Recent columns have examined expenditures by state and local governments over time. This week’s column examines the other side of the government spending issue: Revenues – specifically sales tax collections which make up about one-third of state revenues.
An interesting trend over the last few months
The monthly revenue reports detail sales taxes collected for both state and local distribution. The Department of Revenue then remits an amount to local governments.
• Last month, the state remitted $422.1 million to local governments for sales taxes, an increase of $56.4 million over August of the previous year.
• As noted in last week’s column, state revenues in August 2008 are down $94.1 million compared to August 2007.
• In July, the state remitted $445.4 million to local governments for sales taxes, an increase of approximately $22.6 million over July 2007.
• By comparison, state revenues in July 2008 were down by $86.4 million compared to July 2007, a decrease of 6.6 percent.
• In June, the state remitted $419.3 million to local governments, an increase of approximately $14.5 million over June of 2007.
• State revenues in June 2007 were down $168.3 million compared to revenues from June 2006. This equals a decrease of 9.4 percent.
• Overall, in FY2008, ending this past June, the state remitted over $4.8 billion to local governments. This was an increase of $74.5 million over the amount remitted in FY07, a 1.6 percent increase over the previous fiscal year. For the same period, total state revenues were down by approximately $600 million.
Explanations for the appearance of increased local disbursements
There are numerous factors that have contributed to the appearance of robust local sales tax revenues while state revenues have declined.
1. Local revenues appear higher because the Department of Revenue has switched the method it uses to determine how much it sends to local governments. In previous years, the state would estimate how much to send for each month based on revenues for the previous three months as well as how much the department was off in its previous payments. In addition, the department would only have actual figures for the first through the 20th of the month and then would have to estimate the remaining eight to ten days. This methodology led to a widely variable number that had to be “trued up” later. Starting in July 2008, the Department of Revenue started using actual collections, which makes comparisons less valuable.
Despite the changes in methodology, there are a couple of factors worth noting that actually did drive up local disbursements.
• More sales taxes are being paid electronically. This means that the Department of Revenue is processing and disbursing sales tax receipts faster.
• Two counties, Chatham and Glynn, added new 1 percent sales taxes.
2. Included in local sales tax collections are revenues raised by taxing the sale of motor fuels. There are a couple of issues with motor fuels. First, the numbers published by the Department of Revenue separate state motor fuel tax revenues from the rest of the sales tax. This means that any changes in revenues driven by motor fuels will appear larger in the local sales tax remittance.
In addition, in June the governor froze the rate at which Georgians pay state motor fuel taxes. Local governments took no such action, meaning that they collect their local sales rate on the price paid at the pump. So, as long as Georgians are paying more to fill their tanks, local governments will continue to earn relatively more than the state. So, local governments will continue to collect increased sales taxes from increases in gas prices while the state will not.
3. Some have theorized that local governments’ ability to tax food has contributed to their strong revenues during the recent downturn. The underlying logic is that consumers, when faced with difficult economic conditions, will restrict their purchases to necessities such as food. At the same time, the price of food has been going up. However, figures from the Department of Revenue do not support this theory, so far.
The Department of Revenue categorizes the types of businesses from which it receives sales tax payments. Tracking payments by type of business allows the department to understand how different sectors of the Georgia economy are performing. Starting in March of FY08, revenues from sales of food began to decline in comparison to FY07.
• In March FY08, receipts from food-based sales taxes were down $4.4 million compared to March FY07.
• In April FY08, receipts from food-based sales taxes were down $9.8 million compared to April FY07.
• Surprisingly, May FY08 receipts from food-based sales taxes were actually up $4.7 million compared to May of the previous fiscal year.
• Once again, June FY08 was back down compared to June FY07, this time by $5 million.
The trend of weaker food-based sales tax receipts has continued into FY09. In July 2008 there was a decrease of $43.3 million over July 2007. In August there was once again a decrease over August 2007, but this time only $14.9 million.