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Little change for April
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After a slightly improving revenue month in March, expectations of continued improvement suffered a setback in April as state revenues fell $58 million or 4.2 percent. This is important because the governor’s revenue estimate is based on an essentially flat or improving revenue trend for the remainder of FY 2010 ending in June. After April with two months to go, the expected revenue just dropped into the red and is now under the governor’s estimate by some $3 million. Of course the big factor in the remaining two months is the payment of tax refunds.

While electronic returns are processed quickly and refunds go out automatically, paper returns require manual handling but refunds are paid out manually. This is problematical because a year ago, there was a serious delay in paying out refunds that forced the payouts into July and August.

The result was that May and June of a year ago showed up stronger only because there were delays in processing paper returns.  So this May and June, paper returns will be processed in a more timely way and are certain to reduce revenue totals for the months; therefore, total revenues for this fiscal year may drop as a result.

April numbers
Individual income tax collections declined by some $128 million or 16.4 percent, reflecting the payout of tax refunds that will be discussed later. Net sales tax collections to the state were off $48 million or 12 percent. Motor fuel excise taxes were up 8.9 percent, and fuel sales taxes were up 61 percent or $15 million as the taxes were adjusted for higher fuel selling prices. Corporate income taxes were up 13.9 percent or $11 million.

Year to date
Incredibly, total state revenues are down by almost $1.4 billion for the 10 months through April. That was, of course, the basis for many of the additional cuts in FY010 and FY011 budgets. That’s a decline of 10.7 percent over FY09. YTD, individual income taxes are down by $797 million or 12.3 percent. Net sales taxes to the state are down $492 million or 11 percent. Local sales tax distribution is only down 4.6 percent, so local governments are doing better by comparison.

Motor fuel excise taxes are slightly up for the year at 1.9 percent, but fuel sales taxes show a decline of 16.6 percent, or almost  $62 million. Corporate income taxes are down 6.8 percent YTD. Even with a competitive price on cigarettes with surrounding states, tobacco tax collections are off by -2.2 percent for the year. This is interesting considering the 62-cent federal cigarette tax increase about a year ago.

Income tax payments — payments in are down, refunds are up
April is usually a high tax payment month historically and 2010 was no exception. But most trends are not favorable. Total payments into the state treasury were up by 32,815, a positive development for the month.  But the amount of the payments in total was down by some $83 million. Refunds, a huge factor this time of year, were up in the number of refunds for the month by 61,169 refunds and unfortunately, the total paid out was up $57.6 million as well. So the state continues to pay out larger and larger refunds and more of them, while collections continue to lag the previous year.

Some good news is the fact that corporate tax refunds while up in raw numbers are down in dollars for both April and YTD. Payments into the Treasury, possibly reflecting improving business profitability, are up in number 25 percent while down only 6.8 percent in dollar amounts YTD.

Prospects for May-June
What are the chances tax collections will meet last year’s totals in May and June? In FY09, May revenues totaled $1.26 billion and in June $1.36 billion. As noted previously, refunds paid out are driving the totals for these last two months. If refunds continue to exceed last year and are paid out in a timely way, these revenue totals may be difficult to match or exceed.

As a reminder, the state has only $103 million in the Revenue Shortfall Reserve (RSR). If revenues fail to meet the estimate, then additional federal stimulus funds may have to be shifted from the FY011 budget to backfill FY010. This creates a double-sized hole in the FY011 budget and would mean the state starts off FY011 in July in a hole by twice the amount of the shift as Georgia did last July.

Next week — key legislation passed this session

Postscript on 2011 bonds
Two controversial bonds were not discussed in last week’s column. The Football Hall of Fame bond of $10 million will be used to help construct the Hall of Fame that is moving to Georgia in the Centennial Park area near the Aquarium and World of Coke. This is a one-time expenditure and is considered an economic development initiative. No state funds will be used in the operation. The equine facility, known as “the horse barn,” was not funded in the bond package.

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