#1Florida: Long-Range Financial Outlook September 8, 2023 Presented by: EDR The Florida Legislature Office of Economic and Demographic Research 850.487.1402 http://edr.state.fl.us#2Revenue Drivers Based on National and Florida Economic Forecasts; Population Growth Long-Range Financial Outlook Seventeenth document prepared since the constitutional requirement passed ~ nearly 100 Analysts were involved in the process over the Summer months Fiscal Years Addressed 2024-25 2025-26 2026-27 Budget Drivers Based on Estimating Conferences; Past Legislative Actions; and Three-Year Averages 1#3Florida's GDP Growth... Real GDP: Percent Change at Annual Rate, 2022:Q4-2023:Q1 WA 3.2 MT ND NH 1.3 ME VT 0.5 1.6 6.0 12.4 OR MN 3.8 ID 2.2 SD WI 3.8 10.1 1.2 ž 13 MA 2.5 NY 1.3 WY RI 0.1 2.5 IA PA NV 5.4 54 NE CT 0.3 5.2 OH 1.9 12.3 NJ 1.0 IL IN 22 1.7 CA 57 UT 1.3 CO 0.2 1.0 WV DE 1.0 1.9 KS MO 0.2 MD 0.7 VA 1.0* 1.2 6.0 2.6 KY 3.0 DC 1.4 NC 1.0 TN 3.5 AZ OK NM AR 2.7 2.5 SC 2.8 0.2 1.0 AL MS GA 0.1 1.7 2.4 TX LA 3.0 1.4 Quintile percent changes AK 1.6 HI 3.2 FL 3.5 3.5% to 12.4% 2.5% to 3.5% 1.4% to 2.5% 1.0% to 1.4% 0.1% to 1.0% U.S. percent change = 2.0% In the 1st Quarter of 2023, Florida's real economic growth was ranked 11th in the nation with a 3.5 percent change at an annual rate. The United States as a whole had quarterly growth of 2.0 percent. U.S. Bureau of Economic Analysis According to the latest revised data, Florida's quarterly GDP movements have generally mirrored the nation as a whole since the beginning of the pandemic. Buffeted by a series of economic shocks, the state's GDP slumped -0.2 percent in Fiscal Year 2019-20, grew 4.0 percent in Fiscal Year 2020-21 and grew another 6.9 percent in Fiscal Year 2021-22. The Economic Estimating Conference anticipates that the state's economy expanded at a still healthy 3.0 percent in FY 2022-23, but will drop to a more characteristic 2.5 this year (Fiscal Year 2023-24) as economic imbalances continue to weigh on the economy. Thereafter, it will grow from 1.7 percent in Fiscal Year 2024-25 to 2.4 percent in Fiscal Year 2026-27. 2#4Florida's Personal Income... Personal Income: Percent Change at Annual Rate, 2022:Q4-2023:Q1 CA 0.7 WA 6.9 MT ND 8.3 11.0 OR MN 8.0 ID 6.8 NH 6.1 ME VT 6.0 $11.4 MA-0.9 SD WI NY 6.7 9.2 6.9 WY MI 3.2 RI 5.8 8.7 7.4 IA PA CT 5.5 NE NV 10.1 OH 6.7 - NJ 5.8 11.1 IL IN 6.2 9 52 UT 6.5 CO 4.2 -1.0 www DE 3.4 4.2 4.8 KS MO MD 5.0 5.9 VA 4.6 8.4 7.0 KY 7.1 DC 5.6 NC 5.9 TN 7.8 AZ OK NM AR 7.5 6.2 SC 7.1 3.2 6.8 AL MS GA 5.5 4.8 9 5.7 TX LA 6.7 6.2 AK 7.2 10 HI 1.1 FL 7.9 Quintile percent changes In the 1st Quarter of 2023, Florida's personal income growth was ranked 10th in the nation with a 7.9 percent change at an annual rate. The United States as a whole had quarterly growth of 5.1 percent. 7.9% to 11.4% 6.8% to 7.9% 6.0% to 6.8% 4.8% to 6.0% -1.0% to 4.8% U.S. percent change = 5.1% U.S. Bureau of Economic Analysis Buttressed during the pandemic by an infusion of federal dollars into Florida's households, Florida's Personal Income grew 6.6 percent in Fiscal Year 2019-20 and grew another 8.0 percent in Fiscal Year 2020-21. Fiscal Year 2021-22 saw moderately lower growth of 4.9 percent as the benefit from workers returning to their jobs or leveraging the tight labor market into better paying opportunities competed with the end of federal relief measures. The Economic Estimating Conference anticipates that the state's income expanded at a strong 7.8 percent in Fiscal Year 2022-23, largely on the continuing strength of salary growth. Thereafter, personal income growth will step down to 5.6 percent in Fiscal Year 2023-24 and 5.9 percent in Fiscal Year 2024-25, before gradually declining to a more characteristic 4.2 percent per year. 3#5Current Employment Conditions... 