Quick Take: March revenue collections

Yesterday, State Finance Director Preston Doerflinger announced that March General Revenue (GR) collections came in 9.3 percent above March 2010 and 10.5 percent above the certified estimate.  This marked the 11th straight month that GR showed improvement over the prior year. For the 3rd quarter of FY ’11, GR was up just under 14 percent from FY ’10. This marked the strongest year-over-year growth since 2005, the peak of the last economic cycle.

All major tax categories increased in March over the same month a year ago with the exception of the personal income tax. In a press release, the State Finance Directors downplayed the importance of this drop:

Doerflinger said he was not overly concerned because Tax Commission reports indicate unusually large withholding collections last year, coupled with higher refunds this year for the same time period.

Doerflinger added:  “Income tax collections tend to ebb and flow from month to month, but so far this year they appear to be in line with a recovering economy.  However, it will be a slow process to completely rebound from such a deep recession.”

Personal income tax collections have consistently lagged other major taxes this year in rebounding from the depths of the revenue collapse in 2009-2010:

It’s worth noting that unlike other major state taxes, which were growing prior to the onset of the recession in late 2008, personal income tax collections had been declining since 2006 as a result of the large tax cuts enacted in the mid-2000’s.

Even as revenues recover, they remain significantly below pre-downturn levels. Year-to-date collections for the first nine months of FY ’11 are $666 million, or 15.8, percent below their pre-downturn levels of FY ’09. This is about one-third better than where we stood a year ago: in March 2010, year-to-date revenues were $975 million below their pre-downturn levels.  Yet even with eleven months of steady growth, FY ’11 collections are only at a par with collections a full six years ago.

As monthly revenues continue to exceed the certified estimate, it is becoming increasingly likely that the state will be able to make a deposit to the Rainy Day Fund at the end of the fiscal year of GR collections in excess of 100 percent of the certified estimate. It also seems almost certain that the state will collect some $244 million in “5 percent money” that reflects the cushion between the certified estimate for this year and actual appropriations. Typically, this year’s 5 percent money would not be appropriated until FY ’13; however, given the state’s looming budget shortfall in FY ’12, there has been talk of using some or all of this year’s 5 percent money to plug part of next year’s budget hole of at least $500 million.

For our newly updated 2-page Budget Trends and Highlights fact sheet, our full-length presentation on the state’s budget outlook and other materials, please check out the Current Budget Information page of our website.