With a strong December showing, the commonwealth now has a General Fund revenue surplus of $171 million (1.4% above estimate) for the first half of the 2012-13 fiscal year, double the Corbett administration’s revised estimate for the entire fiscal year. The strong December collections exceeded estimate by $112 million (or 4.8%).
The increased revenue is a good sign of a modestly recovering national economy and a brightening of the state’s fiscal picture going into the 2013-14 budget season. This is a nice change from previous years when midyear shortfalls triggered cuts to state services.
In December, personal income, corporate, and realty transfer taxes exceeded revenue targets by 10.1%, with sales, inheritance and other taxes (on cigarettes, alcohol, and table games) falling short of expectations by 2.8%.
A similar picture exists over the first half of 2012-13 — corporate, personal income and realty transfer tax collections are a combined 5% higher than expected, while sales, inheritance, and other taxes have fallen 2.4% short of budget estimates.
One area of concern is that sales tax collections (the state’s second largest tax source) are $125 million, or 2.7%, lower than projected. It is not clear the reason for this as vehicle sales and consumer spending have been increasing. Perhaps the new tax collections from some online retailers may not be as large as anticipated.
Compared to last year, collections are $583 million, or 5%, higher, with corporate ($254 million) and personal income tax ($186 million) collections making up most of the increase in 2012-13.
A few caveats going forward:
- Roughly 60% of the state’s General Fund revenue comes in during the second half of the fiscal year so a bad month or two of collections in the second half could cut or wipe out the state’s modest surplus.
- To date, actual tax collections have been closer to the Independent Fiscal Office (IFO)’s projections than those of the Department of Revenue. Total General Fund collections are only $12 million higher than the IFO’s quarterly projections, and $171 million greater than Corbett administration estimates. There is cause for concern because the IFO projects $240 million less in revenue than the administration in the second half of 2012-13, with lower estimates for personal income, sales and corporate tax payments. While corporate taxes are currently $244 million (or 19.9%) higher than estimate, likely due to higher-than-expected quarterly estimated payments, the commonwealth could see smaller “final” tax year 2012 payments in March and April 2013.
- Additionally, the capital stock and franchise rate was cut again January 1 from 1.89 mills to 0.89 mills, meaning future quarterly payments could be smaller. As this business tax goes away — without any revenue source set to replace it — total corporate collections will likely shrink compared to previous years. This cutting away of the state’s revenue base will make it harder in the future to pay for education for our children, care for our seniors, and protection of our environment.