The Great Slowcovery & Sustainability of State Budgets Natalie Mullis Chief Economist, Legislative Council Staff

Transcription

1 The Great Slowcovery & Sustainability of State Budgets Natalie Mullis Chief Economist, Legislative Council Staff leg.colorado.gov/lcs August 8, 2017 National Conference of State Legislatures Annual Summit

2 Slowcovery & Sustainability of State Budgets What do you mean by Slowcovery? What does it mean for state budgets? Colorado State Capitol, Reflected on the Windows of the Joint Budget Committee 2

3 The Great Slowcovery Cumulative GDP Growth Adjusted for Inflation Dec to June 1990 Apr to Feb 2001 Dec to Nov July 2009 to Years of Recovery & Expansion Since Recession 100 Source: Bureau of Economic Analysis. Seasonally adjusted annualized rates. 3

4 Slowcovery What affects long run economic growth? Labor Force Growth Rate Productivity Growth Rate 4

5 Slowcovery Growth in Supply of Labor Subdued Cumulative U.S. Labor Force Growth Dec to June 1990 Apr to Feb 2001 Dec to Nov July 2009 to Years of Recovery & Expansion Since Recession 98 Source: Bureau of Labor Statistics. Seasonally adjusted. 5

6 A rising share of the population is age 65+ Prime Working-Age Population (25 to 54) Old Age Dependency Ratio Share of Total U.S. Population 65+: Ages 20 to 64 50% 45% 40% 45% 35% 40% % 25% 35% 20% 15% The Impact of the Aging U.S. Population on State Tax Revenues, Alison Felix and Kate Watkins; Source: U.S. Census Bureau, intercensal population estimates and 2014 population projections. 6

7 People have chosen to supply less labor Labor Force Participation Rate, Age % 74% 74.3% August % 70% 68% 66% 64% 62% 67.1% April 2000 Dec Colorado 66.9% United States 62.8% 60% Source: U.S. Bureau of Labor Statistics. Monthly data area seasonally adjusted. 7

8 Age matters U.S. Labor Force Participation Rate, by Age 85% 75% Prime Working Age (25 to 54) Ages 20 to 24 All Working Ages (16+) Ages 16 to 19 Ages % 55% 45% 35% % Source: U.S. Bureau of Labor Statistics. 8

9 2010 share of population age % % Source: U.S. Census Bureau, 2010 Census. 9

10 2015 share of population age % % Source: U.S. Census Bureau, population estimates (vintage 2015). 10

11 2030 share of population age % Source: 2005 Census projections and 2013 state demography office projections as available. 11

12 Slowcovery Productivity growth subdued Cumulative Labor Productivity Growth Real Output per Hour Dec to June 1990 Apr to Feb 2001 Dec to Nov July 2009 to Years of Recovery & Expansion Since Recession 100 Source: Bureau of Labor Statistics. Seasonally adjusted. 12

13 Slowcovery Automation Is Changing the Economy Dark blue indicates how much the share of productivity gains that accrues to workers has changed Analysis and figure from: 13

14 Stock Market Growth During Expansions Cumulative Growth in NASDAQ Index 1200 Dec to June 1990 Apr to Feb 2001 Dec to Nov July 2009 to Years of Recovery & Expansion Since Recession 0 Source: Nasdaq; St. Louis Federal Reserve. 14

15 What does it mean for state budgets? State budgetary pressures are rising Declining per capita revenue Income Sales Gas Budget Pressures Rising demand for state services Population growth 15

16 Consumer spending rises and falls with age Average 2015 Expenditures $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 All other Entertainment Apparel Education Healthcare Insurance & Pensions Food Transportation Housing $0 Age < The Impact of the Aging U.S. Population on State Tax Revenues, Alison Felix and Kate Watkins; Source: U.S. Bureau of Labor Statistics, 2015 Current Expenditure Survey. 16

17 Incomes peak for those in their 40s and 50s Average 2015 Incomes $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 Age < All other Social Security & retirement Interest, dividends & rents Self-employment income Wages & salaries The Impact of the Aging U.S. Population on State Tax Revenues, Alison Felix and Kate Watkins; Source: U.S. Bureau of Labor Statistics, 2015 Current Expenditure Survey. 17

