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State revenue up, but not enough to keep pace with REC projection

State revenue grew in August, but only enough to offset July’s shortfall. That’s according to the August revenue memo put out by the Legislative Services Agency.

For the month of August, state revenue was $16.1 million higher than what was collected in August 2015. This 2.2 percent revenue increase raised the FY 2017 revenue growth to a level $500,000 higher than where it was through the first two months of FY 2016, a growth rate of 0.04 percent.

According to LSA, revenue has to grow 7.1 percent to meet the March 2016 REC estimate. This would be an increase in state revenue by $483.5 million.  

In the tax categories, personal income tax collections grew by only $300,000 when compared to August 2015. Sales tax collections did rebound from July’s timing issue. Sales tax was up $20.3 million in August, an increase of 6.1 percent over August 2015.

Corporate income tax collections, which are a small portion of general fund receipts in August, were $10.1 million for the month. This is $2.3 million less than what was brought in during August 2015.

How does the current standing of tax revenue compare to the REC projection? Currently, just about every tax source is currently below the March estimate.

Personal income tax collections are supposed to grow by 5.6 percent in FY 2017. This category is up 2.58 percent through two months. Corporate income tax collections are supposed to grow by 3 percent, but they are running at negative 20 percent.

While that amounts to a drop of $6.5 million, it is not a good start to the fiscal year. Inheritance tax collections are to rise by 6.5 percent, but they are at negative 18 percent. Sales tax collections are forecast to grow by 1.5 percent, and they are up 1.2 percent.

The only tax which is producing more revenue than projected is the insurance premium tax, which is up 1.54 percent through two months. The REC has projected a decline of 1.3 percent.  

In the other receipts categories, the state faces a similar situation where most of these categories are running behind what the REC has projected. The biggest revenue streams in this category — liquor profits and judicial revenue — are both negative through the first two months of FY 2017.

On the refund side, many of these are also below the REC projection, which is helpful. But there are exceptions, which would be corporate and franchise refunds. Those categories are running ahead of the REC forecast and FY 2016 levels. And while sales tax revenue has grown by just 1.2 percent, school infrastructure refunds are up 7.74 percent.

The state will need to start experiencing significant revenue growth in order to meet the REC projection. This may start to occur over the next two months; however, September and October 2015 were particularly bad months for revenue in FY 2016.  

In Creighton University’s Mid-America Economic Conditions survey for August shows that of the nine states they track, only South Dakota was a performing at a level above growth neutral.

Ernie Goss, Creighton’s lead economist, said that the weakening ag economy is driving down the numbers, and pulling manufacturing down with it.  

We are watching these numbers very close as we begin preparation for next year’s budget.

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