General Fund revenue collections exceeded official revenue targets by just under $50 million in May. This pushes the fiscal-year-to-date revenue surplus to $619 million, or 2.3% above estimate. Compared to this time last year, this represents growth of nearly $2 billion. While revenues exceeding estimate are a good signal that the economy is doing better than expected, the 2014-15 surplus is unlikely to have a positive impact on the 2015-16 budget that one would normally expect.
The reason is that most of the additional revenue in 2014-15, over $400 million or 72% of the surplus, is due to corporate taxes and non-tax revenue, both of which are unlikely to be as high next budget year. Corporate taxes exceed estimate by $168 million, or 3.9%, this fiscal year. This is driven by corporate net income tax payments, and both the Wolf administration and Independent Fiscal Office officials aren’t counting on that trend to continue. Some of the increase may be in response to federal tax changes that have had a ripple effect on payments made this year.
Non-tax revenues are currently $276 million, or 33.4%, higher than expected. Much of this is due to a change in the holding period of unclaimed property, which generated more money than was anticipated. Again, while this is good news for the current year budget, it is one-time revenue that won’t be seen in 2015-16 or beyond.
Here is how the revenues currently stack up to revenue targets.
Compared to last year, every major category of revenue shows marked growth. Of the $1.97 billion, or 7.7%, overall revenue growth, personal income tax and sales tax (the two largest revenue sources for the General Fund) account for $922 million of the growth. Non-tax revenues are $707 million higher than last year—largely due to the laundry list of transfers and one-time revenues enacted as part of the 2014-15 budget.
As the budget for 2015-16 is negotiated between the governor and the General Assembly, there is still a need for recurring revenue such as a severance tax on natural gas if Pennsylvanians are serious about providing additional funding for our schools or erasing the Commonwealth’s ongoing structural deficit.