15.0% Seasonally Adjusted Nonfarm Jobs Percent Change from Same Month Prior Year July 2023 Nonfarm Jobs (YOY) US: 2.2% FL: 3.2% At the onset of the COVID pandemic, employment dropped by almost 1.3 million jobs from February 2020 to April 2020, a decline of 14.1 percent. In July 2023, Florida exceeded the pre-pandemic level (February 2020) by 704,000 jobs, a gain of 7.8%. July 2023 Unemployment Rate US: 3.5% FL: 2.7% (295,300 jobless persons) The Economic Estimating Conference assumes the "full employment" unemployment rate is about 4 percent. 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 16.0% 14.0% Florida -United States 12.0% (seasonally adjusted) United States and Florida Unemployment Rates Source: Florida Department of Commerce, Bureau of Workforce Statistics and Economic Research, Current Employment Statistics Program in cooperation with the U.S. Department of Labor, Bureau of Labor Statistics, August 18, 2023. Jan-12 Jan-13 Jan-14 Jan-15 Florida United States Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Florida's unemployment rate had been below 4.0 percent from January 2018 through February 2020. With the onset of the pandemic, the unemployment rate spiked to 14.1 percent in May 2020, handily surpassing the prior peak rate of 10.9 percent experienced in the first four months of 2010 during the Great Recession. 10.0% 8.0% 6.0% 4.0% 2.0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: Florida Department of Commerce, Bureau of Workforce Statistics and Economic Research, Local Area Unemployment Statistics Program, in cooperation with the U.S. Department of Labor, Bureau of Labor Statistics, August 18, 2023. Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 3.5% 2.7% 3.2% 2.2% 4#6Wage Gap Markedly Narrows in 2022... Florida Average Annual Wage as a Percent of the US 92.0% 91.0% 90.0% 89.0% 88.0% 87.0% 86.0% Average percentage 2001 - 2022 88.5% 91.1% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: U.S. Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages, www.bls.gov Wage growth since the onset of the pandemic has been distorted by the extreme ups and downs in employment, especially among lower-wage service workers in the leisure and hospitality industry who were the hardest hit. As they came back to work in large numbers in 2021 and 2022, wages appeared to grow at record levels, but the pure growth rates are somewhat misleading. Calculating Florida's average annual wage relative to the US average cures some of these issues, providing a cleaner picture of how the state is faring. In the first two decades of this century, Florida's average annual wage was below the US average. The most recent data shows that the state's average percentage had fallen from 2016 when it was 87.7% to 87.3% in 2020. This picture changed in 2021 when Florida moved above its longer run average of 88.5 percent to 89.2 percent. In that year, Florida had a 4.9 percent increase in the number of jobs in covered employment, but a 13.2 percent increase in total wages. Preliminary data for 2022 indicates that the relationship to national wages has continued to transform-hitting a ratio of 91.1 percent, the highest over the past two decades. Moreover, Florida had a 5.6 percent increase in the number of jobs in covered employment, but was still dominated by an 11.7 percent increase in total wages. Based on Conference projections of average annual wage growth of between 3.0 and 3.8 percent growth each year, the higher wages are likely here to stay. сл 5#7Florida's Population Growth... 29,800,000 24,800,000 19,800,000 2000 15,982,824 14,800,000 9.800.000 2020 21,538,187 2022 22,276,132 2010 18,801,332 2050 2040 28,012,505 2030 26,597,829 24,641,880 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 4,800,000 2040 2045 2050 500,000 400,000 Florida's strongest April-over-April growth rate in this century was the year 2000 at 2.58%, but the largest numeric change occurred in 2005 (+403,332), immediately prior to the collapse of the housing boom and the beginning of the Great Recession. Just before and during the pandemic era, the April 1st growth rates were 1.64% (+348,338) for 2020, 1.67% for 2021 (+360,758) and 1.72% for 2022 (+377,187). Growth is expected to be 1.58% (+352,017) when the numbers are finalized for April 1, 2023. VITUOTTTT 2039-40 2044-45 2049-50 Between 2022 and 2030, Florida's growth is expected to average 1.27% per year compared to the national average of 0.64% during the same period. In the past, Florida's population growth has largely been from net migration. Going forward, this will produce all of Florida's population growth, as natural increase is anticipated to remain negative with deaths outnumbering births. 