18 Taxes peak for those in their 40s and 50s Average 2015 Taxes $20,000 $15,000 Property taxes Other taxes State and local income taxes Federal income taxes $10,000 $5,000 $0 Age < The Impact of the Aging U.S. Population on State Tax Revenues, Alison Felix and Kate Watkins; Source: U.S. Bureau of Labor Statistics, 2015 Current Expenditure Survey. Excludes sales taxes. 18

19 Slowdown in real consumer spending Real U.S. Retail and Food Service Sales Percent Change, Year-over-Year 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% Source: U.S. Census Bureau, Advance Monthly Sales Report. Adjusted for inflation using U.S. Bureau of Labor Statistics consumer price index for all U.S. urban areas (CPI-U). Data are seasonally adjusted

20 Slowdown in real wage growth Cyclically Neutral Aggregate Real Wage Growth Percent Change, Year-over-Year 2.0% 1.8% 1.6% Oldest boomers reach age % 1.2% Oldest boomers reach 55 Oldest boomers reach % Source: U.S. Bureau of Labor Statistics, Current Population Survey. Figure from Rich et al. (2016) U.S. Real Wage Growth: Slowing Down With Age. Liberty Street Economics Blog, Federal Reserve Bank of New York. 20

21 What does aging mean for state tax revenue? 2011 & 2030 Population By Age 2011 Average per Person Liability Income Tax Sales Tax = Estimate of Total 2011 and 2030 Revenue Source: Authors calculations (Felix and Watkins 2013). 21

22 Tax revenue will decline on a per capita basis Sales Tax per Capita Projected Percent Change, 2011 to to 1% -1 to 0-2 to -1-3 to -2 Not applicable Source: Authors calculations (Felix and Watkins 2013). 22

23 Tax revenue will decline on a per capita basis Income Tax per Capita Projected Percent Change, 2011 to % 0-10% Not applicable Source: Authors calculations (Felix and Watkins 2013). 23

24 General fund revenue is projected to grow at a rate consistent with inflation and population growth. General Fund Revenue Inflation-adjusted, per capita $2,500 $2,000 $1,500 2,068 1,582 1,933 1,503 1,870 1,778 1,847 $1,000 $500 $0 Source: Office of the State Controller and Legislative Council Staff June 2017 revenue forecast. 24

25 Aging will shift state expenditures State and local pensions Health care services Low income elderly (Medicaid) Higher insurance premiums for government employers Shifts in demands for certain services Accessible transportation Home health Shifts in support for services Education 25

26 Colorado General Fund Budget Trends The state budget is structurally unsustainable Index FY = TABOR Growth*, 100% General Fund Appropriations, 97% General Fund Revenue, 69% Sources: Colorado State Controller s Office, Joint Budget Committee Staff, and Legislative Council Staff. FY 2017 and FY 2018 figures are forecasts. *Excludes newly eligible caseload funded by the federal government pursuant to the Affordable Care Act, which added an additional 411,000 in FY **TABOR growth represents the cumulative growth from the population and inflation adjustments used to calculate each year s limit. It does not represent growth in the TABOR limit, which differs because the TABOR limit was also adjusted for changes in enterprise status. 26

27 Colorado General Fund Budget Trends The state budget is structurally unsustainable: Index FY = 100 School Finance Medicaid Higher Education Funding Infrastructure Funding State Share School Finance, 114% TABOR Growth*, 100% General Fund Appropriations, 97% General Fund Revenue, 69% Sources: Colorado State Controller s Office, Joint Budget Committee Staff, and Legislative Council Staff. FY 2017 and FY 2018 figures are forecasts. *Excludes newly eligible caseload funded by the federal government pursuant to the Affordable Care Act, which added an additional 411,000 in FY **TABOR growth represents the cumulative growth from the population and inflation adjustments used to calculate each year s limit. It does not represent growth in the TABOR limit, which differs because the TABOR limit was also adjusted for changes in enterprise status. 27

28 Colorado General Fund Budget Trends The state budget is structurally unsustainable: School Finance Medicaid Index FY = 100 Higher Education Funding Infrastructure Funding Medicaid Caseload, 256% Excludes newly eligible caseload under the Affordable Care Act* Health Care Policy & Financing General Fund Appropriations, 178% State Share School Finance, 114% TABOR Growth*, 100% General Fund Appropriations, 97% General Fund Revenue, 69% Sources: Colorado State Controller s Office, Joint Budget Committee Staff, and Legislative Council Staff. FY 2017 and FY 2018 figures are forecasts. *Excludes newly eligible caseload funded by the federal government pursuant to the Affordable Care Act, which added an additional 411,000 in FY **TABOR growth represents the cumulative growth from the population and inflation adjustments used to calculate each year s limit. It does not represent growth in the TABOR limit, which differs because the TABOR limit was also adjusted for changes in enterprise status. 28

