State Deficit Grows as December Tax Collections Show Little Sign of Recovery
Revenue Tracker
January 5, 2010
Midway through the 2009-10 Fiscal Year, the Commonwealth's revenue collections continue to be 2% short of estimate – a gap of $254 million.
While revenues were closer to estimate in December, they still fell short by 1.8% - roughly the same as the fiscal-year shortfall.
In December, General Fund collections totaled $1.98 billion. For the fiscal year, revenue collections total $12.4 billion, including $1.8 billion in one-time revenue.
|
Commonwealth of Pennsylvania General Fund Revenue, Fiscal Year 2009-10 (in $ thousands) |
||||||
| Estimate to Actual, Fiscal Year 2009-10 | ||||||
| Jul 09 |
Aug 09 |
Sep 09 |
Oct 09* |
Nov 09 |
Dec 09 | |
| Estimate | $1,653,000 |
$1,625,400 |
$2,169,000 | $3,538,600 |
$1,653,700 | $2,020,700 |
| Actual | $1,650,885 |
$1,605,503 |
$2,050,364 | $3,519,063 |
$1,596,919 |
$1,983,500 |
| Monthly Diff. | ($2,115) |
($19,897) | ($118,636) | ($19,537) |
($56,781) | ($37,200) |
| Cumulative Diff. | ($2,115) |
($22,012) | ($140,648) |
($160,185) |
($216,966) | ($254,166) |
| Fiscal Year-to-Date Percent Difference from Estimate | -2.0% | |||||
| Comparison to Fiscal Year 2008-09 | ||||||
| Jul 09 | Aug 09 | Sep 09 | Oct 09 | Nov 09 | Dec 09 | |
| Actual FY 08-09 | $1,746,220 |
$1,668,890 |
$2,343,696 |
$1,648,995 |
$1,640,930 | $2,108,965 |
| Actual FY 09-10 | $1,650,885 | $1,605,503 | $2,050,364 | $3,519,063 |
$1,596,919 |
$1,983,500 |
| Monthly Diff. | ($95,335) |
($63,387) |
($293,332) |
$1,870,068 |
($44,011) | ($125,465) |
| Cumulative Diff. | ($95,335) |
($158,722) |
($452,054) |
$1,418,014 |
$1,374,003 |
$1,248,538 |
| Fiscal Year-to-Date Percent Difference from 2008-09 | 11.2% |
|||||
Revenue collections for the first half of the fiscal year are below even cautious estimates for 2009-10 and below collections in 2008-09. As more than half of all tax receipts come in during the second half of the fiscal year, the deficit could grow at a fast pace between January and June.
Governor Ed Rendell proposed additional cuts to the 2009-10 budget during his mid-year budget briefing in December to address an expected deficit. CLICK HERE to read what he has proposed.
While Administration officials expect tax revenues to begin to rebound in early 2010 (in step with the slow expansion of the national economy), December receipts show few signs supporting this idea.
Major Taxes Still Falling Short
Sales tax collections were far off the mark in December (7%), while personal income tax receipts fell 1% short of estimate. For the fiscal year, both sales tax (4%) and personal income tax (3%) are below expectations (see Figure 1). These two taxes account for more than 70% of all General Fund tax collections. Continued high unemployment and reduced consumer spending will dampen collections for the foreseeable future, making it difficult for the state to meet overall revenue goals.
Rebounding corporate tax collections are generally a sign of economic recovery, but there is little good news in this category. Corporate taxes, the third largest tax source, were off 7% in December – a key month for corporate collections. For the fiscal year, corporate collections trail estimate by 0.1%.
The shortfall in the state’s major taxes was muted by higher-than-expected collections in other taxes (real estate transfer, wine, beer, and cigarette taxes, as well as inheritance tax), but these revenue streams are small in dollar terms (see Figure 2).
In a month where non-tax revenue was not anticipated to be significant, collections exceeded estimate by $4.5 million. For the fiscal year, non-tax revenues are still $7 million below estimate, or 0.4%.
Tax collections still behind 2008-09
Because of one-time transfers of $1.8 billion included in the 2009-10 budget, a fiscal-year-to-date comparison of revenue collections with the previous year is not the best yardstick for evaluating the strength of revenues. A comparison of tax collections will provide a better measure.
By this standard, 2009-10 doesn’t look very good. Tax collections in the first half of the fiscal year are $778 million, or 6.9%, lower than they were in the same period in 2008-09. It is important to note that the Great Recession hit Pennsylvania tax collections in December 2008, with a steep downturn in early 2009.
If state and national trends continue, revenue recovery will likely be slow
Of every dollar in tax revenue the General Fund receives, 70 cents traditionally comes from personal income and sales taxes. Both taxes are linked to people having jobs and feeling secure in them.
In November 2009, Pennsylvania’s unemployment rate decreased from 8.9% to 8.5% - the first decrease since March 2007, according to the state Department of Labor and Industry. If unemployment has indeed bottomed out and more people are getting back to work, there are still many Pennsylvanians without jobs. Since the start of the Great Recession in December 2007, Pennsylvania has lost more than 200,000 people from employment rolls. It will likely take many months for those lost jobs to come back and for personal income and sales tax revenues to recover.
If revenues continue to lag…
…Pennsylvania will be forced to make additional mid-year budget cuts (as occurred in 2008-09), find new sources of revenue, or both. After the painful budget cuts enacted in 2009-10, further cuts will lead to losses of essential services at a time when Pennsylvania families need them most.
Close attention needs to be paid to revenues in order to balance 2009-10 and to create a sustainable 2010-11 budget.