300,000 200,000 100,000 0 -100,000 -200,000 1969-70 Natural Increase: History Net Migration: History 1974-75 1979-80 1984-85 1989-90 1994-95 1999-00 2004-05 2009-10 2014-15 Natural Increase: Forecast Net Migration: Forecast 2019 - 20 2024-25 2029 - 30 2034-35 00 6#8Baby Boomers in Context... Florida's Baby Boom Generation (July 1, 2023) boomer population cohorts cumulative boomer population at retirement age 300,000 The first cohort of Baby Boomers became eligible for retirement (turned age 65) in 2011. Thirteen of nineteen cohorts have now entered the retirement phase. This represents almost 65% of all Baby Boomers. Population aged 65 and over is forecast to represent at least 24.4% of the total population in 2030, compared with 21.2% in 2020 and 17.3% in 2010. Population 250,000 200,000 .150,000 100,000 50,000 0 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 Year of Birth 1957 1958 1959 1960 1961 1962 1963 1964 0 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Cumulative Population In 2000, Florida's prime working age population (ages 25-54) represented 41.5% of the total population. With the aging Baby Boom generation, this population dropped to 36.8% of Florida's total population in 2020 and is expected to represent only 35.8% by 2030. The youngest population group, 0-17, represented 22.8% of the total population in 2000. In 2020, only 19.5% of the total population was in this age group, and its share is projected to be about the same in 2030. 7#9Florida Housing Market Soared during Low Interest Rate Period... Total Documentary Stamp Collections (FY Ending) 6,000.0 5,000.0 After declining four years in a row, FY 2009-10 was only 26.6% of the 2005-06 peak collection year. Since then, each year has seen steady improvement. After ten years of growth, FY 2019-20 came in at 70.8% of the prior peak. The next two years surpassed the prior peak, before beginning to drop back in FY 2022-23. 4,000.0 3,000.0 2,000.0 1,000.0 0.0 4,058.3 5,359.0 3,864.8 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Documentary Stamp Tax collections in FY 2020-21 topped the FY 2005-06 peak reached at the height of Florida's housing boom. This milestone was particularly remarkable considering the prior year (FY 2019-20) registered only 70.8 percent of that level after steadily increasing for ten years from a low of 26.6 percent. The results for FY 2021- 22 were even more eye-popping with collections soaring to nearly $5.4 billion. The market environment leading to this result was caused by the record low interest rates arising from the Federal Reserve's actions to stem the severity of the pandemic's economic disruption. As rates rose and affordability was increasingly an issue, Documentary Stamp Tax collections began to decline in FY 2022-23 (-27.9%). The Revenue Estimating Conference expects another decline of -10.0% in FY 2023-24, before more typical growth resumes throughout the remainder of the forecast. 