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Senate Appropriations Committee Report(all tables and graphics can be viewed online) Revenue Collections Suffering from COVID-19 PandemicGeneral Fund revenue collections for May were below the monthly estimate by $439.7 million. As bad as it was, it was an improvement over April’s $2.16 billion monthly deficit, mainly because April is a much more significant revenue collection month, and important April payments were extended. General Fund revenues are now $2.6 billion below the annual estimate with one month remaining in the fiscal year. The Independent Fiscal Office (IFO) released its initial revenue estimate for FY 2020-21, and its analysis for FY 2019-20 concluded that approximately $2.1 billion of the current fiscal years’ revenue shortfall by the end of June will result from COVID-19-related extended payment deadlines and should be recouped in FY 2020-21. Any shortfall over the $2.1 billion will have resulted from damage done to the Commonwealth’s economy by the virus. Corporation taxes were $164.7 million under estimate for the month and are $560.9 million below estimate for the fiscal year. The tax filing deadline for tax year 2019 final corporate net income tax (CNIT) payments has been extended to August 14, 2020, and the IFO estimates that the filing extension will shift approximately $470 million of CNIT payments from FY 2019-20 into FY 2020-21. Not all of the monthly shortfall is attributable to filing extensions, as evidenced by declining sales and use tax collections and other remittances that were due on a monthly or weekly basis. Sales and use tax (SUT) collections were $282.8 million below estimate for the month of May; PIT withheld from paychecks was $86.5 million below estimate; realty transfer tax collections missed the estimate by $18.2 million; liquor tax revenue was $8.3 million short of estimate; and gaming taxes were $13.4 million below estimate as casinos remain closed. Total personal income tax (PIT) collections were above the monthly estimate by $44.8 million. Despite poor collections from PIT withheld from paychecks, quarterly and annual PIT payments exceeded the monthly estimate by a combined $131.3 million. The relatively strong performance of non-withheld PIT collections resulted from the Department of Revenue beginning to work through tax return and payment backlogs that grew in March and April while department employees were unable to process returns. Non-tax revenue was $27.2 million above estimate, with unclaimed property (escheats) collections beating the estimate by $16.8 million. The Treasury Department extended the filing deadline for escheated property remittances from April 15 to June 15, so much of this escheats revenue was likely recouped from April’s deficit. May General Fund Revenue:
Fiscal Year 2019-20 vs. the Official Revenue Estimate To-Date:
Fiscal Year 2019-20 vs. FY 2018-19:
Motor License Fund:
Disparate Revenue Projections Highlight Need for Fiscal CautionOn May 29, 2020, the Secretary of the Budget and the Secretary of Revenue certified that unrestricted state revenue to be received and deposited in the General Fund of the State Treasury during the fiscal year beginning July 1, 2020 is estimated to be $34.63 billion. The base General Fund revenue estimate as originally proposed in Governor Wolf’s February Budget was $37.06 billion for FY 2020-21, after adjusting to remove revenue changes and modifications proposed at the time. Therefore, in four months’ time, the Administration’s projected revenues for the coming fiscal year decreased by more than $2.4 billion. It comes as no surprise that the COVID-19 pandemic and the effect it is having on Pennsylvania’s economy would have a significant negative impact on tax collections. Even with substantial tax payments shifted from FY 2019-20 to FY 2020-21, the Administration is still projecting General Fund revenues to be off by over $2.4 billion since its February estimate. What is somewhat unexpected, though, is how much the Administration’s projections differ from the General Fund revenue estimates released by the Independent Fiscal Office (IFO) on May 26, 2020. The IFO’s initial General Fund revenue estimate for fiscal year 2020-21 is $36.1 billion. The difference between the administration’s and IFO’s revenue estimate is $1.4 billion. Uncertainty of this magnitude between two state agencies with proficiency in accurately predicting revenues of the Commonwealth does not call into question the expertise of either agency but rather highlights the degree to which revenue projections have such a low probability of being accurate under these unprecedented conditions. The uncertainty that accompanies a nearly $1.4 billion discrepancy in the Commonwealth’s General Fund revenue projections makes it very difficult to craft a twelve-month spending plan with any confidence that available revenues will match necessary expenditures. Knowing this, the General Assembly wisely decided to pass a five-month budget to move the Commonwealth forward until the end of November when the pandemic’s effects and potential economic recovery should be clearer. Additionally, the federal government is considering another round of COVID-19-related relief that could include fiscal relief to state and local governments which would allow them to use new federal funds to make up for lost tax revenue resulting from the devastating effect the virus has had on the economy. Any forthcoming federal fiscal relief could greatly impact the Commonwealth’s FY 2020-21 budget, and such federal action, if it materializes, would provide more fiscal certainty to be incorporated into a responsible full-year budget. |
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