WisBusiness: Wisconsinís neighbors faring better during economic downturn
By Tracy Will
With the U.S. Federal Reserve Bankís concern about an extended recession reported this week and a $5.4 billion deficit looming over Wisconsin, news reports and economic forecasts from the regional Federal Reserve branches in Chicago and Minneapolis†suggest some of Wisconsinís Midwestern neighbors are poised to weather this downturn better than Wisconsin.
Read below for a round-up of the economic conditions facing Wisconsin's Midwestern neighbors:
- In Illinois, its most pessimistic state economists see a $1.3 billion shortfall in tax revenues, and official state projections foresee tax collections lagging by $550 million. This compares favorably to Wisconsinís projected $5.4 billion shortfall.
While Gov. Rod Blagojevich still has his job, Illinois unemployment increased from 7.1 percent in October to above 7.3 percent by 2009. The Illinois Commission in Forecasting and Accountabilityís November report found Illinois had entered the recession. Through the first third of the 2009 fiscal year, Illinois' overall base revenues are down $406 million. The decline is primarily attributed to $296 million less from federal sources, as well as $179 million less from transfers. Overall, Illinois' total revenue shortfall climbs to $1.342 billion based on the Commission's November forecast.
- Iowa has seen a decline in tax revenue over the past seven months but with a state cash surplus, it plans to exercise budget measures to stay in the black. In December Gov. Chet Culver announced $180 million in state agency budget cuts, travel moratorium and not filling state job vacancies.
Members of the state's revenue estimating team and the governor determined the end of the economic downturn has not yet reached Iowa. Culver plans to tap a $620 million reserve fund and protect its triple-A bond rating. Non-farm payroll continued to weaken although unemployment in November was 4.3 percent , down from 4.4 percent in October.
- Michiganís concentration of automotive manufacturing continues to drag down its economy. The state lost more than 56,000 automotive jobs in 2008, bringing the eight-year total to more than 560,000. Statewide unemployment trended higher than 9.6 percent by the yearís end. More than half of Michiganís counties faced unemployment levels over 10 percent, with the Flint region topping 11.6 percent.
Despite these dire employment numbers tax collections remained strong in the first half of 2008. The final quarter of the 2007-08 fiscal year (April through June.) saw revenue collections increase by $542 million or 8.4 percent over the same time span a year earlier. These increases were due to an 11.5 percent income tax hike approved in the 2007-08 legislative session, designed to fill an existing $1.7 billion budget gap, and should sunset in 2011. Sales tax receipts were $2.07 billion, up 2.2 percent on the year; income tax was $1.79 billion, a 12.7 percent annual increase; and business and insurance taxes (including gross receipts) were $782 million, a 42 percent increase.
But in the 2008-09 fiscal year, Michigan economists forecast weaker revenue performance.The Washington, D.C.,-based Center on Budget and Policy Priorities in December predicted Michigan would face a budget gap of $1.6 billion in the 2010 fiscal year.
- Minnesota has enjoyed budget surpluses in recent legislative sessions, but the stateís most recent forecast indicates a $426 million shortfall for the current biennium ending June 30. After using the stateís $155 million budget reserve, the total drops to $271 million. Representatives from the Office of Minnesota Management and Budget indicated state agencies should brace for approximately $40 million of the hit.
The Federal Reserve's Minneapolis branch reported that unemployment claims increased dramatically in Minnesota in the second half of 2008. Minnesota's seasonally adjusted unemployment rate rose half a percentage point to 6.4 percent in November.† This was the result of an increase of 14,400 unemployed people, which raised the total to 188,925, the highest number since early 1983.
The Minneapolis Federal Reserve Boardís view of the Upper Midwest is also bleak. According to the Minneapolis Fed's forecasting model, employment is expected to contract in Minnesota, Wisconsin and the Upper Peninsula of Michigan in 2009, with modest growth in Montana and the Dakotas. The regional Fedís forecast also showed continued weakness in the housing markets as home prices in Minneapolis-St. Paul, Fargo, N.D., and Sioux Falls, S.D., decreased 10.7 percent, 4.7 percent and 1.8 percent, respectively, during third quarter 2008 compared with a year earlier.