Fiscal Woes Continue to Haunt State; Path Forward Becomes Ever More Difficult
The state just can’t seem to make the numbers do what it wants them to: head toward a positive trajectory.
A look back at the 2016 Fiscal Year (FY), which closed on June 30th, illustrates in stark relief how difficult budgeting and revenue forecasting has become. Despite numerous attempts by the Legislature and administration to mitigate the flow of red ink throughout last year, the state ended the 2016 FY some $315.8 million in debt, according to the Office of Policy and Management (OPM). That year-end number grew by $56 million in the final month.
Why?
The simple answer is that the taxes upon which much of the state’s budget relies to remain in balance continue to deteriorate. The most significant single adjustment to the General Fund in the final month of the fiscal year was a reduction in projected income tax payments of $75 million. Anticipated income tax collections were revised downward throughout the 2016 FY as capital gains-related income tax receipts were constrained by stock market volatility, and payroll-related tax gains were hampered by lower-than-anticipated labor market activity (job growth). In addition, sales tax projections were also lowered in June by $28.2 million when actual receipts fell short of estimates.
While it is anticipated that the state will cover the 2016 deficit with money from the $406 million Budget Reserve or Rainy Day Fun, that represents a one-time fix and leaves a remaining balance of just $83.1 million for fiscal emergencies going forward.
More Turbulence Expected in 2017, Post-Election
The loss of tax revenue is foreboding for 2017, there’s no way to sugar coat it. The revenue estimates for FY17 were built upon May figures and the loss of revenue in June could set the state up for a deficit in FY17 if the revenue picture does not brighten significantly.
We will be continue to monitor the state’s fiscal condition on a monthly basis and will report any further decline that might impact clients who receive funding from the state. The Governor has rescission authority for FY17 and will be able to reduce individual state accounts by up to 5-percent. Should a projected deficit reach $200 million, the Governor will be required to submit a deficit mitigation plan to the Legislature.
It appears the dog days have arrived early.
