State Tax Collections Drop 21% in April

Friday, May 23, 2014 at 5:12 PM by

Figures released Friday by the Department of Revenue indicate that state tax collections were 21% lower in April than in the same month of 2013 – primarily because of a $332 million drop in individual income tax revenue.  Perhaps more importantly, tax collections have been falling for the past several months – to the point that total tax revenue over the first 10 months of the current fiscal year is now a little bit (0.2%) below the total at this point of the previous fiscal year.

Of course, part of the sharp decline in April can be attributed to income tax cuts that took effect at the beginning of tax year 2014, and part is the result of reductions in income tax withholding that took effect on April 1.  Those variables and others make it difficult to do the number crunching to assess whether the latest drop in tax collections is cause for alarm – especially on a gorgeous Friday afternoon when I’m anxious to get out of the office and start the holiday weekend.  That said, the latest Wisconsin numbers and the recent revenue downturns in a number of other states suggest to me that the state’s fiscal situation bears watching carefully and might not be as strong as many people have been suggesting.

A Legislative Fiscal Bureau paper released Thursday indicates that tax collections in the current fiscal year have been expected to total $14.40 billion.  That would be an increase of $244 million over the previous fiscal year, and hitting that level of growth will require a significant upturn in May and June.  But in my opinion, whether the state falls short of the projection for FY 2013-14 is probably less important than the question of whether a slowdown in the second half of this fiscal year will signal a significant shortfall in the second year of the biennium.

Here’s where we stand on some of the particular sources of state tax revenue over the first 10 months of the fiscal year:

  • State individual income tax collections are now $265 million or 4.5% below the comparable period in 2012-13.
  • Corporate income tax revenue is up about $29 million (3.9%), but has a long way to go to reach the $140 million increase assumed when revenue estimates were revised in January.
  • On the plus side, sales tax revenue is up by $185 million, or 5.7%. Although that growth slowed a bit in April, it looks like we ought to be able to reach or surpass the 5.2% increase in sales tax revenue assumed for the full fiscal year.

In a blog post this afternoon, the WisPolitics Budget Blog quotes Bob Lang, Director of the Legislative Fiscal Bureau, who said that the total collections have been a little “weaker than expected.”  Lang added that June is a significant month for corporate revenue and should give us a better idea of whether tax collections are matching projections.  We’ll take a closer look at the data a month from now. 

Jon Peacock 

2 Responses to “State Tax Collections Drop 21% in April”

  1. Jake formerly of the LP says:

    Good rundown. I agree that there’s some time for this to be made up, but revenues were slipping before this April disaster. My analysis indicates a $200 million shortfall has already appeared, and that’s before we add in the extra expenses that are coming from more people signing up for Medicaid under “Walkercare” that wasn’t budgeted for.

    And am I correct in figuring that a lower 2013-14 would require a larger upturn in 2014-15 just to keep up, and to keep the structural deficit from growing beyond $642 million in the General Fund?

    • Jon Peacock says:

      I agree that this is just the most recent (and most dramatic) of several months of declining revenue. For a time I thought it might be just a function of the unusually cold and long winter, but the April numbers make me more pessimistic. I think your May 24th blog post makes a strong case that the shortfall in the current fiscal year could be $200 million or larger.

      I also agree with you that higher-than-anticipated enrollment of childless adults in BadgerCare could add to the state’s budget challenges — though there are a couple of other variables that we need to take a close look at in the next batch of data. Although I think the childless adult enrollment figure will be even higher in May, that depends on whether continued new sign-ups exceed the number of childless adults who lose coverage in May because of glitches in the federal eligibility determination process for BadgerCare (before the state took back that responsibility). Also, my preliminary sense is that the number of already-eligible kids and parents signing up is less than what the budget bill assumed, though I need to take a much closer look at those numbers.

      As for the structural deficit, you’re correct (and my May 27 post explores that issue). If revenue is less than expected this fiscal year, that cuts into the states very modest reserves, and that boosts the structural deficit. But if revenue comes up short in 2014-15, that’s a double or triple whammy because in addition to wiping out reserve funds it reduces the assumed revenue base for each year in the next biennium. Thus, a $100 million revenue shortfall in 2014-15 would cause a $300 million increase in the 2015-17 structural deficit (assuming a $100 million reduction in reserves and no net change in 2014-15 spending in response to the shortfall).