8#10Recession Tightrope... "These uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Doing too little could allow above- target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy." Remarks by Jerome Powell, Jackson Hole, Wyoming, August 25, 2023 "For those concerned about inflation pressures emanating from labor markets, there was no relief in the July employment report. The July employment report is consistent with our view that the Fed is not done tightening." S&P Global / Macro Watch Compilation, August 22, 2023. "However, while the economy's resilience has tempered concerns of an imminent recession, a period of below-trend growth and an accompanying increase in the unemployment rate will be necessary to reduce wage growth to a range consistent with core PCE inflation near the Fed's 2% objective within a time frame acceptable to the Fed... The recent resilience in spending and employment, persistently strong wage gains, and still-elevated core inflation signal the need for tighter financial conditions to slow growth enough to contain inflation. Further interest rate hikes from the Fed likely will be necessary to maintain financial conditions tight enough to achieve the requisite economic slowdown. We expect the Fed to raise its policy rate to 5.5% -5.75% in November, but an increase to 5.75% to 6% by yearend, while not our base case, is certainly possible." S&P Global / U.S. Economic Outlook, August 16, 2023 "To be sure, inflation for some goods and services is likely to accelerate in coming months. Most notable are medical care service prices, which have been steadily falling but will soon begin to rise. This is due to how the cost of health insurance is measured by the Bureau of Labor Statistics and the considerable pressure on the labor-intensive healthcare industry to pass along more of its increased labor costs." Moody's Analytics, U.S. Outlook: The Economy Finds Footing, August 14, 2023. 6#11General Revenue... Post Session August 2023 Fiscal Year Forecast Forecast Difference Percentage Incremental Change Growth Growth 2005-06 27074.8 8.4% 2006-07 26404.1 -2.5% 2007-08 24112.1 -8.7% 2008-09 21025.6 -12.8% 2009-10 21523.1 2.4% 2010-11 22551.6 4.8% 2011-12 23618.8 4.7% 2012-13 25314.6 7.2% 2013-14 26198.0 3.5% 2014-15 27681.1 5.7% 2015-16 28325.4 2.3% 2016-17 29594.5 4.5% 2017-18 31218.2 5.5% 2018-19 33413.8 7.0% 2019-20 31366.2 -6.1% 2020-21 36280.9 15.7% 2021-22 44035.7 21.4% 2022-23 46,243.8 47,327.8 1,083.9 3,292.1 7.5% 2023-24 44,097.3 45,664.4 1,567.1 (1,663.4) -3.5% 2024-25 46,221.6 47,424.2 1,202.6 1,759.8 3.9% 2025-26 47,632.9 48,586.8 953.9 1,162.6 2.5% 2026-27 49,015.2 49,934.8 919.6 1,348.0 2.8% 2027-28 50,532.8 2028-29 51,451.3 52,924.5 918.5 1,516.5 3.0% 1,473.2 2.9% The new state and national economic forecasts adopted in July 2023 were little changed from those adopted in February 2023, although that forecast had assumed a mild recession in the first and second quarters of 2023 that failed to materialize. Economic disruption is still evident, with varied impacts on household savings, the elevated use of credit, the continued normalization of spending on services and away from taxable goods, and strong inflationary pressures on households. Explained in part by the recession's failure to materialize, revenue collections have exceeded expectations since the last conference. General Revenue collections across all sources were $1,083.9 million or 2.3 percent over the estimate for the year. 10#12GR Outlook Balance... FY 2022-23 Beginning Balance Estimated Revenues Net Miscellaneous Receipts 22,803.1 47,327.8 562.3 Total Revenues 70,693.2 Total Appropriations, GAA Actions & Substantive Appropriations 50,554.7 Transfer to BSF 410.0 Budget Amendments through June 30, 2023 2,107.9 Legislative Reversions (2,185.5) Indian Gaming Local Distribution Total Effective Appropriations 5.6 50,892.7 Unallocated General Revenue 19,800.5 FY 2023-24 Beginning Balance Estimated Revenues 19,800.5 45,664.4 Net Miscellaneous Receipts through August 11, 2023 Total Revenues 168.1 65,633.0 Total Appropriations, GAA Actions & Substantive Appropriations 53,622.0 Transfer to BSF 1,000.0 Contingency Reserves for RAP and FORA Programs Budget Amendments through August 11, 2023 Total Effective Appropriations 2,208.1 2.0 56,832.1 $8,800.9 Projected Deficits and Shortfalls not on Outlook Statement 270.8 Unallocated General Revenue 8,530.0 Totals