Revenue Tracker: December Revenues Fall Short, Erasing Surplus. Trouble Ahead?

2013-14 Revenue Tracker: Nov. 2013Halfway through the state's fiscal year, General Fund revenues are right on target — exceeding official estimates by a scant $2 million, or 0.02%. Tax and other collections in December came in $40 million, or 1.7%, below the monthly target, largely erasing the modest revenue surplus that had been generated so far. December collections are typically an important milestone for gauging fiscal year revenues, as several types of quarterly tax payments are due.

One month of poorer-than-expected collections should not be overly alarming, but results in January need to be monitored closely. Another sub-par month of collections could mean trouble as the 2014-15 budget negotiations get under way early next month.

Of the major tax types, only corporate taxes exceeded estimate in both December and the fiscal year-to-date. December is typically one of the more important months for corporate tax collections, as many filers make quarterly payments. For the fiscal year, corporate tax collections are $58 million, or 4.6%, higher than projections.

December is typically a strong month for sales tax collections, due to increased early holiday shopping, but sales tax collections fell $31 million, or 3.8%, short of the December revenue target and are now $15 million, or 0.3%, below estimate for the fiscal year.

For personal income taxes (PIT), December is typically a larger month than normal, due to quarterly tax payments. In December, PIT collections came in $24 million, or 2.7%, lower than estimate. This made PIT collections for the first half of the fiscal year fall to $29 million, or 0.6%, below estimate.

It would be fortunate if the PIT and sales tax shortfalls in December are one-time events, and not early indicators of a softening economy.

Compared to the prior year, December collections were $50 million, or 2.1%, less in 2013. For the fiscal year-to-date, total General Fund revenues have grown by $57 million, or 0.5%, from the prior year. PIT and sales tax collections have risen a collective $233 million from the same period in 2012-13, but corporate tax collections have fallen by $156 million, or 10.6%, due in large part to corporate tax cuts.

Bottom Line: Going into the second half of the fiscal year, revenue collections are on track, but the situation is less positive than it was at the end of November. While it is too soon to worry about not meeting revenue expectations in 2013-14, another shortfall in January could legitimately raise such concerns — and mean that balancing the 2014-15 budget could be that much more difficult.