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Revenue numbers mean caution
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It feels good when things are finally going well after so many months of negative reports. But the May revenue numbers remind us of the reality of what we see around us—the economy is only slowly recovering and we cannot expect state revenues to reflect anything much better than that.

Total state revenues for May were a respectable $1.2 billion but increased only $29.1 million, or 2.5 percent. We will look at income tax refunds, but suffice it to say that we are still in that season and to show a positive overall figure for all of the high refund months so far is encouraging.

But, for the month, individual income tax collections were down almost $4 million or -0.6 percent. Remember, small businesses filing as Subchapter S corporations and LLCs also file as individuals and are counted in those totals. State sales tax collections were up 4.4 percent, or $18.1 million. So our two top categories were up only a net $15 million on collections of $1.2 billion.

High gasoline prices continued to drive down consumption as both the excise tax (-8.9 percent) and the fuel sales tax (-2.2 percent) decreased in May for a total decrease of -5.6 percent. Corporate taxes tend to vary widely monthly and should be considered at least quarterly, but for the month were down -32.7 percent.

Year to date numbers show strength but trends matter

So, even though the year to date numbers are very encouraging, there are reasons the gains seem higher than they really are. The pushing forward of refunds year before last made the figures a year ago unrealistically low, causing an increase in this year larger than it should have been, at least for the first three months or so. We will look at the trends closer later in the column.

Year to date, though, revenues total $13.8 billion on an increase of $1.02 billion, or 8 percent. Individual income taxes show an increase of $582.3 million, or 9.3 percent, and sales taxes an increase of $274.4 million, or 6.3 percent. Sales tax categories are pretty strong. YTD, food is up 6.3 percents, accommodations up 11.8 percent, automotive up 11.9 percent and construction up 12.2 percent. Weaker categories include general merchandise up 1.7 percent and home furnishings down -1.3 percent. Fuel taxes are up $72.2 million, or 9.5 percent with corporate income taxes up $29.7 million, or 5.6 percent. 

Refunds and tax payments

Year to date, individual refunds are down $184 million, or -7.8 percent. Withholding payments, a sign of increased employment action, are up $309 million, or 4.2 percent, and individual tax returns and other payments are up $89 million. Apparently the Revenue Department is caught up on refunds and due to electronic filing; virtually all refunds have been paid out.

The road ahead

So with only one month to go, FY2011 will be remembered as the year the recovery caught hold. But as related earlier, you cannot take the overall numbers for this fiscal year without some caution, and attention should be paid to recent trends for some prediction of the direction of state revenues. In other words, the 8 percent year to date growth rate is not indicative of the total year or recent trends.

Lest we forget the budget struggles of FY2011 and FY2012, remember that decreasing and disappearing federal stimulus funds left holes in both of those budgets and ambitious growth rate predictions helped balance the two budgets. So the growth in state revenues was not only anticipated, but expected and included in the two budgets.

FY 2011 counted on $797 million in new tax revenues so the steady growth in revenues was included. The state met and passed the amount needed in February. Now, at the end of May, the state shows a surplus of approximately $228.7 million. Another good month in June could put the surplus at $300 million or so when other sources are considered as well.

It gets tricky to project ahead because of the reliance of future figures on as yet unknown final previous year revenues and growth; but best guess would be 6 percent real growth needed for the FY12 budget. Recent slowing growth rates reflect the improvement last year and each month, of course, is measured against the same month a year ago. That growth rate is probably doable but not a certainty given the slow pace of job growth in the state.

As Yogi Berra said, “making predictions is tough — especially when they’re about the future.”

I may be reached at
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