Missouri Fiscal Update June 2014 1 MISSOURI FISCAL

Missouri Fiscal Update June 2014 1

MISSOURI FISCAL UPDATE June 2014 �Economic Data – Actual & Projected �State Revenue Update �State Spending Update �Current Status and Future Outlook 2

MISSOURI FISCAL UPDATE Economic Data – Actual & Projected 3

Growth in MO Personal Income Q/(Q-4) 8% 6% 4% 2% 0% (2%) (4%) (6%) (8%) (10%) Personal Income Wages & Salaries 2013 q 3 2013 q 1 2012 q 3 2012 q 1 2011 q 3 2011 q 1 2010 q 3 2010 q 1 2009 q 3 2009 q 1 2008 q 3 2008 q 1 � Personal Income jumped at the end of 2012 as investors closed out positions in an effort to avoid tax increases on capital gains. This contributed to artificially slower growth at the end of 2013 � Wage and business growth will accelerate as the economic recovery 4 strengthens in 2014.

US & MO Unemployment Rates Seasonally Adjusted Data 11% 10% 9% 8% US 7% MO 6% 5% 4% 2014 q 1 2013 q 3 2013 q 1 2012 q 3 2012 q 1 2011 q 3 2011 q 1 2010 q 3 2010 q 1 2009 q 3 2009 q 1 2008 q 3 2008 q 1 2007 q 3 2007 q 1 � US rate is expected to decline slowly but steadily through 2014. � In general, MO rate follows the national trend, but has remained below the national average since late 2009. 5

2. 0% %-Change 2, 775 2, 725 0. 0% 2, 700 (1. 0%) 2, 675 (2. 0%) 2, 650 (3. 0%) 2, 625 (4. 0%) 2, 600 (5. 0%) Change from Year-Ago 1. 0% Employment 2, 750 Employment (Thousands) Missouri Current Employment Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 Oct-09 Jul-09 Apr-09 Jan-09 Source: US BLS 6

Inflation (CPI) Q/(Q-4) CPI Core CPI 6% 5% 4% 3% 2% 1% 0% (1%) (2%) 2014 q 1 2013 q 3 2013 q 1 2012 q 3 2012 q 1 2011 q 3 2011 q 1 2010 q 3 2010 q 1 2009 q 3 2009 q 1 2008 q 3 2008 q 1 2007 q 3 2007 q 1 � Inflation remains subdued. � Growth in “core” inflation, excludes food & energy, remains low. 7

Billions Total Taxable Sales 20. 0 19. 5 10. 0% 8. 0% 6. 0% 4. 0% 2. 0% 0. 0% (2. 0%) (4. 0%) (6. 0%) (8. 0%) (10. 0%) Sales ($ - Seas. Adj. ) Percentage Change 19. 0 18. 5 18. 0 17. 5 2014 q 2 2014 q 1 2013 q 4 2013 q 3 2013 q 2 2013 q 1 2012 q 4 2012 q 3 2012 q 2 2012 q 1 2011 q 4 2011 q 3 2011 q 2 2011 q 1 2010 q 4 2010 q 3 2010 q 2 2010 q 1 2009 q 4 2009 q 3 2009 q 2 2009 q 1 Fiscal Quarter Consumers continue to regain confidence as employment and income improve. Source: DOR Quarterly Reports, Seasonally Adjusted by B&P 8

State Revenue Update �Recent general revenue collections �Historical comparisons 9

FY 2013 NET GENERAL REVENUE COLLECTIONS ($ in millions) Total $8, 082. 7 All Other $154. 8 2% County Foreign $151. 9 2% Individual Income, $5, 488. 5 68% Corporate $415. 5 5% Sales $1, 872. 0 23% 10

MO General Revenue Collections 9, 506. 1 9, 800 $M 9, 400 9, 000 8, 600 8, 200 7, 800 7, 400 7, 716. 4 8, 003. 9 8, 082. 7 7, 332. 2 7, 450. 8 7, 000 6, 970. 9 7, 340. 6 FY 2013 FY 2012 FY 2011 Typical Growth 7, 109. 6 FY 2010 FY 2009 FY 2008 FY 2007 FY 2006 6, 600 8, 284. 0 8, 573. 9 8, 874. 0 9, 184. 6 Actual 11

