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December General Fund Revenue Collections Shave Surplus

General Fund revenue collections for the month of December were below the  estimate by $91.5 million, making a considerable dent in the year-to-date General Fund surplus, which now stands at $75 million.  General Fund tax revenues were $84.2 million lower than the monthly estimate, and non-tax revenue was $7.3  million below the estimate.  Corporate net income tax (CNIT) primarily accounted for the monthly revenue shortfall coming in at $79.2 million below estimate for the month.  Final CNIT quarterly estimated payments for the 2019 tax year were due in December, and those payments were $26.1 million short of the estimate.  Regular annual CNIT collections missed the monthly estimate by $53.1 million. 

As the Independent Fiscal Office noted in its Economic and Budget Outlook report from November 2019, corporations generally responded to the enactment of the federal Tax Cuts and Jobs Act in late December 2017 by shifting income forward to take advantage of the lower federal tax rates beginning in 2018.  This income shifting provided an artificial boost to FY 2018-19 CNIT revenues, making it more difficult to forecast current fiscal year CNIT revenues, which required determining how much revenue growth was due to the economy versus past one-time income shifting.

December 2019 General Fund Revenue vs. Monthly Estimate:

  • General Fund revenue collections of $2.91 billion were below the monthly estimate by $91.5 million, or 3.1%.
  • General Fund tax revenues were below the estimate by $84.2 million, or 2.8%.
  • Corporation taxes were $80.7 million, or 13%, below the estimate.
  • Sales and use tax (SUT) collections missed the estimate by $6.7 million, or 0.7%, for the month.
  • Personal income tax (PIT) collections were above the estimate by $18.9 million, or 1.9%.
  • Non-tax revenues fell short of the estimate by $7.3 million, or 23.1%, largely resulting from an unanticipated partial refund of a Category 4 casino license fee.

Fiscal Year 2019-20 vs. the Official Revenue Estimate To-Date:

  • Total General Fund revenues are $75 million, or 0.5%, higher than the Official Revenue Estimate through the month of December.
  • General Fund tax revenue is $17.2 million, or 0.1%, above estimate.
  • Corporation taxes are $126.7 million, or 7.1%, below the estimate.
  • Sales and use taxes are $42.7 million, or 0.7%, above the estimate.
    • General SUT collections are $20.5 million, or 0.4%, above the estimate.
    • SUT collections on motor vehicle sales are $22.2 million, or 2.9%, higher than the estimate.
  • Personal income tax collections are ahead of the estimate by $93 million, or 1.5%.
    • Withheld PIT is $13.6 million, or 0.3%, below the estimate.
    • Non-withheld PIT (annual & estimated payments) is $106.6 million, or 12.3%, above the estimate.
  • Non-tax revenues are $57.8 million, or 28.4%, higher than the estimate. 

Fiscal Year 2019-20 vs. Fiscal Year 2018-19:

  • Total General Fund revenues through December are $371 million, or 2.4%, higher than last year at this time.
  • General Fund tax revenue is $465 million, or 3.1%, higher than last year.
  • Corporation taxes are $6.2 million, or 0.4%, lower than last year.
  • Sales and use tax collections are $149.7 million, or 2.7%, higher than last year through December.
  • Personal income tax collections exceed last year’s collections by $299.3 million, or 5.1%.
  • Non-tax revenues are $94 million, or 26.4%, lower than last fiscal year through December, resulting from far less gaming license fee revenue in the current fiscal year.

Motor License Fund:

  • Motor License Fund revenues are below the estimate by $5.8 million, or 0.4%, through December.
  • Motor License Fund revenues are $4.9 million, or 0.4%, less than last fiscal year at this time. 

Administration Backs Away from Its Proposed Environmental Funds Transfers 

In his FY 2019-20 budget proposal, Governor Wolf proposed to transfer $79 million from several environmental funds to cover administrative costs at the departments of Environmental Protection (DEP) and Conservation and Natural Resources (DCNR).  Specifically, the Governor proposed to draw $30 million from the Keystone Fund, nearly $21 million from the Oil and Gas Lease Fund, approximately $18 million from the Environmental Stewardship Fund and $10 million from the Recycling Fund.

During the budget enactment process, we were able to restore $30 million to DCNR’s budget to eliminate the need for administrative transfers from the Keystone Fund.  Additionally, language was included in the Fiscal Code to give the Administration the opportunity to develop a new plan that would further mitigate the Governor’s proposed cuts to environmental programs.  This language gave the Administration authority to redirect up to $45 million from other special funds instead of pulling money away from important environmental programs.

In late November, the Administration shared its proposed alternative plan with us.

Commonwealth Acts to Shore up the Pennsylvania Lottery

Act 97 of 2019, which was enacted in late November, amended the State Lottery Law to provide for a temporary reduction of the mandated margin rate of return (i.e. profit margin) from 25% to 20%. The Lottery rate of return has been reduced in the past, most recently by Act 201 of 2014, which lowered the rate of return from 27% to 25%.

The Pennsylvania Department of Revenue and the Pennsylvania Lottery support Act 97, as their analysis shows that a lower Lottery profit margin provides more profit dollars to fund important senior programs.  With a 20% rate, the Lottery has the flexibility to provide the best product mix to maximize profit dollars, especially at a time when games such as Powerball and Mega Millions are slumping due to a dearth of large jackpots that drive sales.

Act 97 contains a five-year sunset provision that accommodates the Lottery’s sixteen-month product design timeline for scratch-off tickets, which account for nearly 70% of Lottery sales.  The Pennsylvania Lottery estimates that the margin relief coupled with a sunset provision will grow Lottery profits by an additional $487 million over the five-year period.  The following table provided by the Department of Revenue illustrates the projected fiscal impact of Act 97. Furthermore, the accompanying chart shows that the pre-Act 97 statutorily required profit margin of 25% became difficult to maintain as Lottery consumers trend more toward instant game purchases at the same time large jackpot games have sagged.

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