Senator Pat Browne E-Newsletter

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Senate Appropriations Committee Report

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November Revenues Hold Steady

General Fund revenue collections for the month of November exceeded the estimate by $2.2 million, or 0.1%. General Fund tax revenues were $9.6 million, or 0.4%, higher than the monthly estimate, but non-tax revenue missed the estimate by $7.5 million, or 6.2%. General Fund revenue collections for the first five months of the fiscal year are $166.4 million, or 1.3%, ahead of estimate.

November 2019 General Fund Revenue vs. Monthly Estimate:

  • Corporation taxes were $16.6 million, or 12.4%, above the estimate.
  • Sales and use tax (SUT) collections were below the estimate by $10.2 million, or 1.1%, for the month.
  • Personal income tax (PIT) collections were short of the estimate by $3.4 million, or 0.4%.
  • Realty transfer tax and inheritance tax were above estimate for the month, but cigarette tax, other tobacco products tax and liquor tax were below estimate.
  • Non-tax revenues missed the monthly estimate by $7.5 million, or 6.2%.

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

  • Total General Fund revenue is $166.4 million, or 1.3%, above estimate.
  • General Fund tax revenue is $101.3 million, or 0.8%, above estimate.
  • Non-tax revenues are $65.1 million, or 37.8%, above estimate.
  • Corporation taxes are $46 million, or 4%, below the estimate.
  • Sales and use taxes are $49.4 million, or 1%, above the estimate.
    • General SUT is $39.4 million, or 1%, above the estimate for the year-to-date.
    • SUT on motor vehicles is $10.1 million, or 1.6%, ahead of the estimate thus far this year.
  • Personal income tax collections are above the estimate by $74.2 million, or 1.5%.
    • PIT withholding is $15.1 million, or 0.4%, below the estimate.
    • Non-withheld PIT (i.e. estimated and annual payments) is $89.3 million, or 11.6%, above the estimate.

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

  • Total General Fund revenues through November are $368.9 million, or
    3%, higher than last year.
  • General Fund tax revenue is $393.6 million, or 3.2%, higher than last year at this time.
  • Non-tax revenues are $24.6 million, or 9.4%, lower than last fiscal year through November.

Motor License Fund:

  • Motor License Fund revenues are $14.2 million, or 1.2%, below the estimate through November.
  • Motor License Fund revenues are $18.4 million, or 1.6%, less than last year at this time.

IFO Releases its Latest Five-Year Economic & Budget Outlook

The Independent Fiscal Office (IFO) released its annually mandated, five-year Economic & Budget Outlook for fiscal years 2019-20 to 2024-25 on November 14, 2019.

For the current 2019-20 fiscal year, the IFO projects that a modest revenue surplus of approximately $221 million above the Governor’s Official Estimate will be offset by the need for supplemental appropriations and other adjustments, which will result in a General Fund preliminary ending balance deficit of $410 million.

For the coming 2020-21 budget year, the IFO projects General Fund revenue growth at a relatively strong rate of 3.6%. However, the IFO projects that FY 2020-21 expenditures will increase by 5.7%. The mismatch between 3.6% forecasted revenue growth and a projected 5.7% growth in expenditures results in an anticipated structural deficit of nearly $1 billion for the 2020-21 budget year.

The significant fiscal year 2020-21 projected expenditure growth is due to the non-recurrence of one-time savings measures used to support Department of Human Services (DHS) programs in fiscal year 2019-20, $200 million to backfill the JUA augmentation that may not materialize, presumed expansion of DHS programs in the coming budget year, and an $80 million absorption of program costs by the General Fund from the struggling Lottery Fund.

The following tables lay out the factors that are driving the IFO’s projected fiscal year 2020-21 structural deficit:

Millions

Estimated FY 2019-20
Net Revenues
Projected FY 2020-21
Net Revenues
Growth
$35,718 $37,004 3.6%

Millions

Estimated FY 2019-20
State Expenditures *
Projected FY 2020-21
State Expenditures
Growth
$34,778 $36,753 5.7%
 * FY 2019-20 estimated state expenditures includes $779 million of preliminary supplemental appropriations.

The IFO categorizes the major cost drivers that result in the 5.7% projected state expenditures growth in the coming budget year as follows:

Millions

Cost Drivers Dollar Amount
(Growth)
Contribution to
Expenditures Growth
Education $556 3.9%
Human Services $1,112 8.3%
Criminal Justice $77 2.9%
Debt Service (Treasury) $60 5.2%
State Police $41 11.3%
All Other $128 4.3%
Total $1,974 5.7%

The IFO’s latest report shows that the projected five-year structural deficit will be $926 million in fiscal year 2020-21, peak at $1.3 billion in fiscal year 2022-23, and settle to just under $1.1 billion by fiscal year 2024-25. What is important to note is that these projected structural deficits have been steadily shrinking in recent years because of a strong economy and positive steps taken by the General Assembly to hold the line on spending. To illustrate, the IFO’s projected five-year structural deficits from last year’s report totaled just over $8 billion. This year’s five-year structural deficit outlook has receded to approximately $5.5 billion – a $2.5 billion improvement in just one year’s time.

As the IFO points out in its report, demographics are a critical factor that motivate long-term economic, revenue and expenditure trends. Pennsylvania’s total population is projected to remain nearly flat through 2025. The school-age cohort is expected to contract by 64,000 students, and the working-age cohort is projected to decline by 204,000 potential workers for the period from 2020 to 2025. On the other hand, the retiree cohort and elderly cohort are projected to expand by 254,000 and 79,000 residents, respectively, over the same time period. Over time, there will be fewer working-age residents to support the needs of rapidly expanding retiree and elderly populations.

The Economic and Budget Outlook report helps illustrate the difference between revenue surpluses and structural deficits. Despite ending the 2018-19 fiscal year with an $883 million revenue surplus above the Official Estimate and the projection of a revenue surplus of $221 million this fiscal year, the IFO is still projecting a structural deficit of $410 million for FY 2019-20 and nearly $1 billion for FY 2020-21. The General Assembly will be faced with tough budgeting decisions in the coming months to achieve a balanced budget for fiscal year 2020-21 and to ensure that future structural deficits continue to decline.

The full report is available on the IFO’s website at the following URL:

http://www.ifo.state.pa.us/releases/320/FIVE-YEAR-ECONOMIC-AND-BUDGET-OUTLOOK/

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