General Revenue as % of Personal Income 4. 4% 4. 2% 4. 1% 4. 0% 3. 9% 3. 8% 3. 6% 3. 4% 3. 2% 3. 8% 3. 7% 3. 6% 3. 4% 3. 1% 3. 2% 3. 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013. 12

General Revenue Collections & Tax Credit Redemptions 9, 750 650 Figures in millions 629. 5 8, 550 584. 7 550 7, 950 545. 2 7, 350 6, 750 600 522. 9 504. 5 512. 9 479. 3 500 Tax Credits Net GR 9, 150 450 FY 2013 FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Actual Revenues Tax Credit Redemptions 13

State Spending Update �The official spending pie �Key Initiatives �Summary of Savings 14

FY 2014 General Revenue Operating Budget Total Appropriations $8. 28 Billion 15

FY 2015 General Revenue Operating Budget Total Appropriations $8. 84 Billion 16

FY 2014 General Revenue Higher Ed Budget Total Appropriations $864 Million 17

FY 2015 General Revenue Higher Ed Budget Total Appropriations $948 Million 18

Summary of Savings Since FY 2009 �State reduced 4500 FTE. �Pension and Health Care reform. �Medicaid - trend held to 3. 7%, inc PTD, less than 2% without PTD. � 11% reduction in leased space. �Energy usage down 22%. 19

Summary of Savings Since FY 2009 (Continued) �Travel mileage down 8%. �Debt Restructuring (PV savings $80 M). �Similar saving strategies by higher education institutions, schools, and other local entities. 20

FY 2014 Budget – Key Initiatives �$100 M increase for K-12 Classrooms. �$25 M for higher ed performance funding. �$11. 3 M new initiative to train more health care professionals. �$10. 2 M increase for Partnership for Hope. �$10. 1 M investment to meet unmet mental health needs. �$14 M increase for early childhood initiatives. 21

MISSOURI FISCAL UPDATE Current Status and Future Outlook 22

CURRENT STATUS �The revised revenue forecast estimated 4. 8% growth for GR for FY 13; actual collections at 10%. �Biggest growth - declarations and remittances. Investment income & federal tax changes. One-Time revenue bump. �Withholding up 3. 5%, right on forecast. 23

CURRENT STATUS � FY 2014 Revenue through May up 0. 2%. �Individual Income Tax Collections – down 0. 7% ₋ Decline is in remittances – down 14% ₋ Withholding tax up, but modest – up 1. 2% ₋ Seeing same impact as most states of really good capital gains in FY 2013 having “borrowed” money from FY 2014 �Sales Tax Collections – up 2% �Corporate – up 5. 3%. 24

FUTURE OUTLOOK �Highly unlikely that FY 2014 revenue will achieve the 2% growth assumed for FY 2015. �Likely going to end FY 2014 with a decline in revenue. �Would require FY 2015 to grow at a faster pace to hit budgeted target for FY 2015 budget -- about 7%. �Even more significantly, tax cut legislation will negatively impact FY 2015 revenue collections. 25

FUTURE OUTLOOK �Tax Cuts include 8 bills passed on last day of session. �GR impact estimated at over $280 million. FY 2015, impact estimated at $250 million. �Also would impact other state and local revenue. �Other state funds include Prop C for K-12 educ, conservation, parks/soils, and state hwy. �Local impact large because hits sales tax base. �Total impact state and local is estimated at over $770 M. 26

FUTURE OUTLOOK �Base revenue would likely turn around as economy continues to improve. �However, combination of new legis that will immediately impact collections and SB 509 that will begin impact in FY 2017 will result in lower revenue growth foreseeable future. �Will not have the $s to invest as planned. 27

MISSOURI FISCAL UPDATE June 2014 �Questions? 28