Revenue Collections Remain Steady in New Year
General Fund revenue collections for the month ended January 2018 totaled $3.1 billion, which was $93.8 million, or 3.1%, above estimate. Fiscal year-to-date collections total $17.4 billion, which is $89.7 million, or 0.5%, above estimate. Of the $93.8 million monthly overage, $68 million was attributable to one-time, non-tax revenue sources.
Total General Fund revenues for FY 2017-18 are $1.27 billion, or 7.9%, more than last fiscal year at this time. Of the $1.27 billion, tax revenues are $947 million, or 6%, ahead of last year, and non-tax revenues are $324 million, or 146.8%, above last year, mostly because of one-time revenue sources such as gaming license fees and transfers from special funds.
Corporation tax collections were above estimate by $31.7 million, or 29.3%, for the month. However, corporation tax collections are $24.1 million, or 1.6%, short of estimate for the year-to-date.
Sales and Use Tax (SUT) collections were below estimate by $45.4 million, or 4.7%, for the month. January’s general SUT collections are the highest of the fiscal year because the taxes collected in December, during the peak of the holiday shopping season, are remitted in January. General SUT was $32.9 million, or 3.9%, below estimate. SUT on motor vehicles was $12.5 million, or 10.3%, short of estimate for the month. SUT collections are $6 million, or 0.1%, below estimate for the fiscal year-to-date.
Personal Income Tax (PIT) collections were above estimate by $52.8 million, or 3.5%, for the month. PIT from employers’ withholding missed the estimate by $3.7 million, or 0.4%, for the month. Quarterly estimated PIT collections were $64.9 million, or 13.5%, ahead of estimate for January. Payments on annual tax returns were $8.4 million under estimate for the month. Total PIT collections are $133.1 million above estimate for the year, which is 1.9% ahead of estimate. PIT collections are running 8.6% ahead of last year at this time.
Cigarette tax collections were $11.3 million, or 15.4%, below estimate for the month and are $16.6 million, or 2.3%, short of estimate for the year. Other tobacco products tax collections were $699,247, or 7.2%, below estimate for the month. Liquor tax collections missed the estimate by $842,760, or 3.2%, for January. Table games tax revenue was $145,456 above estimate for the month.
Realty Transfer Tax (RTT) collections beat the estimate by $2.4 million, or 5.9%, for the month. RTT is now $1.2 million, or 0.4%, above estimate for the year. Inheritance tax collections were $5.3 million, or 6.2%, below estimate for the month, and they are $9.6 million, or 1.7%, below estimate for the year.
Non-tax revenue collections totaled $293.3 million, which was $68 million, or 30.2%, above estimate. The non-tax revenue is mainly attributable to Category 4 gaming license auction fees of approximately $90 million and special fund transfers of nearly $200 million, including revenue from the Farm Show lease/leaseback transaction.
Motor License Fund collections were $9.4 million, or 4.4%, below estimate for the month of January. The Motor License Fund is $32.2 million, or 1.9%, above estimate for the year.
Employment, Wage Growth and the Personal Income Tax
The United States and Pennsylvania are experiencing an extended run of low unemployment not seen in recent memory. Having gone through a period after the great recession where the unemployment rate in Pennsylvania hovered above 7% for almost 3 years, being at or below 5% since the beginning of 2017 is a welcome sign for citizens and public officials alike. Those of us who work closely with the Commonwealth’s budget will also be watching to see if this produces growth in our state revenues, specifically regarding the Personal Income Tax.
The number of Pennsylvanians employed since 2012 has increased by more than 150,000. In a recent article published in the Wall Street Journal, a survey of economists showed that about 90% believed the US is at, or close to, full employment. A common misconception is that full employment means everyone who wants a job has a job. Full employment, as used by economists, is described as the point where unemployment cannot go any lower without generating price and wage pressures.
Economics tells us that supply and demand determine the price of a commodity, including labor. When available labor reaches a point of scarcity, employers will be forced to offer a higher price (wages or benefits) to attract the required labor. Another recent Wall Street Journal article spoke to the tightest labor markets in the US showing signs of this happening.
While it is difficult to tell if Pennsylvania is approaching this point as a state, the most recent data shows that nine counties have unemployment rates below 4%, and 27 other counties are below 5% unemployment. In the Independent Fiscal Office’s most recent 5-Year Outlook, their projections show increases in wage growth year over year, compared to the recent past. These extended periods of low unemployment, the increase in demand for labor, and subsequent driving up of wages are all positives for our state and economy, and we hope to see those positives reflected in our future Personal Income Tax revenues.
Governor Wolf Proposed Budget FY 2018-19
On February 6th, Governor Wolf unveiled his 2018-19 budget with a $33.2 billion spending plan, which is an increase of $1.2 billion, or 3.7%, from last year’s budget. Approximately $300 million of the $33.2 billion is allocated to fund new or expanded initiatives proposed by the Wolf Administration.
Once again, Governor Wolf’s budget includes a severance tax on natural gas drilling which is projected to generate $248.7 million in 2018-19. The budget also proposes to institute mandatory combined reporting (effective January 2019) and to begin a phase-down in the Corporate Net Income Tax rate to 7.99% by 2023. Re-introduced again this year, the Governor is recommending a fee of $25 per person be charged to municipalities reliant on State Police coverage if they do not have a full-time police force. This is projected to raise $63 million for the State Police budget. Additionally, Governor Wolf is proposing an increase of the minimum wage to $12 per hour. This proposal assumes a savings of $101 million could be realized for the Commonwealth due to increased earnings from the direct care and child care workforce.
As part of his budget, Governor Wolf is again proposing the merger of the departments of Health and Human Services into a consolidated Department of Health and Human Services. Unlike last year’s proposal, no programmatic savings from the merger are assumed in the budget.
The revenue changes adopted as part of last year’s budget appear to have stabilized the Commonwealth’s General Fund budget as revenues are $90 million above projected estimates through January. While this is a positive step for Pennsylvania, it is crucial that spending levels be brought in line with the rate of revenue growth as to avoid the cycle of budget deficits that have plagued the state for years. The average rate of appropriations growth over the past 10 years has been 1.2%; Governor Wolf has proposed a 3.7% increase in spending for the 2018-19 budget.
In the coming weeks, the Senate Appropriations Committee will be holding a series of hearings to gain greater insight into Governor Wolf’s budget proposal from department and row office officials. The complete hearing schedule and other budget materials can be found on the committee’s website: https://appropriations.pasenategop.com/.
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