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Signs point to year-end surplus
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April is not a big month historically as far as revenues are concerned in one respect. Whether the month is positive or negative versus the previous year usually has something to do with individual income tax payments coming in and taxpayer refunds going out.

April’s revenues were up 2.6 percent, or about $35 million to the good versus April 2010. This is not a huge increase, but inside those numbers are encouraging signs continuing 10 consecutive months of positive revenue growth. Combined with very positive trends in refunds and individual income tax payments, a little unbridled enthusiasm would seem to be in order.

Refunds down, payments up!

Electronic filing of tax returns has had the tax collections in flux over the past few years as numbers of internet filers have increased dramatically, moving up the number of returns and speeding up the demand for refunds. That’s where processing assistance is vital to the Department of Revenue and when they have not had seasonal workers, the process has slowed down and even slipped into the following fiscal year as it did two years ago. Still with two months to go, there remains a possibility of negative revenues during those months.

Refunds for April while up in numbers of refunds by 94,000, show dollar payouts trending lower, down some $112 million from a year ago. Refunds year to date are down in both numbers (by 380,605) and in refund dollars (down 9.3 percent, or $216.9 million).   

What is equally significant are the trends in individual income tax payments, which show in April an increase in both the number of payments and the amount paid in, up some 3.9 percent. Year to date, individual income tax payments, half of state revenues, while down in total number paid in, show an increase or $307 million in total dollars paid in. It is logical to expect that taxpayers who are getting refunds might be quicker to file than those who may owe additional payments. So the trends, at least to this observer, are very positive.

Year to date numbers

State revenues are up for the year some 8.6 percent, keeping in mind some increase due to late refunds paid out two years ago. But the revenue increase over the same 10 months of FY2010 is a whopping $994.9 million! Individual income tax revenues are up 10.3 percent and net sales taxes to the state are up 6.5 percent YTD.

Rising fuel prices have slowed driving and excise tax collections are down 14 percent in April and down .7 percent YTD. As you could expect, the 4 percent sales tax on fuel has increased in total dollars by some $79 million, or 25.4 percent overall. Total fuel tax collections are up $76.6 million YTD. With two months to go, corporate income taxes are up $31.8 million or 6.1 percent.

What happens to the year-end surplus?

It’s been so long since the state ended the year with a surplus, we may have to revisit the process and refresh our memory. First, all funds collected over those appropriated along with any funds lapsed by departments, automatically go into the Revenue Shortfall Reserve (RSR) or “the rainy day fund.”

This summer the Executive Branch will begin to look at appropriations levels for the following FY2012 amended budget and start preparing a FY2013 budget. It is important to note that an amount equal to 4 percent of the previous year’s revenues or about $680 million cannot be appropriated and must stay in the reserve. The governor can then propose to spend over that amount left, less the mid-year education adjustment. Since building up the state’s RSR is so important to maintaining our AAA bond rating, it is expected that the top priority will continue to be the rebuilding of the states reserves.

Before the recent current recession as late as 2007, the state had a reserve of $1.5 billion or about a 30-day operating reserve. Present law limits the RSR to 15 percent of previous year’s revenues or about $2.5 billion at today’s revenue levels. Those decisions would be a nice alternative to the types of decisions the state has had to make in the last four years.  
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