A First Look at State Revenues in FY13

Some Down, Some Up, and Unexpected Revenues

By Josh Elliott-Traficante

An initial look at state revenues for fiscal year 2013 showed that the year ended with a $47.9 million dollar surplus in the General and Education Trust Funds. Most tax collection was in line with forecast, with several major exceptions. In addition, several, one-time revenues were realized, increasing the surplus. Though these figures are unaudited, the final size of the surplus will likely be roughly the same.

Taxes that Fell Short

Though it can be quite difficult to forecast tax collections two years in advance, most of the collections were close to plan. However, several notable sources fell short, primarily the Tobacco Tax, the Communications Tax and Medicaid Enhancement Revenue.

The Tobacco Tax was off of plan by 13.1 million, or -6 %. In general, assuming the taxation rate remains the same, tobacco tax revenues fall each year due to declining cigarette sales. This natural decline was compounded by a rate cut of $0.10 a pack. A sunset clause was included as part of the cut when it passed that would automatically return the tax to the pre-cut rate if revenues did not remain on the same level as the previous two years. They did not, and the tax automatically increased on August 1.

The decline in the Communications Tax, down $25.2 million over the year (-30.6%), is due to tax law changes effective July 1, 2012. According to the Department of Administrative Services, the Department of Revenue is “currently reviewing the returns filed to further investigate the revenue decline.”

Medicaid Enhancement Revenue was down by $28.5 million (-27.2%) as a result of an ongoing dispute between the state and the hospitals over their tax burden.

Taxes that Exceeded Plan

Several key taxes did much better than planned, including the Business Enterprise Tax, up $32.3 million (16.5%) and Meals and Rooms Tax, up 13.5 million (+5.85%). Rates remained constant throughout, meaning that the growth in revenue was due to economic growth, rather than an increase in rates.

One Time Revenue

In addition to regular revenue, the state received several one time revenue payments, in particular money from two lawsuits. One was the proceeds from a tobacco settlement suit (click here for more details) and the other was from the MtBE lawsuit (click here for details) in which damages were awarded to the state.

Even without the proceeds from these onetime settlements, the state would have ended the year with a surplus of $18.1 million.