July 28-- State Senator Jack Hill of Reidsville provides a real world look at the state's finances in his "Notes From The Senate."
Even though the headlines led with overall growth for state revenues of 4.8% for the FY012 Fiscal Year, serious issues are coming to light as we review not only June's year-end revenue drop-off but the steady decline of the revenue increase rate over the previous year since December.
JUNE WAS A NEGATIVE MONTH FOR ALL PRACTICAL PURPOSES
Even though the June revenues total showed a 2.6% increase, looking closer at the numbers reveals that both Individual Income Taxes and Sales Tax collections were negative for the month. Most had expected a year end that would produce surplus funds for the Revenue Shortfall Reserve. Now only lapsed funds hold any promise of additions and the first 1% of the reserve is due the Department of Education for K-12 growth.
The June report shows Individual Income Tax revenues were almost flat with a -0.2% decrease or $1.7 million. The increase in tax payments almost perfectly matched the increase in refunds for the month. If any refunds were held back for any reason, as they were two years ago, those may pull down July's numbers. Individual Income Tax revenues totaled $780.8 million in June.
Sales Tax collections were down for the month by -2.2% or -$19.8 million on total state proceeds of $428.9 million.
Motor Fuel Tax collections declined slightly by less than a million but excise taxes were actually up for the month by 2.9%.
The big jump in June's revenue picture and the factor that swung the month to positive territory was a $42.9 million gain in Corporate Income Taxes. Total collections of $154.0 million topped even 2011's June collections of $111.09 million.
Tobacco taxes were down 7.9% while alcoholic beverage taxes were up 38.5%.
YEAR TO DATE NUMBERS MEET BUDGET BUT SHOW SLIPPAGE AS YEAR ENDS
For the second year in a row, revenues wound up the year ahead of the year before and enough of a gain to meet budget projections, but visions of 6% plus growth for the year fell by the wayside. Overall, the FY012 Fiscal Year ended with a revenue growth of 4.8%, enough to meet the 4.6% needed for budget projections. Total tax revenues for the year were $16.052 billion for a gain of $742.1 million.
Individual Income Taxes for the year totaled $8.142 billion showing a gain of $483.7 million, a 6.3% increase. Net Sales Taxes for the year were $5.330 billion, gaining $232.2 million and growing 4.6%. These are pretty good sounding numbers until you look at the trends over the past 6-7 months which we will do further along.
Motor Fuel Tax receipts concluded the strongest year since FY2008 totaling $1.004 billion total for the year. Excise taxes, by the gallon continued to slide showing a 2.2% decline while Motor Fuel Sales Taxes grew 19.4%, reflecting higher prices even though the tax rate was frozen earlier this year by Gov. Deal.
Corporate Tax collections continued a precipitous decline of -$81.2 million for the year or -12.1%. Corporate tax collections have dropped from $1.01 billion in FY2007 to this year's low mark of $589.9 million or -42%.
Tobacco taxes and Alcoholic Beverages were affected by classification adjustments and according to DOR's Notes should have reflected increases of $7.0 million in Tobacco products and $6.25 million in Alcoholic Beverages.
TROUBLING TRENDS IN REVENUE NUMBERS FOR LAST SEVEN MONTHS.
The troubling trend is that the majority of growth (with the exception of April) occurred in the first five months of the year. The first quarter of the year (July, August and September) experienced revenue growth of 7.2%. The second and third quarters though only saw growth of 3.4%. As mentioned earlier, 4.6% growth was needed to make budget. The fourth quarter showed growth of 5.3%, ahead of what is needed to meet budget targets, but that was primarily a result of April revenues. Without April revenues, the 4th quarter only produced a 2.4% growth rate. By the end of the fiscal year, the state only collected $40 million more in tax revenue than was needed to make budget.
This is important because of the revenue estimate needed to make the FY2013 budget. The FY2013 budget passed in March is based on a revenue estimate of 5.75% growth over what was collected in FY2012. A simpler way to put it is this way: By this time next year, the state will need to collect approximately $800 million more than was collected in FY2012 to make the FY13 budget as passed. This does not include adding funds for Medicaid or retirement shortfalls or for education growth. This also does not assume that we will add any money to revenue shortfall reserve.
This set of figures and trends likely drove the Governor's Office of Planning and Budget to call for FY013 and FY014 budget submissions by state agencies to include 3% reductions. Education funding is exempt and Medicaid and PeachCare are assessed 5% reductions.