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Michigan’s Financial Forecast CorNet Michigan Chapter January 14, 2010

Michigan’s Financial Forecast CorNet Michigan Chapter January 14, 2010. Mark P. Haas Chief Deputy Treasurer Michigan Department of Treasury. Treasury Responsibilities. Tax Administration Tax and Debt Collection Financial Management Local Government Services Financing Higher Education

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Michigan’s Financial Forecast CorNet Michigan Chapter January 14, 2010

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  1. Michigan’s Financial ForecastCorNet Michigan ChapterJanuary 14, 2010 Mark P. Haas Chief Deputy Treasurer Michigan Department of Treasury

  2. Treasury Responsibilities • Tax Administration • Tax and Debt Collection • Financial Management • Local Government Services • Financing Higher Education • Investing All State Funds

  3. Treasury Customers Colleges and Universities Hospitals Public Schools Local Government Units Public Retirees Higher Ed Students Michigan Taxpayers

  4. Treasury’s Commitment • Maintain the State’s financial integrity. • Fair and consistent administration of tax laws. • Provide efficient and effective professional services. • Provide access to financial resources for higher education, K-12, local government, and hospitals.

  5. 2010 Treasury Budget All Funds $1,548,257.3 / General Fund (GF) $135,597.7 ($s in millions) Grants Operations Funding Revenue Generation $120.6 Student Financial $37.5 Investments $16.7 Local Government $17.4 Customer Service $12.1 State Banking $7.1 Revenue Forecasting $1.5 Bond Finance $1.3 ________ $214.2 Debt Service Revenue Sharing PILT Operations Pass Through Funds Revenue Sharing $1,133.7 Grants $103.8 Debt Service $82.2 Payments in Lieu of Taxes $14.4 _________ $1,334.1

  6. Overview • How bad was the recession? • Is it over? • What about Michigan? • Real estate turn around? • How does the State budget look? • What does Michigan need to do?

  7. How Bad is the Recession?

  8. Current Recession LongestSince Great Depression Number of Months from Peak to Trough U.S. Recessions Source: NBER, Assumes recession ends beginning of 3rd quarter 2009

  9. Current Recession GDP DeclineSteepest on Record Percent Change, Economy Peak to Trough Source: Bureau of Economic Analysis, U.S. Department of Commerce. Data not avail for 1937-38 and 1945 recessions.

  10. U.S. Employment DeclineThird Steepest Percent Change, Economy Peak to Trough Source: Bureau of Economic Analysis, U.S. Department of Commerce. Data not avail for 1937-38 recession.

  11. Net Worth Drops19 Percent From Peak Net Worth Outstanding, Households and Nonprofit Organizations (billions) $66,007 2007Q2 $53,423 2009Q3 Source: freelunch.com (Federal Reserve Bank Flow of Funds).

  12. One for the Record Books Source: Estimates Compare April 2008 and January 2010 Global Insight Forecasts

  13. Is the Recession over?

  14. Leading Indicators Point to National Recovery Weekly Leading Index, Smoothed Annual Growth Rate 01/01/10 24.2% Source: Economic Cycle Research Institute.

  15. Recovery Observed in 3rd Quarter 2009 Real GDP Growth 3.0% Growth 2009Q3 Figures are annualized percent change from preceding quarter in 2005 chained dollars. Source: Bureau of Economic Analysis. Forecast quarters in red are the December 2009 Global Insight forecast.

  16. U.S. Has Lost 7.2 Million Jobs Since December 2007 Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor

  17. Stock Market Up 68 Percent From March 9th Low S&P 500 Closing Level 1565 10/09/07 1136 01/12/10 677 03/09/09 Source: freelunch.com, reuters.com

  18. Blue Chip Economists’ Take on the Recovery • Consensus predicts real GDP will grow slightly exceeding its trend rate (2.8% to 3.1%) over the next five quarters. • Although with growth better than predicted six months ago, the projected rate of growth still falls well short of that typically seen after steep recessions. • Labor markets are expected to improve, but modestly, keeping the unemployment rate from falling back below 10% on a sustained basis until the final quarter of this year. Source: December 2009 Blue Chip Indicators.

  19. GDP Generally Strongin Year After Recession Source: BEA and Dept. of Treasury calculations. Peaks and trough are as designated by NBER for economy.