may not add due to rounding. Official Outlook adopted 8/18/2023 11#13Total State Reserves... Unallocated Outlook Baseline Fiscal General Budget Stabilization Emergency Lawton Chiles Preparedness Endowment & Response Total Anticipated GR Summer Revenue % of GR Year Year Revenue Fund Fund Fund Reserves Estimate Estimate 2014 2014-15 1,589.0 1,139.2 629.3 3,357.5 27,189.4 12.3% 2015 2015-16 1,709.1 1,353.7 590.2 3,653.0 28,414.1 12.9% 2016 2016-17 1,414.2 1,384.4 637.5 3,436.1 29,332.8 11.7% 2017 2017-18 1,458.5 1,416.5 713.4 3,588.4 30,926.0 11.6% 2018 2018-19 1,226.1 1,483.0 763.1 3,472.2 32,243.8 10.8% 2019 2019-20 1,452.9 1,574.2 773.6 3,800.7 32,943.3 11.5% 2020 2020-21 1,366.6 1,674.2 867.2 3,908.0 30,990.1 12.6% 2021 2021-22 7,324.0 2,723.5 10,047.5 36,901.0 27.2% 2022 2022-23 13,719.4 3,140.2 499.0 2023 2023-24 8,800.9 4,140.2 681.2 17,358.6 13,622.3 41,998.2 41.3% 45,664.4 29.8% At the time each of the previous nine Outlooks was adopted, total state reserves ranged from 10.8% to 41.3% of the General Revenue estimate. Based on the state's records at the time of this Outlook, total state reserves are $13.6 billion or 29.8% of the General Revenue estimate for FY 2023-24. Although not as large as the total FY 2022-23 level, both the Budget Stabilization Fund and Unallocated General Revenue continue at historic levels. The Budget Stabilization Fund is now close to its constitutional maximum. 12#14Critical Needs Drivers... FY 2024-25 FY 2025-26 FY 2026-27 Total Critical Needs 1,455.8 1,807.3 2,123.3 500.0 1,000.0 1,500.0 2,000.0 2,500.0 Critical Needs can generally be thought of as the absolute minimum the state must do absent significant law or structural changes. In this Outlook, there are a total of 14 Critical Needs drivers, including some that grow significantly between the first and second years. A funding strategy was deployed that reduced the need for General Revenue in the early years of the Outlook. For the programs in the education and environmental policy areas, the Outlook maximizes the use of all available state trust funds prior to using General Revenue. To accomplish this, adjustments are made to the General Revenue Fund, the Educational Enhancement Trust Fund, the State School Trust Fund, and the Land Acquisition Trust Fund based on projected balances forward and revenue changes in the trust funds over the three-year forecast period. This shifting of funds alters the need for General Revenue from year to year, but does not affect the overall level of dollars estimated to be required for core education and environmental programs. Overall, this strategy has its most visible effect on Critical Needs driver #1- $269.9 million for maintaining the current year Florida Education Finance Program budget in Fiscal Year 2024-25. 13#15Adding Other High Priority Needs... Because trust fund balances were used, the projected General Revenue cost of some drivers in Fiscal Year 2024-25 is significantly less than it would have been. Even without that adjustment, the Other High Priority Needs drivers would have been the largest expenditure component in each of the three years of the plan, by far. The 28 Other High Priority Needs reflect issues that have been funded in most, if not all, of the recent budget years. Both types of drivers are combined to represent a more complete, yet still conservative, approach to estimating future expenditures. Essentially, the total projected cost for the Critical Needs and Other High Priority Needs shows the impact of continuing the programs and priorities funded in recent years into the three years included in the Outlook. General Revenue Fund Fiscal Year Fiscal Year Fiscal Year Dollar Value of Critical Needs and Other High Priority Needs ($Millions) 2024-25 2025-26 2026-27 Critical Needs 1,807.3 2,123.3 1,455.8 Other High Priority Needs 3,066.9 3,204.5 3,216.2 Critical Needs plus Other High Priority Needs 4,874.2 5,327.9 4,672.0 General Revenue Fund Fiscal Year