State revenues up but uncertainty looms as fiscal year closes out

State government revenues were up $1.571 billion at the end of the third quarter, according to the most recent report from the legislature’s bipartisan, bicameral Commission on Government Forecasting and Accountability.

The almost $1.6 billion in new revenues is an increase of 4.2% The state budget was crafted last year with an expectation that revenues would rise just 2.3% for the full fiscal year, so that’s pretty darned good news.

The commission revised its projected revenue estimates upward last month by $684 million, or 1.2%, above the original budget forecast last May. The continued revenue increases in March “further reinforced” last month’s upward revision, the commission claimed in its latest revenue report issued at the beginning of April.

So why is the newly revised annual revenue estimate less than half of the increase so far this fiscal year?

Well, as the commission notes, April can be a volatile month. It’s tough to accurately predict what will happen when people make their tax payments.

Also, the state has a history of not accurately estimating how personal and corporate income taxes as well as the Personal Property Replacement Tax will break out during the tax year. A “true-up” has to be done, and this year’s state budget expected that state coffers would take the short end of the stick and local governments would benefit via the Personal Property Replacement Tax, but that hasn’t yet happened. So, the commission is wary.

Also, without further changes to state corporate tax laws to decouple from last summer’s massive federal tax cuts, the huge slide in corporate tax receipts will continue. Many of our state corporate taxes are tied to federal laws.

As of now, those corporate receipts are down 6.2% for the year, but they were projected to increase by 10.8% when the state budget was passed before Congress slashed so many corporate taxes.

Only mentioned briefly in the latest monthly report is the potential economic fallout from the attack on Iran and the subsequent closure of a key petroleum shipping lane. It’s such a volatile situation that nobody really knows what to expect in the fiscal year’s final three months.

And that brings us to President Donald Trump’s recently proposed budget for Fiscal Year 2027, which starts Oct. 1.

The proposal would slash funds for infrastructure projects by $15.2 billion, reduce public school funding by $8.5 billion, eliminate the program to help low-income households with utility bills, cut higher education funding by $2.7 billion, reduce law enforcement and public safety programs by $1.7 billion, cut homelessness grants by $393 million, eliminate the school meals program, etc.

That’s on top of the gargantuan cuts to Medicaid and nutrition assistance programs included in last summer’s reconciliation budget.

Some or even most of this proposed budget appears to be performative. The president tried to get rid of the Low Income Home Energy Assistance Program last year, for example. But Trump is convinced that social programs are riddled with corruption, and he said before unveiling his budget proposal that childcare, Medicaid and even the federal Medicare program should all be state funded.

“The United States can't take care of day care,” the president said at a private event.

“That has to be up to a state. We can't take care of day care. We're a big country. We have 50 states. We have all these other people we’re fighting wars with. We can't take care of daycare. You’ve got to let a state take care of daycare. And they should pay for it, too. They should pay. They have to raise their taxes, but they should pay for it. … Medicaid, Medicare, all these individual things. They can do it on a state basis. You can't do it on a federal. We have to take care of one thing, military protection. We have to guard the country. But all these little things, all these little scams that have taken place, you have to let states take care of them.”

Trump also mentioned that education funding should be a state funding issue.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and CapitolFax.com.