DATE: Monday, May 21, 2012
TIME: 9:30 a.m.
PLACE: Room 212 of the Capitol Building, Springfield, IL
TOPIC: Overview and Review of Contracts for Administration of the Group Insurance Program – FY 2013

ECONOMY: IS IT IN ANOTHER SOFT PATCH?
Edward H. Boss, Jr., Chief Economist

Weaker economic data and uncertainty are raising concerns that the economic expansion, approaching the end of its third year, may be hitting a soft patch. This would be the third consecutive year that the pace of economic growth would have run into such a period of struggle. Economic growth normally surges following a recession, and the deeper the recession in the past, the sharper has been the turnaround.  In contrast, following the recession that began at the end of 2007 and didn’t end until June 2009, the recovery has exhibited the weakest growth in at least the post WWII era. Perhaps more disturbing than the recent weaker economic reports are fears that this pattern will continue.
 
There remains great uncertainty over the course of U.S. fiscal policy with little clarity likely prior to the fall elections. The courts have yet to announce its decision on Obama care; Medicare’s payments to physician’s services are scheduled to be reduced by nearly 30%; the reduction in payroll taxes and extension of lower tax rates and expanded credits and deductions are set to expire at the end of the year; and additional budget savings of more than $1 trillion are required by the Budget Control Act. These are some of the major issues as well as the implications of new regulations overhanging the economy that are causing businesses to withhold making major Decisions. 
 
While it may not be inevitable, recent events and unresolved issues are raising concerns that the economy will slow in the months ahead, dampening growth and reducing employment gains. Already the 3-year recovery has been the weakest in modern times and further weakness could put the current expansion in jeopardy. Moreover, such concerns are likely to continue until some clarity is forthcoming.

REVENUE: APRIL REVENUES SURGE – INCREASES EXPECTED
Jim Muschinske, Revenue Manager

Overall base revenues in April grew $733 million. The significant growth was largely due to the expected boost from final income tax payments. Continued strong sales taxes also helped monthly receipts. In addition, what has been a rare occurrence this fiscal year, federal sources also experienced a positive month.
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Through April, absent short-term borrowing, tobacco settlement proceeds, Pension Contribution Fund transfers and Budget Stabilization Fund transfers, base general funds revenues are up $2.598 billion. The increase has been fueled by comparatively higher income tax receipts stemming from the January 2011 rate increases as well as continued strong sales tax receipts. Those items have been more than enough to overcome a significant falloff in federal sources resulting from less reimbursable spending as well as a return to a lower federal matching rate [under ARRA, states enjoyed approximately two years of higher reimbursable match which has now ended].