Fiscal Year Fiscal Year Percentage of Total Critical Needs and 2024-25 2025-26 2026-27 Other High Priority Needs Critical Needs 37.1% 39.9% 31.2% Other High Priority Needs 62.9% 60.1% 68.8% Critical Needs plus Other High Priority Needs 100.0% 100.0% 100.0% 14#16GR Drivers by Policy Area... In Fiscal Year 2024-25, three policy areas (Human Services, Natural Resources, and Statewide Issues) compose more than half of the total need for General Revenue. General Revenue Fund Total Critical Needs and Other High Priority Needs by Policy Area ($Millions) Pre K-12 Education Higher Education Fiscal Year Fiscal Year Fiscal Year 2024-25 2025-26 2026-27 767.1 862.8 662.3 767.3 716.6 722.9 Human Services 803.2 1,233.5 848.4 Criminal Justice & Judicial Branch 47.3 47.3 47.3 Transportation & Economic Development 479.6 477.9 479.6 Natural Resources 878.6 1,006.1 1,006.7 General Government 181.4 172.3 168.7 Administered Funds - Statewide Issues 949.7 811.3 736.1 Total New Issues 4,874.2 5,327.9 4,672.0 By the second year of the Outlook, the Pre K-12 Education, Human Services, and Natural Resources needs increase, while other areas decline or stay nearly the same. By the third year, Natural Resources is the largest share of the total need. General Revenue Fund Percentage of Total Critical Needs and Other High Priority Needs by Policy Area Pre K-12 Education Higher Education Human Services Fiscal Year 2024-25 Fiscal Year 2025-26 Fiscal Year 2026-27 15.7% 16.2% 14.2% 15.7% 13.5% 15.5% 16.5% 23.2% 18.2% Criminal Justice & Judicial Branch 1.0% 0.9% 1.0% Transportation & Economic Development 9.8% 9.0% 10.3% Natural Resources 18.0% 18.9% 21.5% General Government 3.7% 3.2% 3.6% Administered Funds - Statewide Issues 19.5% 15.2% 15.8% Total New Issues 100.0% 100.0% 100.0% 15#1716,000 14,000 12,000 10,000 Total New GR Infusion = $14.9 Billion 14,874.1 8,000 7,211.4 6,000 4,000 2,000 New General Revenue Infusion Over Three-Year Period Comparison of 2022 and 2023 Outlooks 2022 Outlook 2023 Outlook 2,891.4 2,497.0 2,120.7 1,595.9 2,885.1 1,325.6 2,206.8 1,302.1 307.6 2,292.2 1,437.1 522.5 266.6 190.9 101.9 142.0 Total Budget Statewide Issues Natural Resources Human Services Drivers Higher Education Transportation & Economic Development General Government Pre K-12 Education Criminal Justice & Judical Branch The total need for new infusions of General Revenue over the three years is $14.87 billion. Together, Natural Resources and Statewide Issues represent almost 40 percent of the total. This total three-year driver need is more than double the $7.21 billion identified last year, but the composition is different. All eight policy areas included in the plan went up in need. 16#18Total GR Expenditures = $22.8 Billion General Revenue Fund Recurring and Nonrecurring Budget Driver Impact ($Millions) New Recurring Drivers for Each Year Continuation of Year 1 Recurring Drivers Continuation of Year 2 Recurring Drivers Cumulative Impact of Recurring Drivers Fiscal Year Fiscal Year Fiscal Year 2024-25 2025-26 2026-27 Three-Year Total % of Three- Year Total 2,554.4 2,836.9 2,263.3 7,654.5 2,554.4 2,554.4 5,108.7 2,836.9 2,836.9 2,554.4 5,391.2 7,654.5 15,600.1 68.4% Nonrecurring Drivers for Each Year 2,319.9 2,491.0 2,408.7 7,219.6 31.6% Grand Total 4,874.2 7,882.2 10,063.3 22,819.7 Simply looking at the new infusions of General Revenue needed each year does not present a complete picture. Over the entire three-year period, 68.4 percent of the General Revenue infused each year must be recurring to match the ongoing nature of the budget investment. Those expenditures cumulate and stack on top of each other in the subsequent years. As the table shows, of the $4,874.2 million needed for drivers in Fiscal Year 2024-25, $2,554.4 million will be needed again in Fiscal 2025-26 (and again in Fiscal Year 2026-27) to continue those programs. This makes the actual dollar impact of the drivers identified in the Outlook larger than the displayed drivers alone suggest. In effect, the $14.9 billion in new infusions over the Outlook period support $22.8 billion in additional costs over the period. Both effects are accounted for in the Outlook. 