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Positive numbers show a rebound
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The state revenue report for June was very positive, showing an overall gain of 6.2 percent with total revenues topping $1.5 billion for only the third time this fiscal year. Individual income taxes showed a strong 7.5 percent gain and sales tax collections for June showed an unusually high 11.4 percent increase. Sales taxes on fuel and total gallons were up by $20 million, a 29.6 percent increase. Corporate taxes showed a decrease of -28.1 percent, or -$43.3 million.

FY 2011 fiscal year very positive — generates surplus

After 2 1/2 years of freefall, Georgia put together 12 solid months of revenue growth with total revenues up $1.1 billion, growing at a 7.8 percent rate. This positive year will likely produce a surplus something over $300 million which will lapse into the Revenue Shortfall Reserve (RSR).

Individual income taxes, half of state revenues, showed a positive 9.1 percent gain, although part of the increase was due to late refunds two years ago reducing the early months of revenue numbers in FY10. State sales tax revenues finished the year with a strong 6.7 percent increase.

Total state revenues for FY2011 are slightly above the level of revenues in FY2005 and some $2.3 billion below the peak revenue year in FY 2007, so there is still plenty of ground to make up.

Other revenue categories varied greatly. Motor fuel taxes were understandably up in sales taxes and slightly down in excise taxes based on gallons sold. Overall, though, fuel taxes are up $92.4 million or 11.2 percent, showing the highest revenues since FY2008. Most of these revenues go to roads and bridges.

Corporate income taxes were essentially flat for the year at -2.0 percent, or -$13.5 million. Yearly totals in the smaller categories showed tobacco taxes slightly up at 0.7 percent and alcoholic beverages down at -5.2 percent.

Looking inside the sales tax numbers for FY2011, positive categories were food at +6.1 percent, accommodations at +11.2 percent and automotive at +11.1 percent. Negative percentages were in home furnishings at -0.9 percent and manufacturing at -7.0 percent.

Improving economy reflected in income tax payments and refunds

Looking inside the individual income tax category, refunds in number decreased by over 11 percent and $200 million, or 7.98 percent less was paid out compared to FY2010. On the flip side, payments decreased only by 4.3 percent but increased in amount by $377 million, or 4 percent. Refunds declining both in number and amount and payments increasing in dollar amount could indicate that the economy is improving. Higher incomes and rebounding jobs would be reflected in the amount of income taxes being paid and the refunds being claimed. Also as the largest revenue category for the state, it is encouraging to see that this area is improving consistently.

Revenue shortfall reserve slowly building now

The $300 million plus surplus at the end of FY11 will lapse into the Revenue Shortfall Reserve and build it to a level something over $400 million. Other parts of the revenue structure, fees, fines, insurance premium taxes, etc. will add to the total. Of course, the midyear education adjustment normally comes out of the reserve in the amended budget and that is usually around $170 million. So the state will have an effective RSR of something a little south of $300 million.

Implications for FY12 amended and FY13 general budgets

Collections are above target but starting in July the target is raised. The FY12 budget is built on approximately $600 million more in tax collection than collected in FY11 ($900 million more than the FY2011 budget). Though high, this target appears attainable at this point. The General Assembly and governor have worked hard to craft a fiscally conservative and realistic FY12 budget.

If there are any agency reductions in the amended budget, they should be small. In FY13, revenue growth is also expected to increase, but so are expenditures. The agency recommendations due in September will provide a better picture of what will be needed, but it is already anticipated that Medicaid growth, State Health Benefit Plan deficits, Regents and K-12 growth, and retirement obligations will require hundreds of millions of dollars in increased funding.

As mentioned in prior columns, FY13 will be tight and could require reductions. It was for this reason that the General Assembly added funding for additional revenue agents and auditors. Our top priority continues to be the collection of all taxes owed the state.  

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