Through September, Revenues on Target, but Fiscal Troubles Remain
Through September, Revenues are on Target, but Fiscal Troubles Remain
General Fund revenue collections are on track to meet targets through the first quarter of 2014-15. While revenue collections in the first quarter are the smallest of the commonwealth’s fiscal year, the results are a good, if early, sign.
Despite the positive revenue results, many questions remain regarding the fiscal health of the commonwealth. Despite the shifting of cash from other state sources into the General Fund in the early part of the fiscal year, the state had to borrow $700 million in September, which it will repay with tax collections later in the fiscal year. This is the earliest point in a decade that the General Fund needed such a loan to pay its bills.(1)
Taxes are $84 million, or 1.3%, above estimate in the first three months, offsetting an $83 million deficit of non-tax revenues. Much of the shortfall in non-tax revenue is due to a transfer of $80 million in liquor store profits that the administration anticipated in September, but has yet to be made. (These transfers are typically in the last quarter of the fiscal year. The Corbett administration moved the transfer forward to early in the fiscal year in 2014-15 to help with the state’s cash flow).
First quarter tax revenue grew by a healthy $276 million, or 4.6% over the prior year. Sales tax growth, in particular, has been stronger than expected, growing $127 million, or 5.5% from a year ago. Personal income tax grew by $80 million, or 3.2%, over the first quarter of 2013-14, lower than necessary to meet revenue targets. Corporate taxes grew by $77 million, or 13.2%, from a year ago.
In July and August, the administration transferred $227 million to the General Fund from other funds, including $95 million from the Small Business First Fund, $85 million from the Machinery and Equipment Loan Fund, and $30 million from the Volunteer Companies Loan Fund, and as a result, non-tax revenue far exceeds 2013-14 levels. The 2013-14 budget included no such transfers.
The administration’s shift in non-tax revenue, including the transfers from other funds and liquor store profits, to the first half of the fiscal year has little impact on the overall timing of revenue collections. In 2014-15, it is estimated that 43.2% of revenue will be collected in the first six months. This is a modest increase from 2013-14, when 42.9% of revenues came in the first half of the fiscal year.
Outside experts continue to take notice of the commonwealth’s fragile fiscal state. In late September, Fitch Ratings downgraded Pennsylvania’s credit rating to AA-minus, citing the nearly $2 billion in one-time revenue sources needed to balance the 2014-15 budget plan and ongoing concerns about the state’s pension debt. Both Standard & Poor’s and Fitch have changed their outlook on Pennsylvania to negative, while Moody’s Investor Service has downgraded its bond rating for Pennsylvania for three straight years.(2) Like for a homeowner, a credit downgrade makes it more expensive for the commonwealth to borrow money.
(1) Pennsylvania Department of the Auditor General, “Treasury Creates $1.5 Billion Credit Line to Sustain State Operations,” September 16, 2014, http://www.auditorgen.state.pa.us/press-releases/treasury-creates-1-5-bi....
(2) Reuters, “Fitch downgrades Pennsylvania on budget, pension concerns,” September 23, 2014, http://www.reuters.com/article/2014/09/23/pennsylvania-ratings-fitch-idU....