17#19Revenue Adjustments... Revenue Adjustments to the General Revenue Fund are again included in the Outlook to reflect legislative actions that alter the revenue-side of the state's fiscal picture. These adjustments are based on historic averages and include: Tax and Significant Fee Changes... These changes fall into two categories with different effects. The continuing tax and fee changes reflect adjustments to the funds otherwise available and build over time since the impact of each year's change is added to the recurring impacts from prior years. Conversely, the time-limited tax and fee changes are confined to each year and are held constant throughout the Outlook. Trust Fund Transfers (GAA)...The nonrecurring transfers to the General Revenue Fund are positive adjustments to the dollars otherwise available and are held constant each year. Unlike the budget drivers that are linked to identifiable issue areas, the revenue adjustments make no assumptions regarding the nature of the change (e.g., the specific amount by tax, fee, or trust fund source). Rec 2024-25 NR 2025-26 Continuing Tax and Fee Changes (134.8) Recurring Impact of Prior Years' Tax and Fee Changes Total 29.8 (105.0) (134.8) (134.8) Rec NR Total Rec 2026-27 NR Total 29.8 (105.0) (134.8) 29.8 (105.0) (134.8) (269.6) (269.6) Time-Limited Tax and Fee Changes - Trust Fund Transfers (GAA) Total (134.8) (541.5) (541.5) 19.7 19.7 (492.0) (626.8) (541.5) (541.5) - (541.5) (541.5) (269.6) 19.7 (492.0) 19.7 19.7 19.7 (761.6) (404.4) (492.0) (896.4) 18#20Putting It Together for the First Year OUTLOOK PROJECTION - FISCAL YEAR 2024-25 (in millions) RECURRING NON RECURRING TOTAL AVAILABLE GENERAL REVENUE 47,356.6 8,730.2 56,086.7 Recurring Base Budget 41,703.3 0.0 41,703.3 Critical Needs Transfer to Budget Stabilization Fund 0.0 0.0 0.0 1,416.8 390.6 1,807.4 Other High Priority Needs 1,137.6 1,929.3 3,066.9 TOTAL EXPENDITURES 44,257.6 2,319.9 46,577.5 ENDING BALANCE AFTER EXPENDITURES 3,099.0 6,410.3 9,509.2 Revenue Adjustments (134.8) (492.0) (626.8) Reserve 0.0 1,854.7 1,854.7 PROJECTED ENDING BALANCE 2,964.2 4,063.6 7,027.8 Totals may not add due to rounding. Combined, the costs of recurring and nonrecurring General Revenue Critical Needs are significantly less than the available General Revenue dollars. When Other High Priority Needs are added, the General Revenue projected surplus is $9.5 billion. After accounting for the revenue adjustments and a $1.85 billion Reserve, the projected General Revenue surplus is $7.03 billion, but 57.8 percent of this is nonrecurring dollars. 19#21Outlook for FY 2024-25 Compared to Last Year Presented Effect on in 2022 Fiscal Year 2024-25 Outlook Presented in 2023 Outlook Bottom Difference Line Funds Available Balance Forward from 2023-24 15,197.7 8,530.0 (6,667.7) Negative Available General Revenue 43,979.3 47,556.8 3,577.5 Positive Trust Fund Transfers 127.9 Tax and Fee Changes (320.8) 19.7 (646.5) (108.2) Negative (325.7) Negative Total Funds Available 58,984.1 55,460.0 (3,524.1) -6.0% Negative Projected Expenditures Base Budget for 2024-25 40,002.5 41,703.3 1,700.8 Negative Total New Budget Drivers for 2024-25 2,647.5 4,874.2 2,226.7 Negative Total Projected Expenditures 42,650.0 46,577.5 3,927.5 9.2% Negative Additional Adjustments for Reserves BSF Transfer Reserve Bottom Line 1,715.2 14,618.9 1,854.7 7,027.8 139.50 Negative (7,591.1) Although offset by revenue collections that are higher for FY 2024-25 than were anticipated by the 2022 Outlook, the significantly lower balance forward from FY 2023-24 reduces total funds available by 6.0 percent-a negative effect on the bottom line. The significant increases in base budget expenditures and the new budget drivers for Fiscal 2024-25 helped produce an overall 9.2 percent increase in projected expenditures, creating an overall bottom line that is 51.9 percent lower than last year's projection for the same year. 20 20#22The Bottom Line For All Three Years... 