IFO Projects Solid 2018-19 Gains, Moderate Economic Slowdown to Come
From PA Chamber of Business & Industry
During a revenue update briefing last week, Independent Fiscal Office Executive Director Matt Knittel said that while the Commonwealth will end the 2018-19 fiscal year with a surplus, many of the factors contributing to that increase will be short lived.
The IFO is estimating more than $860 million more in revenue this year than was initially anticipated due in large part to strong corporate profits and a bump in taxes on internet-based sales. However, Knittel expressed skepticism at the likelihood of significant surpluses going forward, as the current surplus can also be attributed to a one-time windfall from gaming revenue, along with some income shifting maneuvers from taxpayers to maximize the benefits to the federal Tax Cuts and Jobs Act of 2017. In addition, much of the unexpected revenue for this Fiscal Year has already been spent – with Gov. Tom Wolf requesting approximately $500 million for Medicaid costs, and $200 million related to a proposed fund transfer that has been denied by the courts. With the remaining money, both the governor and legislative leaders have already expressed their desire to put more money into the Rainy Day Fund in order to better prepare for any future economic downturns.
In the near term, the IFO is predicting that Pennsylvania’s economic climate will remain healthy – projecting further growth in real GDP, jobs and private sector profits that have helped to drive additional corporate tax revenue (the projection for FY 2019-20 is CNIT revenue growth of 3.5 percent).
However, Knittel added that there are signs of potential economic deceleration going forward due to the fading impact of the federal income tax cut and a more moderate pace of job creation. According to the IFO, these changes may be related to the upcoming 2020 presidential election (which typically forces businesses and consumers to slow down on investment, but doesn’t necessarily signal that a recession is on the horizon).
Further details on the IFO’s current fiscal year wrap up and projections for 2019-20 are available here.