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Hill: No revenue relief in sight
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June 30 officially marked the end of the state’s 2009 fiscal year. While the expectation was that the state would fall below revenues received in 2008 (which fell short of projections itself), the question was how far below 2008 revenues would be. The answer came last week.

For FY09, the Department of Revenue tax collections were down $1.83 billion or 10.5 percent for the year.     

For the fiscal year, individual income tax collections brought in $7.8 billion, a decline of $1.09 billion or 12.2 percent compared to FY08. The state had projected a decline of approximately 7 percent. Income taxes comprise half of the tax revenues that the state receives and contributed heavily to the shortfall.  

Sales and use tax revenues declined $438 million or 7.6 percent compared to FY08 bringing in $5.3 billion.  Sales tax revenues account for approximately one-third of total revenue collections. While 7.6 percent was a significant decline, it was within the state’s projection.

Corporate income tax collections reported a decrease of $248 million or 26.3 percent. This category accounts for 4.4 percent of total collections. This decline was actually within projections as well.

Motor fuel taxes faced substantial declines in FY09, shrinking by $150 million or 14.8 percent compared to FY08. The state is constitutionally obligated to fund motor fuel tax dependent activities to a level equal to motor fuel taxes collected in the prior year, meaning this shortfall was deducted from the revenue shortfall reserve (RSR) at year end.

Shortfall in FY09

Because of the continued revenue declines after the passage of the FY09 amended budget, at the end of May, the governor withheld 25 percent of the final month’s allotment of funds to state agencies. This was expected to save $274 million. Without these savings (and assuming that non-tax revenues remain consistent with 2008) the state would have faced a shortfall of approximately $657 million for FY09.

Accounting for the 25 percent withholding decreases the shortfall to an estimated $383 million.  Currently, the state has $565.9 million in reserves that have not been committed in the FY09 or FY10 budgets. Due to the shortfall, this leaves only $183 million in the revenue shortfall reserve; however, the state expects to collect at least $75 million or more from lapsed funds and other surpluses returned to Treasury.  This total of $258 million is all the reserve the state has and the Midyear Education Reserve, 1 percent of the previous year’s reserves would leave only $35 million or so in the state shortfall reserve

Shortfall in FY10

FY10 is based on a budget that was approximately $350 million below FY09 amended. If the final figures show a $657 million shortfall in FY09, this will mean that the FY10 budget will be $310 million “over budget” relative to FY09 actual revenues. If the trend continues using the average monthly revenues for the final six months of FY09 to project the FY10 budget, the state could easily face a $1.5 billion shortfall in FY10.  

Other items of note — refunds

Since May 30 the Department of Revenue has added 100 temporary staff to its current staff of 248 at the revenue processing center. The estimated backlog of 315,000 returns is projected to be cleared by the end of August. The vast majority of these backlogged returns are refunds to taxpayers.

As of June, the department will be paying interest on all refunds paid after July 15. There is an estimated $291 million in refunds still to be paid, about $235 million over the total a year ago.

A final note

While Georgia has many positives over the intermediate and long-term horizon, Kia plant hiring, military buildup, etc., the short term FY10 budget year continues to pose problems because of the sharp decline in revenues over projections.

The continued rise in unemployment claims and Georgia’s sixth ranking in home foreclosures, among other indicators, contributes to the belief that the downward trend of the last six months of FY09 will continue for a while.

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