2023 Long-Range Financial Outlook Summary General Revenue Fund ($Millions) Revenues Available Year 1 FY 2024-25 Year 2 FY 2025-26 Year 3 FY 2026-27 47,557 48,725 50,074 Unused Reserve from Prior Year 8,530 8,883 7,260 Reserves (1,855) (1,900) (1,953) Revenue Expenditures Adjustments I Recurring Base Budget (41,703) (44,258) (47,094) Critical Needs Budget Drivers (1,807) (2,123) (1,456) Other High Priority Needs Budget Drivers (3,067) (3,205) (3,216) Ending Balance After Expenditures 7,655 6,122 3,614 Tax and Fee Changes (647) (781) (916) Trust Fund Transfers 20 20 20 Revenue Adjustments (627) (762) (896) Surplus/ (Deficit) 7,028 5,360 2,718 Portion of Surplus that is Generated from Recurring $s 2,964 976 130 Portion of Surplus that is Generated from Nonrecurring $s 4,064 4,384 2,588 Overall, the forecasted General Revenue growth (recurring and nonrecurring) is sufficient to support anticipated spending and a minimum reserve for each year of the Outlook. Fiscal strategies will not be required because the projected budget is in balance as constitutionally required. However, the decreasing ending balances indicate the projected expenditures are beginning to outpace available revenues. Of particular concern, the recurring expenditure demands (both budget drivers and revenue adjustments) consume nearly all of the recurring revenues by the end of the forecast period, signaling a structural imbalance may be emerging, absent any prior corrective actions. 21#23FY 2023-24 Balance Significantly Declines... General Revenue Fund Projected Ending Balances ($Millions) $8,000 $7,028 $7,000 $6,000 $5,360 $5,000 $4,064 $4,000 $3,000 $2,000 $2,964 $1,000 $976 $0 FY 2024-25 FY 2025-26 Recurring $2,718 $4,384 $2,588 $130 FY 2026-27 Nonrecurring The state's projected balance on the Long-Range Financial Outlook for June 2024 is $8.5 billion. The plan significantly reduces this balance throughout the three years—the third year is only 31.9% of Fiscal Year 2023-24. If the entire ending balance is spent in the first year of the plan (with the recurring on recurring programs and the nonrecurring on one-time investments), both the second and third years of the Outlook show significant negative ending balances of $-4.6 billion and $-5.6 billion, respectively. 22#24Black Swans... "Black Swans" are typically low probability, high impact events, but the term also refers to ideas that are perceived impossibilities that may later be disproven. The events below are relative to the current estimating conference forecasts. The realization of co-occurring risks that could be handled individually, but not in combination. This would be a stress not just on reserves, but also on human capital and technical resources. A protracted and complete federal government shutdown in the midst of the remaining hurricane season. The Congressional Budget Office (CBO) estimated that the 2018-2019 partial shutdown of five weeks reduced Gross Domestic Product (GDP) by a total of $11 billion, including $3 billion that will never be recovered. Mixed economic signals leading to a serious Federal Reserve miscue that causes unabated inflation and a deep recession. Inflation Reduced Savings Household Debt Reduced Spending on Taxable Goods "It is the Fed's job to bring inflation down to our 2 percent goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak—a welcome development-it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective." "Twelve-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability." "Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions." "But we are attentive to signs that the economy may not be cooling as expected... Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy." Remarks by Jerome Powell, Jackson Hole, Wyoming, August 25, 2023 23