New Tax Collection Figures Are Mixed News for State Budget
The Department of Revenue (DOR) issued its report on December tax collections today, and at first blush the numbers look bad; however, I think they may actually suggest a modest upturn – relative to the November estimate for the current fiscal year (FY). Whether that assessment is accurate will become apparent later this week when officials release updated state revenue estimates for FY 2014-15 and for the next biennium, which begins on July 1.
What the short new report reveals on its face is that tax collections were down by 2.6% in December, compared to the same month in 2013, and tax collections for the first half of the current fiscal year were down by 2.7% compared to the last six months of 2013. Individual income tax collections for the last half of 2014 were down by 6.4% or $232 million, and corporate income tax revenue was down 8.0% or $38 million. On a more encouraging note, sales tax revenue was up by 4.7%.
The income tax numbers seem worrisome when you consider that the state needs significant revenue growth in 2014-15 to help avoid finishing the year in the red and facing an even larger structural deficit in the next biennium (relative to the current gap of $2.2 billion between estimated revenue and the agency budget requests). However, the new revenue numbers look much less problematic when you remember that the state had been expecting individual income tax collections to be significantly lower in the first half of FY 2014-15 because of the withholding changes.
In late October, DOR released a table showing the department’s month-by-month estimates of tax collections – in an effort to counter concerns about a large revenue shortfall. Although the timing of that release, shortly before the gubernatorial election, raised eyebrows and did little to instill confidence in the numbers, I agree with DOR that it’s preferable to compare the actual tax collection numbers to the monthly projections, rather than to the prior fiscal year. For that reason, I obtained from DOR a copy of the department’s December update to the monthly revenue projections.
Comparing the latest tax collection numbers with the December update to the monthly estimates, it appears that tax revenue (excluding insurance premium taxes) is running about 1% ahead of what the Department was expecting when it last updated its revenue projections for the current fiscal year. That’s somewhat encouraging, but keep in mind that the last projections for FY 2014-15 indicated that the state was on track to have a “net balance” of -$197 million at the end of this fiscal year – which means that the state needs significantly better than expected revenue growth to avoid having to make substantial cuts between now and June 30th.
I would feel more confident in comparing actual revenue to the monthly projections if DOR made it a regular practice to release monthly projections, rather than only sharing those figures when it seems to be politically convenient. That said, I assume the monthly estimates are the best possible assessment of how the withholding changes in 2014 will reduce refunds in coming months and will thereby result in a significant upturn in tax collections over the rest of this fiscal year.
To sum up, comparing the latest tax collection figures to DOR’s monthly revenue projections makes me a little less worried about the shortfall in the current fiscal year, but the new figures don’t persuade me that the 2014-15 budget will easily be balanced. More importantly, if this year’s revenue does prove to be significantly better than DOR estimated in November, that improvement could help yield a modest, but very welcome reduction in the structural deficit.
We’ll learn a lot more sometime in the next few days, when new revenue estimates are released.