Pennsylvania’s revenue performance has been pretty uneven this fiscal year due in part to a stubbornly slow growing economy and to policies that have cut the tax bills of big profitable corporations. After months of significant revenue shortfalls, however, January provided some hope.
Pennsylvania’s revenue performance has been pretty uneven this fiscal year due in part to a stubbornly slow growing economy and to policies that have cut the tax bills of big profitable corporations. After months of significant revenue shortfalls, however, January provided some hope.
General Fund collections came in close to estimate in January – falling $10.2 million, or 0.5%, short of monthly targets. This is a marked improvement over the previous several months, when revenues fell between 3% and 6% short of estimate. Get my full analysis of the January revenue numbers here.
January is an uneventful month for most revenue streams, with personal income tax collections being the exception. January is second only to April, when tax returns are due.
Corporate collections continued to fall significantly short of estimate in January and account for more than half of the General Fund’s revenue shortfall so far in 2011-12.
Revenue collections for the 2011-12 Fiscal Year are $497 million, or 3.5%, below the Corbett administration’s revenue estimates. The administration is now projecting a year-end revenue shortfall of $719 million, although the Independent Fiscal Office (IFO) believes this to be too pessimistic, based on recent economic trends. The IFO expects the year-end shortfall to be in the $500 million range.
But comparing revenue estimates to actual collections tells only part of the story. Most tax revenue has been growing over the previous year, but not quickly enough to offset the cost of business tax breaks like bonus depreciation.
To make matters worse, Governor Corbett has proposed a state budget that moves Pennsylvania in the wrong direction. His budget maintains deep cuts to public schools that hit the poorest districts the hardest. It sharply reduces funding to public universities that could stifle innovation and drive up college tuition when many families can least afford it. Rather than closing tax loopholes and ending special tax breaks, the budget is balanced by cutting health care for children and adults.
Pennsylvania came out of the recession strong, ranking among the top 10 states in job growth. Our unemployment rate was a point lower than the national average and we were making investments in our schools, hospitals, and workforce that were creating real jobs.
We have since reversed course – increasing class sizes, limiting access to care, and cutting workforce training opportunities. As a result, we have seen our job growth advantage slip. Pennsylvania actually created more new jobs in 2010 than in 2011. If we continue on this course, Pennsylvania will be more likely to fall behind our competitors as the economy grows.