Revenue to Remain Low for Foreseeable Future
Each year, the cost of meeting key public priorities grows along with economic and demographic trends. In order to continue to fund programs that promote health, education, economic security, and community vitality, we will need robust revenue growth.
The current economic downturn has taken a significant toll on revenue and will continue to do so for years to come. Even after the growth expected in the next three years, revenue will remain low compared to previous levels.
State general fund revenue fell by nearly 10 percent in FY2009 to be followed by another projected 3.4 percent drop in the current fiscal year. By comparison, during the last recession revenue growth slowed to less than one percent but never fell below zero.
While the recession is likely over, it will be years before the state economy recovers and, absent further action, revenue will remain low for some time. Revenue in FY2011 is not expected to quite reach the level of FY 2008, let alone cover the increase in costs since that time. Only modest growth is expected in FY2012 and FY2013.
To put current and future revenue into perspective, the graph below shows it as a share of total personal income in the state. This is a method commonly used by economists to compare the size of government from year to year. From 1995 to 2008, revenue as a share of personal income averaged about six percent. In the current fiscal year, it is about 4.8 percent, a difference of over three billion dollars. The graph also shows that even after revenue growth in FY 2011 through FY2013, revenue as a share of personal income will remain far below the historical trend.
