May 2020 Consensus Revenue Estimating Conference Points to Slow Recovery of State Revenues

PROVIDENCE, RI – A new Rhode Island Public Expenditure Council report warns that Rhode Island may experience a long-term shortfall in general revenues and finds that while the state recovered all the jobs lost during the Great Recessions several years ago, its inflation-adjusted general revenue levels had yet to recover, before the pandemic. The report, “Rhode Island’s May 2020 Revenue Estimating Conference in Historic and Regional Context,” notes that while the Conference projects significant revenue declines for FY 2020 and FY 2021, economic forecasting testimony and historic precedent point to longer-term and structural shortfalls in general revenues.

“Our analysis suggests that policymakers should not only be thinking about how to fill budget holes for FY 2021 but should consider the prospect of a long-term shortfall in available revenues,” commented RIPEC President and CEO Michael DiBiase. “With the very real prospect of a prolonged reduction in available revenues, policymakers cannot simply rely on federal stimulus funding to see the state through the current crisis—now is the time to reassess budget priorities,” he said. The May Conference predicted a significant and sustained decline in the average Rhode Islander’s personal income, and that employment will remain well below pre-COVID levels until FY 2023. 

When compared to November 2019 Conference estimates, general revenue estimates were down by $280.9 million (6.7 percent) for FY 2020 and $515.8 million for FY 2021 (12.2 percent). However, year-over-year revenue increases were projected in November, and in consequence, the actual decline in revenues from FY 2019 through FY 2021 is not as dramatic. As the figure below shows, the May Conference projected a loss of $298.7 million (7.4 percent) between FY 2019 and FY 2021. 

While substantial, the general revenue declines projected in the May 2020 Conference are of a much smaller magnitude than revenue losses experienced during the Great Recession. The Conference projected a decline in general revenues of $172.1 million (4.4 percent) between FY 2020 and FY 2021, but a year-over-year revenue decline of nearly three times that magnitude was recorded at the height of the Great Recession; between FY 2008 and FY 2009, general revenues fell by $491.3 million (12.0 percent) in real terms. 

RIPEC’s report additionally addresses the relative likelihood that the decline projected at the May 2020 Conference will be realized. RIPEC’s historical analysis found that, overall, Conference revenue estimates have proven remarkably accurate over the last 15 years. Accounting for both over- and underestimates, the Conference was an average of 3.4 percentage points away from audited general revenues from FY 2005 to FY 2019 when considering all four estimates made for each fiscal year. Similarly, RIPEC’s regional comparison reveals Rhode Island’s May 2020 estimates are in line with those made by peer states. However, at the May 2020 Conference, the principals were challenged by both a fast-moving situation and a lack of crucial personal income tax data. If May 2020 Conference projections prove to be inaccurate, revenue estimates produced at the outset of the Great Recession suggest it is more likely that Rhode Island’s general revenue declines will be even greater than estimated.

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