Revenue Shortfall for Fiscal Year Not Likely to be as Dire as Administration Predictions
March Revenue Tracker: Biggest Tax Collection Month of the Year Exceeds Estimates
Pennsylvania tax collections came in better than expected in March, lowering the total revenue shortfall for the 2011-12 Fiscal Year. It was the first March ever in which tax collections exceeded the $4 billion mark. This should be welcome news as lawmakers move closer to negotiating a 2012-13 state budget.
General Fund collections in March totaled $4.06 billion, which was $95 million, or 2.4%, higher than Corbett administration targets for the month. The strong showing reduces Pennsylvania’s revenue shortfall for the fiscal year to $387 million, or 1.9%, of total estimated revenue.
In February, Corbett administration officials predicted a year-end revenue shortfall of $719 million and built their 2012-13 spending plan around it. Healthy collections in March likely mean that the year-end shortfall will not be as severe. This could help reduce some of the painful cuts proposed for 2012-13.
|Commonwealth of Pennsylvania General Fund Revenue, Fiscal Year 2011-12
(in $ thousands)
|Estimate to Actual, Fiscal Year 2011-12: TOTAL REVENUE COLLECTIONS|
|Jul 11||Aug 11||Sep 11||Oct 11||Nov 11||Dec 11||Jan 12||Feb 12||Mar 12|
|Fiscal Year-to-Date Percent Difference from Estimate||-1.9%|
|Comparison to Fiscal Year 2010-11: TOTAL REVENUE COLLECTIONS|
|Actual FY 2010-11||$1,693,246||1,806,356||2,315,225||1,756,272||1,592,039||2,291,268||2,242,883||1,530,390||3,977,607|
|Actual FY 2011-12||$1,720,192||1,805,916||2,322,959||1,806,201||1,719,436||2,270,389||2,170,813||1,703,244||4,061,600|
|Fiscal Year-to-Date Percent Difference from 2010-11||2.0%|
A Pattern of Improvement
Collections in March followed a three-month pattern of improving tax collections (compared to estimates). This may mean that the economic recovery is picking up steam after many months of lackluster performance.
After the strong March collections, every major tax type now exceeds year-to-date tax collections at this time in the prior year. Taxes are now $583 million, or 3.1%, higher than they were at the end of March 2011. This is yet another sign of the improving economy.
An Important Revenue Month
March is one of the most important months to monitor revenue collections for several reasons:
- It is typically the largest month for tax collections;
- Almost half of corporate tax collections for the year are collected in March. These collections are notoriously sensitive to changes in the economy. Good collections could be an indicator of a growing economy, while shortfalls can be a sign of bad times ahead for state coffers; and
- Many people file their income tax returns in March, ahead of the April 15 deadline, with payments showing up as non-withheld personal income tax (PIT).
A Corporate Tax Collections Turnaround
Corporate taxes exceeded monthly estimates by $106 million, or 4.9%, in March. This could be an important turning point, as corporate tax collections had been falling short of estimate in every prior month since August 2011. March collections bring the fiscal year corporate tax shortfall to a more manageable $191 million, or 5% less than estimate. Corporate collections clearly drove the revenue surplus in March. Sales tax and realty transfer tax collections also exceeded monthly estimates by a combined $5 million. For the fiscal year, sales tax exceeds revenue targets by $38 million, or 0.6%, while realty transfer taxes are $9 million, or 3.9%, short of estimate.
PIT collections, the General Fund’s largest single revenue source, fell $23 million, or 2.7%, short in March. For the year, PIT collections are $198 million, or 2.6%, below estimate. April is the largest month of PIT collections, so this revenue stream is something to keep an eye on.
Non-tax revenue bounced back in March, exceeding estimate by $16 million and cutting in half the shortfall for the year, which now stands at $16 million, or 7.7%.
We are not out of the woods yet in terms of tax collections, but March brought a very positive sign. Poorer-than-expected corporate tax collections have clouded the revenue picture all year and their strong performance in March brings some needed good news. If the trend continues, the fiscal year revenue shortfall could be significantly smaller than anticipated – making it a bit easier to balance the 2012-13 budget.
April will be another pivotal month to monitor going into budget negotiations. Decent collections in April could mean fewer cuts to schools, colleges, and health care providers in the coming fiscal year.