Senate Appropriations Committee Report
(all tables and graphics can be viewed online)
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:
Fiscal Year 2019-20 vs. the Official Revenue Estimate To-Date:
Fiscal Year 2019-20 vs. Fiscal Year 2018-19:
Motor License Fund:
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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