  20. Government Federal Outlays and Receipts (last obs. September 2009) Outlays are far outpacing receipts. Source: US Treasury; Encima Global

  21. Government U.S. Federal GovernmentDebt Outstanding (last obs. 2009, projected by CBO 2010 to 2019) Rise in national debt (marketable debt held by the public) is likely to be much higher than current estimates. Source: Department of Treasury; CBO; Encima Global

  22. Government Federal Government Debtas % of GDP (last obs. 2009, forecast 2010 to 2019) Debt to GDP ratio heading toward 80% even with optimistic GDP growth assumptions. Source: OMB; CBO; Encima Global

  23. Government Social Security and Medicare/Medicaid Spending Medicare and Medicaid outlays much bigger than Social Security’s. Source: CBO; Encima Global

  24. Prices and Markets Volatility in Headline CPI (-1.3 year-over-year for last obs. September 2009, projected to December 2009)0 Source: Bureau of Labor Statistics; Encima Global

  25. What about Michigan?

  26. Michigan Employment NeverRecovered in Past Expansion U.S. Indiana Ohio Michigan Note: Peak is calculated from Michigan’s June 2000 Peak. Source: Bureau of Labor Statistics

  27. Worst MichiganEmployment Drop on Record Ten Year Change Nov 1999 – Nov 2009 Source: Bureau of Labor Statistics. Non-seasonally adjusted data.

  28. Michigan Loses Nearly 1 Million Jobs Michigan Wage and Salary Employment Y-O-Y Change (In Thousands) Avg. Forecast Note: Bureau of Labor Statistics. 2009-2011 estimates are from the January 2010 Consensus forecast.

  29. Michigan Unemployment Rate To Rise Sharply Michigan November Rate was 14.7% Forecast Source: Bureau of Labor Statistics and January 2010 Consensus Forecast

  30. Michigan Personal Income Falling Relative to U.S. Michigan per Capita Income as a Percent of U.S. Per Capita Income 122% 93% 87% Source: Department of Treasury calculations from Bureau of Economic Analysis data.

  31. 2% 1% 0% - 1% - 2% - 3% 2007 2008 2009 2010 2011 Forecast of Michigan Real Disposable Income Growth (1982–1984 $), 2009–2011 1.3 0.7 0.4 0.2 – 1.9 RSQE: January 2010 RSQE: January 2010

  32. Total personal income 37.7% Per capita personal income 29.1% 16.6% 16.6% State rank, Michigan per capita income 2001 2008 37 20 Wage and Personal Income Growth 2001– 2008 U.S. Michigan RSQE: January 2010

  33. 1960 1980 2000 New England Textile Industry Pittsburgh Steel Industry Michigan Auto Industry Industry Restructuring25-Year Recovery Cycle

  34. Real Estate Turnaround?

  35. Home Prices Fall Sharply U.S. Prices Fall After Sharp Run Up U.S. 10 City Detroit Area Oct 09 -15.1% Source: Case Shiller 10-Metro Area Home Price Index.

  36. U.S. Home Sales TurningSwung by Homebuyers’ Tax Credit (Millions of units) (Millions of units) Source: Global Insight

  37. Record Low U.S. Housing StartsDown 75% from Peak Jan 06 2,273 Nov 09 574 Source: New Privately Owned Housing Units Started (thousands), U.S. Dept of Commerce

  38. Michigan Home BuildingFalls Precipitously New Private Housing Units Authorized in Michigan Source: U.S. Department of Commerce. 2009YTD through November.

  39. Overall Michigan Property Value Growth Slowing Yearly Percent Change Source: State Tax Commission and January 2010 Consensus Conference.

  40. Michigan Real Estate Transfer Tax Falls Year-over-Year Change in 6 Month Trailing Average Sep 04 24.0% Dec 09 -1.2% Source: Michigan Department of Treasury

  41. 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 '65 '69 '73 '77 '81 '85 '89 '93 '97 '01 '05 '09 Michigan Building Permits1963 – 2008and Forecast 2009 – 2011 Forecast '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 RSQE: January 2010

  42. Mortgage DelinquencyRates Double Source: Economy.com using Mortgage Bankers Association Data

  43. Conv. Mortgage 10 Year T-Note 3-Month T-bill Real Estate Market ReboundDepends on Interest Rates Percent RSQE: January 2010

  44. How Do StateRevenues Look?

  45. Recession Housing Boom/Bust Auto Industry/ Restructuring Employment Loss and Income Loss Credit Crisis and Consumption Drop Relative Decline in Personal Income Difficult Economic TimesReduce Revenue Growth Cause Effect

  46. GF-GP Revenues Drop Sharplyin FY 2009 and FY 2010 GF-GP Revenues Year-Over-Year Pct. Change

  47. State GF-GP Revenue at FY ‘91 LevelDown 19% Since 2000 Billions of Dollars 1991 $6.9B 2000 $9.8B 2010 $6.9B Note: GF-GP figures are presented on a Consensus basis. 2009 and 2010 are estimates.

  48. GF-GP and School Aid Revenue Baseline Growth Rates Before Tax Changes Average Agency Forecasts

  49. Balancing FY 2011 GF/GPWill Be Difficult Billions * ARRA funding available to offset GF expenditures will decline from $1.2 billion in FY10 to $0.2 billion in FY11. Source: Michigan Department of Treasury

  50. Balancing FY 2011 SAF BudgetTough on Schools Source: Michigan Department of Treasury

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