The latest state revenue collections announced today provided mixed news:

State revenue collections in February exceeded the official estimate for the first time since December 2008, but fell short of prior year collections for the same month, State Treasurer Scott Meacham announced today.

Preliminary reports show General Revenue Fund collections in February are $220.6 million. That amount is:

• $17.3 million, or 7.3 percent below the prior year; but,
• $0.8 million, or 0.4 percent above the estimate.

February collections were buttressed by $25 million in gross production taxes on oil that were allocated to the General Revenue Fund and by stronger-than-expected income tax collections. After tax refunds, the state took in net income tax collections of $10.7 million in February, whereas the official estimate was for a net loss of $9.1 million in income tax payouts.

Still, the revenue numbers provide far from unambiguous signs that the state’s fiscal situation has turned a corner. Not only were February’s collections 7.3 percent below those of a year ago, they were only 76.1 percent of the average collections for the same month over the five prior years. By this measure, February actually stands as the worst month of the entire downturn, as shown in the table above. On the other hand, a good part of this month’s poor performance compared to prior years was in the “other sources” revenue category, which includes investment earnings and miscellaneous taxes, fees, and charges. General Revenue from “other sources” was a full $23.8 million below the month’s estimate for February and $17.9 million below last year. It’s unclear at this point what accounts for the weakness in this revenue category, but it may relate more to a quirk in the timing of collections and transfers  than actual economic conditions.  Had “other sources” come in at the estimate, February 2010 revenues would have reached 84 percent of the five-year average and provided much clearer evidence of a genuine upswing.

As an indicator of how severe this revenue downturn has been and how long and difficult the recovery is likely to be, this year’s February collections are 30 percent below their peak of four years ago — and lower than any year since at least FY 2001.

Finally, while it is not fully clear whether revenue collections are now recovering, the fact that February’s collections hit the estimate does mean that this year’s General Revenue shortfall may not end up quite as enormous as previously assumed.  The shortfall, which was projected by the Board of Equalization last month to reach $940 million by year’s end, now stands at $863 million, basically unchanged from a month ago. Should the final four months of the fiscal year look like this month, it might actually allow the state to enter the next fiscal year with a small amount of cash left in the bank.

Just when it looked as if the the extended negotiations over how to address FY ‘10 budget shortfalls were finally resolved, a new wrinkle emerged this week.  As a means to protest the continued failure to find supplemental funds for senior nutrition programs in the Department of Human Service, Senate Democrats refused to approve the emergency clause on a bill to transfer $30 million to the Special Cash Fund . Without an emergency clause, the transfer cannot take effect until July 1st, which threatens a whole series of agreements between the House, Senate and Governor intended to put this year’s budget to rest. (Update: an agreement was announced Wednesday afternoon on funding for senior nutrition programs allowing the emergency clauses for the funding bills to be passed). Read the rest of this entry »

House Speaker Chris Benge this week was joined by Republican Senator Patrick Anderson and Democratic Senator John Sparks in unveiling a proposal to create a new budgetary reserve fund to help cushion the state from a repeat of the extreme revenue volatility seen in recent years. The proposal, introduced as a committee substitute for the Speaker’s bill HB 3032, is for gross production tax collections exceeding a 3-year moving average to be set aside into an Energy Stabilization Fund. When gross production taxes fall below their 3-year average, revenues would automatically flow back to the General Revenue Fund. In addition, interest from the Fund’s principal would be dedicated to enhanced energy recovery research.

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Our friends at the Center on Budget and Policy Priorities (CBPP) have put out a new paper addressing the acute fiscal crisis facing states across the nation. As shortfalls reach a level where they are seriously compromising the ability of state government to provide core public services, the Center calls for a balanced approach that “ensures that no one segment of residents and businesses bears the brunt of recession-induced deficits.” Their seven components of a balanced approach are:

• Efficiency – focusing on the goals of expenditures and whether there are better ways to reach those goals;
• Using all available resources – employing reserves, rainy day funds, and federal fiscal relief funds responsibly and wisely;
• Scrutinizing all spending, not just what is appropriated through the budget – including programmatic expenditures made in the form of tax breaks;
• Improved collections – aggressively seeking taxes due that are not being paid;
• Tax increases – particularly those that have a more positive impact on the economy than spending cuts;
• Prioritization – making careful decisions based on goals and effectiveness when budgets must be cut; and
• Paying close attention to future impact while fixing today’s problems.

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I posted an entry this morning that compared the mid-year budget cuts being absorbed by each of the ten largest state agencies. Unfortunately, the post – which I’ve now deleted -  included outdated information regarding funding for the Departments of Transportation and Common Education. In particular, I was unaware of a bill (HB 2433) that imposed a 7.5 percent cut to ODOT’s appropriation from the State Transportation Fund, and of some additional funding decisions (included in HB 2352) that aim to restore a greater part of the funding cuts to the Department of Education than initially announced. I will re-examine this and post revised numbers once FY ‘10  appropriations bill have made it through the process. I apologize for the error and any confusion or inconvenience it may have caused.

For the second time in less than a month, the Governor and legislative leaders have announced an agreement on how to address the huge shortfalls in this year’s budget caused by declining revenue collections. This second agreement is not much different than the initial January agreement: monthly across-the-board cuts of ten percent of allocations from the General Revenue Fund will continue for the rest of the year, with the extent of cuts to some agencies mitigated by additional funds. This “addendum” to the January deal involves two main components: Read the rest of this entry »

This morning, the State Board of Equalization will meet to certify the revised FY ‘11 revenue estimates (we’ve posted the certification packet to our website). The February certification is binding on the Legislature as it develops the FY ‘11 budget – the Legislature can appropriate above the February certified estimate only based upon changes in law approved during the current session, not changes in economic conditions.

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Earlier this year, we put out an issue brief and blog post that identified the need for better budget forecasting as one of the lessons that should be learned from the state’s current budget woes to avoid crises of similar magnitude in the future. Rep. Ryan Kiesel has introduced legislation, HB 2796, that incorporates some of our suggestions. Rep. Kiesel put out a press release explaining his legislation: Read the rest of this entry »