29 Colorado General Fund Budget Trends The state budget is structurally unsustainable: School Finance Medicaid Index FY = 100 Higher Education Funding Infrastructure Funding Resident Tuition Revenue, 334% Nonresident Tuition Revenue, 285% Medicaid Caseload, 256% Excludes newly eligible caseload under the Affordable Care Act* Health Care Policy & Financing General Fund Appropriations, 178% State Share School Finance, 114% TABOR Growth*, 100% General Fund Appropriations, 97% General Fund Revenue, 69% Higher Education General Fund Appropriations, 18% Sources: Colorado State Controller s Office, Joint Budget Committee Staff, and Legislative Council Staff. FY 2017 and FY 2018 figures are forecasts. *Excludes newly eligible caseload funded by the federal government pursuant to the Affordable Care Act, which added an additional 411,000 in FY **TABOR growth represents the cumulative growth from the population and inflation adjustments used to calculate each year s limit. It does not represent growth in the TABOR limit, which differs because the TABOR limit was also adjusted for changes in enterprise status. 29

30 Colorado General Fund Budget Trends The state budget is structurally unsustainable: School Finance Medicaid Index FY = 100 Higher Education Funding Infrastructure Funding Medicaid Caseload, 256% Excludes newly eligible caseload under the Affordable Care Act* Health Care Policy & Financing General Fund Appropriations, 178% State Share School Finance, 114% TABOR Growth*, 100% General Fund Appropriations, 97% General Fund Revenue, 69% Highway Users Tax Fund Revenue, 51% Sources: Colorado State Controller s Office, Joint Budget Committee Staff, and Legislative Council Staff. FY 2017 and FY 2018 figures are forecasts. *Excludes newly eligible caseload funded by the federal government pursuant to the Affordable Care Act, which added an additional 411,000 in FY **TABOR growth represents the cumulative growth from the population and inflation adjustments used to calculate each year s limit. It does not represent growth in the TABOR limit, which differs because the TABOR limit was also adjusted for changes in enterprise status. 30

31 Summary Slower long run economic growth Slower labor force growth Slower productivity growth Automation has shifted some productivity gains away from labor Colorado Capitol The view from the park Increasing pressure on state budgets Slower sales and income tax growth Increased income tax volatility Greater pressure on expenditures 31

32 Supplemental Slide Colorado General Fund Revenue and Expenditures, FY Revenue, $10.8 Billion $12 $10 $8 $6 $4 $2 $0 3%, Other 5%, Corporate Income 63%, Individual Income 29%, Excise Taxes Expenditures, $9.9 Billion $10 $8 $6 $4 $2 $0 6%, Other 8%, Human Services 27%, Health Care Policy & Fin. 5%, Judicial 8%, Corrections 9%. Higher Education 38%, P-12 Education Totals may not sum due to rounding. Source: Joint Budget Committee. Excludes transfers for transportation and capital construction. 32

33 Supplemental Slide Medicaid Enrollment FY Enrollment Shares* 1,400,000 Adults 65 and older (6.0%) Parents/Caretakers (20.1%) 1,200,000 1,000, , , ,000 Adults without children (20.8%) Pregnant women (1.4%) Disabled individuals (6.9%) Children (42.7%) 200,000 - Foster care (1.7%) Breast/Cervical cancer (0.03%) Non-U.S. citizens (0.2%) Source: Colorado Department of Health Care Policy and Financing. February 2016 projections. p=projection. *FY enrollment shares shown in parenthesis. 33

34 Supplemental Slide State & Federal Medicaid Expenditures* Billions of Dollars FY Expenditure Shares** $6 Adults 65 and older (19.8%) $5 $4 Parents/Caretakers (13.3%) Adults without children (18.7%) $3 $2 Pregnant women (3.4%) Disabled individuals (24.7%) $1 $0 Children (17.6%) Foster care (1.7%) Breast/Cervical cancer (0.1%) Non-U.S. citizens (0.8%) Source: Joint Budget Committee Staff. p=projection. *Amounts include supplemental payments to providers and financing mechanisms. **FY expenditure shares by population shown in parentheses. 34