Fiscal Services: Revenue is $161 Million Below REC Estimate, Governor Disputes Figures
On July 1, Fiscal Services released the memo for general fund revenue for FY 2009. The news was not good as revenue and refunds combined to make actual revenue $161 million less than the REC estimate.
Compared to FY 2008, total net general fund receipts decreased by $320.5 million, or 5.3 percent in FY 2009. Personal income tax receipts were down $29 million, or -0.9 percent, corporate income tax receipts were down $67.3 million, or -13.9 percent and other taxes were down $39 million, or -7.9 percent.
Sales and use tax revenue was up $327.2 million (16.4 percent) but this was all due to the sales tax increase for school infrastructure. This is below the REC estimate of 17.7 percent. In addition, tax refunds were $72.3 million more than the REC anticipated, and school infrastructure refunds were $31 million more than anticipated.
The combination of gross revenue ($57.7 million less than predicted), increase in refunds ($72.3 million more) and increase in school infrastructure refunds ($31 million more) means that actual net revenue was $161 million less than projected by the REC.
In order to deal with this shortfall, the Governor has approximately $118 million that can be shifted. This breaks down as follows: $44.5 million from the FY 09 ending balance (all due to use of the one-time federal stimulus money), $50 million the Governor can legally transfer from the Economic Emergency Fund (EEF) and $23.5 million in Medicaid surplus (also all due to use of stimulus funds).
It appears that the Governor does not have enough money to cover the FY 09 deficit. However, the Governor and DOM believe that accruals will come in at least $40 million above the REC estimate.
Considering the last quarter revenue came in double digits below the last quarter of FY 08, that seems very unrealistic. A more realistic scenario is that the Governor intends to shift some expenses (like the $38 million payment to schools for infrastructure) into FY 2010. While this accounting gimmick may be legal, House Republicans have asked the State Auditor about whether or not this conforms with Generally Accepted Accounting Principles (GAAP). If it violates GAAP, it could impact the state’s bond rating.
Once the FY 2010 base revenue is reduced by $161 million, it means the entire $99 million ending balance (all due to use of the federal stimulus money) is wiped out. That means the FY 10 budget has a deficit of $60 million. And that is before the REC meets in September, when it is expected to lower the FY 2010 estimate of -2.8 percent. It is likely the REC will lower the estimate by at least 1 percent. That would mean the FY 2010 deficit would grow to over $100 million.
Finally, it means that the $903 million spending gap for FY 2011 is now over a $1 billion spending gap.
The Democrats spent too much and cut too little. Even if the Governor uses a sleight of hand trick to balance FY 2009, FY 2010 is out of balance and FY 2011 has a $1 billion spending gap. All of the accounting tricks in the world won’t be enough to solve a spending gap that large.