UPDATE: Our Economy Is Up, Really? Another Look At Economic Projections
Both the and today cover the uptick in state revenue projections, as decided by yesterday’s Council on Revenues, our state economists.
Each quarter, the group comes together to provide official outlooks on state revenues, upon which lawmakers base their planning. The council decided to take a more optimistic approach to its economic projections than it had in previous meetings. There were two important developments since their last meeting. The first related to tax refunds. The governor decided to delay them. Then she reversed course and started to pay them when revenues were up. The second was tax decisions by this year’s Legislature.
As a result, the council created two sets of numbers: one set that does not include fresh decisions, such as the delayed tax refunds, and another set basing projections on the most current information possible. Both were more optimistic than previous projections.
Without considering delayed tax refunds, yesterday’s meeting predicted economic growth of .5 percent for the rest of this fiscal year, which ends June 30, Paul Brewbaker, chair of the Council on Revenues, told Civil Beat Friday. It’s a leap from , which projected an economic decrease of 2.5 percent for this fiscal year. Predictions for the fiscal year ending July 2011 also rose. The council now predicts revenue growth of 8 percent – 1.8 percent higher than what the council thought in March.
Gov. Linda Lingle decided earlier this year to move some $275 million tax refunds from this fiscal year ending June 30 into next fiscal year. The plan was revised two weeks ago, however, when the governor announced that the Department of Taxation would start to issue about $125 million of the refunds before this fiscal year’s end.
So the economists created a second set of numbers based on the most current legislation.
Those predictions say the economy will grow by 4 percent for the rest of this fiscal year, a 6.5 percent jump from the March predictions. In the next fiscal year, the economy will grow by 6.2 percent, .2 percent more than economists thought in March.
Both predictions, however, could become outdated if the governor decides to issue more tax refunds this fiscal year.
“If the state decides not to withhold refunds until July, the forecast is already incorrect,” says council chair Brewbaker. “In that case it will be closer to a smaller increase (in revenue) this year and much bigger increase next year, which will be for governor whomever.”
Unlike in most recent sessions, Brewbaker says the economists decided to err on the side of optimism. Actual revenues over the past year tended to align with the most optimistic projections among the seven economists. This meeting, the council decided to weigh positive outlooks more heavily.
“We’re embracing the higher end of the range,” says Brewbaker. “We’re placing a big bet on the outlier, but it qualitatively captures what we think is happening in the economy. Things are getting better faster than people perceive. That kind of approach is vulnerable to negative surprise.”
There’s a third set of numbers waiting to be made, Brewbaker notes. The true economic outlooks will rest in what lawmakers choose to do based on the council’s predictions. But that will require another meeting.
Are things as good as they seem? Brewbaker provided some of his personal projections to the press to give context for his optimism.
DISCUSSION: Come talk story at our money discussion page.
