Revenue Collections Lagging Behind Last Year's by Nearly $1 Billion

Pennsylvania's 2008-09 budget deficit approached $1.3 billion in February, and in a sign of the economic crisis pounding the state and nation, year-to-date collections are now trailing last year's by $978 million, or 6.2%. Expected revenue shortfalls for the rest of the fiscal year suggest that year-to-year gap will well exceed $1 billion in March.

In February, state revenue came in $197 million, or 11.6%, short of estimate. Pennsylvania took in $271.5 million, or 15.3%, less than it did in February 2008. Gov. Ed Rendell has projected a deficit of $2.3 billion by the end of the fiscal year in June.

Most of February's shortfall was due to declining tax revenues, with about half of the losses coming from the personal income tax and sales tax. Another quarter of the losses can be traced to particularly bad showings for corporate, inheritance and real estate transfer tax collections. Non-tax revenue came in once again in the negative, signaling more short-term investment losses for the month.

Bad Month for Business, Inheritance Taxes

Corporate and inheritance tax collections each came in 25% short of the mark for February.  Corporate taxes collections are down $174 million, or 10.2%, for the year, coming in $21 million short for the month of February.

Inheritance tax collections are behind $64 million, or 11.4%, for the year, with February's collections missing the mark by $17.5 million. Recession-hit home prices and stock values are two major factors driving the decline in inheritance tax collections.

Realty Transfer Tax Half of Projections for Month

The Realty Transfer Tax (RTT), a 1% levy on home sales, took the biggest percentage hit in February, although it represented only a small portion of the monthly deficit. In February, the RTT came in $11.5 million, or 49%, less than estimate.

February is typically a slow month for RTT collections, as they reflect the small number of home sales generally occurring in January. But February's $12 million in RTT collections haven't been that low in at least a decade, with the closest month being February 2000 when collections were $16.3 million. Year-to-date, RTT is down $66.3 million, or 23.7%, from estimate.

Half of Deficit from Sales Tax, PIT Collections

Corporate, inheritance and realty transfer taxes may be trailing estimates by the biggest percentages, but smaller percentage deficits in the sales tax and personal income tax (PIT) are equaling bigger dollars. In February, about half of the $196 million shortfall was from these two levies.

The sales tax missed February estimates by $61 million, or 10%. Year-to-date, sales tax collections are $299 million, or 5.1%, less than estimate.

PIT collections were off $41 million, or 5%, for the month. For the year, they are $316.7 million, or 4.7%, behind estimate. 

Other Taxes Also Miss the Mark

Other taxes, including levies on cigarettes, malt beverages and liquor, were behind estimates by about $4 million, or 5%, for February. For the year, they are down $25 million, or 3.6%.

Motor License Fund collections were also off for the month by $22.5 million. For the year, they are $95 million, or 5.3%, below estimates.

Non-tax Revenue Collections Still in the Red

Finally, non-tax collections were in the red for February, signaling more short-term investment losses.  This month, the state lost $5.8 million in this category, which is $40.8 million below estimated collections for the month.  For the year, the state has posted a $90.6 million loss in non-tax collections – $327.1 million less than they expected to collect.

What Lies Ahead

Traditionally, March and April are the largest two months of collections in the General Fund, accounting for more than a quarter of all a fiscal-year's revenue.  Through February, revenue collections are 7.9% behind estimates.  If this continues for the rest of the fiscal year, the revenue deficit will reach $2.3 billion as is currently projected by the Rendell administration.  However, it could be worse than this.  For February, itself, revenue collections were 11.6% below estimate.  If collections in March through June were 11.6% less than estimate, the overall revenue deficit for 2008-09 would rise to $2.74 billion.