasts high state unemployment through the end of the fiscal year and lethargic job recovery for several years. If those things happen, the state’s revenue could be $717.6 million lower than the official September estimate for Fiscal Year 2021 and $968.8 million lower for 2022.
“This is yet another indication that our economy remains extremely unstable and we can’t get too excited about the positive signs we received at last week’s meeting,” Comptroller Peter V.R. Franchot (D), who chairs the Board of Revenue Estimates, said in a statement. “If anything, the unpredictable pace of a labor market recovery underscores the need for a second federal stimulus program that would provide relief to individuals and small businesses, and prevent an economic catastrophe.”
The labor market is key to state revenues as it directly impacts income tax withholding and sales tax, the two largest sources of tax revenue.
Officials have cautioned that new estimates could be very volatile and may change before the board makes final estimates in December that will guide the state’s budget process in 2021.