Each year, the State Board of Equalization meets three times to review and approve projected revenues for the upcoming fiscal year – in December, February and June. At this year’s June meeting, which took place earlier this week, the Board approved a packet that included revised revenue projections that are extremely important for the new fiscal year set to begin July 1st.
The Board certified $305 million in additional revenues for appropriation in FY ’11. Contrary to certain media accounts of the meeting, this additional revenue was not based on revised projections of tax collections due to changing economic forecasts – the economic forecasts made back in February were final and binding. Instead, the increased expenditure authority for the upcoming FY ’11 budget year reflect additional revenues from changes to laws that were contained in bills passed by the Legislature and signed by the Governor. Agreement on these ‘revenue enhancements’ was a key component of the overall budget deal reached by the Governor and legislative leaders in May. The $305 million in additional revenues for appropriation from statutory changes included the following main components (bill numbers in parentheses; click here to get to the final enrolled versions of bills):
- Suspending assorted tax credits: $48.7 million (SB 1590, SB 1267, HB 3024)
- Deferring payment of gross production tax rebates: $80.7 million (HB 2432 – see our blog post)
- Enhanced tax collection on Internet sales: $33.2 million (HB 2359 – blog post)
- Electronic ticketing of uninsured motorists: $50.0 million (SB 1561)
- Increased fees: $33.7 million (HB 2359, SB 1556, SB 1574)
- Debt refinancing: $22.3 million (HB 2358)
- Reduction of the sales tax vendor discount: $10.6 million (HB 2359 – blog post)
- Miscellaneous adjustments: $26 million
For at least some of these law changes, it seems rather iffy whether the anticipated amount of new revenue will fully materialize. However, it’s important to bear in mind that the Legislature is allowed to appropriate only 95 percent of projected revenues from certified funds, leaving a 5 percent cushion. In FY ’11, this 5 percent reserve amounts to $249 million, which should more than cover any shortfall from the revenue enhancement provisions. In addition, as we argued earlier this month, there’s good reason to expect that the revenue estimates produced back in February upon which this year’s appropriations are based will underestimate actual collections as the economy rebounds from the economic downturn. Since then, UCO economist Mickey Hepner has crunched the numbers based on recent revenue collection trends and is now projecting next year’s General Revenue collections to come in $154 million above February’s certified estimates. So, again, we think there’s good reason for agencies and school districts to have confidence that budgets will not again be subject to mid-year cuts.
However, if FY ’11 funding now looks stable, the outlook past this year remains highly troublesome. The $305 million in revenue enhancements that helped bridge the FY ’11 budget shortfall and minimize the severity of cuts to programs and services is divided almost equally between recurring and non-recurring revenues. The moratorium on tax credits is only for two years, and the deferred payments of oil and gas rebates must be paid out beginning in FY ’13. When the non-recurring revenue enhancements are added to federal stimulus dollars, Rainy Day Fund reserves, and transfers of cash balances, it equals over $1.1 billion of a total FY ’11 appropriated budget of $6.7 billion that involves non-recurring revenue. And that is why when the Board of Equalization meets again next June, they may again have the job of certifying last-minute revenue adjustments that will be needed to bring the budget into balance.