The end of the last fiscal year wasn't as good to the state as we had hoped it would be.
When the group of independent economists who gauge how much revenue the state will have gave its official revenue estimate in late 2015, it predicted 2.7 percent growth state General Fund over Fiscal Year 2016. What we got was 1.3 percent growth, leaving us with a budget shortfall of $138.5 million.
The result has been some budget reduction orders from the Governor's Office -- with most state agencies asked to carve away at least 1 percent of their annual budget to help balance last fiscal year's budget -- and more pressure to over perform revenue-wise in Fiscal Year 2018. Whether or not tax reform will be part of the solution remains to be seen: The Governor has yet to say whether he will call a special session this fall on the matter. What we can do now is look at where most of our General Fund dollars come from, and where we are lagging.
Most of our General Fund income today comes from two sources, individual income and sales and use tax. Together they make up over 75 percent of our General Fund. Other sources are property, corporate income, coal severance, cigarette, and limited liability entity (LLET) taxes and lottery receipts. For the fourth quarter of FY 17, property tax revenue grew the most at 16.7 percent with LLET coming in second at 11.1 percent. Individual income tax revenue grew at a more modest 3.1 percent, followed by 0.9 percent growth in sales and use tax receipts, 1.2 percent growth in cigarette tax receipts and a 0.3 percent increase in coal severance tax receipts.
Where we lost revenue in the last quarter over FY 16 was corporate income (-3.7 percent), lottery revenues (-9.7 percent) and a 2.6 percent drop in other general account collections. The result was $48.9 million less General Fund revenue in the fourth quarter of FY 17 that we took in in the last quarter of FY 16 and, as mentioned, over $138 million less than the official revenue estimate.
So, what can we do about this? Well, the Governor's State Budget Director John Chilton gave us some clues in the Quarterly Economic & Revenue Report for the fourth quarter of FY 17 from which these revenue numbers were drawn. According to Chilton: "The two largest General Fund taxes (individual income and sales and use) constitute over 75 percent of the General Fund. When one (or both) of these revenue sources fails to keep pace with economic growth, the remaining taxes have been struggling to pick up the slack."
The current outlook for the state's General Fund, per the Budget Director's report, is for individual income tax revenues to increase by 3.8 percent in the first nine months of FY 18, which is less than the majority of annual increases in that revenue source over the last seven years. Growth of 2.1 percent is expected in the next three quarters for sales and use tax.
Better results that we had last quarter are expected from corporate income tax revenues, which are expected to rise 8.2 percent in the first three quarters of FY 18. Growth among the other revenue sources is not forecast to be strong, with General Fund growth of 2.5 percent expected for the first three quarters of this fiscal year.
That is where we stand now. We now wait to see if the forecast is accurate, and if the Governor is serious about tax reform to improve our state's economic future.
The adding of good jobs and personal income is good for the state's fiscal condition. In the legislature, we are always conscious of the idea that helping families help us in all budget issues. Hopefully, our employment status as a state will continue to improve. We are working toward that end.
Make it a good week, and we'll talk soon.