Following strong gains in April tax collections, most states ended fiscal 2019 with year-over-year revenue growth. Many states saw positive gains in personal income tax collections, attributing the increases to both the payroll withholding component, reflecting continued economic growth, and a second consecutive year of higher collections from non-wage income (capital gains, dividends, bonuses). Changes in taxpayer behavior following federal tax reform significantly altered the timing of estimated state personal income tax payments, with some states noting that those taxpayers no longer had incentive to pay in December and instead made higher payments with their tax returns in the spring. In addition to gains in personal income taxes, corporate income taxes showed their largest yearly growth rate since fiscal year 2011, with states reporting that there was strong incentive for corporations to shift taxable income to tax year 2018 to take advantage of the 40 percent federal tax rate cut. Sales taxes also grew in most states in fiscal 2019, with several states attributing part of the growth to expanded online sales tax collections.
As a result of the uptick in revenue collections, many states ended fiscal 2019 with a budget surplus. NASBO’s 2015 Budget Processes in the States report details states’ use of general fund budget surpluses in Table 16. Common uses of general fund budget surpluses include: transfers to rainy day funds (32 states), remaining in general fund (39 states), refunded to taxpayers (7 states), earmarked (6 states), paying down outstanding debt (10 states), and one-time expenditures (14 states). Looking forward, states are trying to determine how much of the surplus in fiscal 2019 is one-time revenue, such as the growth in non-wage income. Many states are likely to direct the majority of their fiscal 2019 budget surplus to reserve funds or carry the funds forward in anticipation of a future slowdown in revenue growth.
Forty-six states ended the fiscal year on June 30th. Below is a sampling of revenue totals from states that have published preliminary data for the full fiscal year and descriptions of how some states are using fiscal 2019 budget surpluses:
- Arizona's general fund revenues for fiscal 2019 grew 11.2 percent, or $1.1 billion, compared to the prior year. The preliminary final numbers are approximately $350 million above the forecast in January. Personal and corporate income taxes saw the greatest gains, while sales taxes also experienced healthy growth. The state will begin fiscal 2020 with a surplus of around $243 million.
- Arkansas’ net available revenue grew 7.8 percent in fiscal 2019 and was 4.1 percent above forecast. The state ended fiscal 2019 with a surplus of $295.4 million. The surplus will be split among several funds including the Restricted Reserve Fund, the General Revenue Allotment Reserve Fund, the Arkansas Highway Fund, and the state Highway Transfer Fund. The state economist attributed the additional revenue to growth in the state economy which led to personal income growth and increased consumer spending, strong corporate income tax gains, and a one-time boost in individual and corporate income tax collections.
- California's fiscal 2019 revenues were over $1 billion above projections, or 0.7 percent. Personal income taxes alone were $523 million above forecast, while corporate income taxes ($179 million) sales taxes ($170 million), and insurance taxes ($84 million) also exceeded projections.
- Connecticut is projecting a surplus of approximately $701 million for fiscal 2019 as various state revenue sources exceeded projections. The $701 million surplus will be reduced by approximately $541 million as funds are directed to a new special reserve fund for the Teacher’s Retirement Systems and to help pay for a legal settlement with the state’s hospitals. The state comptroller noted that while the revenue growth is positive, the state should maintain strong reserves and prepare for a possible economic downturn.
- Florida’s general revenue collections were $507.2 million over estimate for fiscal year 2019 with the majority of the overage due to corporate income taxes. This reflects a 7 percent increase over last year. A temporary provision of Florida law allows for a one-year corporate income tax rate reduction recognizing the impact of the federal Tax Cuts and Jobs Act and will result in refunds to corporate taxpayers.
- Georgia’s fiscal 2019 revenues grew 4.8 percent, enough to cover fiscal 2019 spending and likely leading to a surplus. The state saw growth in both income taxes and sales tax collections.
- Idaho’s fiscal 2019 total general fund revenues were $15.7 million, or less than half a percent, under forecast. While sales taxes and corporate income taxes were above forecast, individual income taxes were approximately 6.4 percent below forecast under the first year of a tax reduction passed in the 2018 legislative session. The governor’s economist said that the state experienced shortfalls in individual income tax withholding collections as taxpayers were slow in changing their withholding under changes in both state and federal tax law.
- Illinois’ revenues finished very close to expectations. Base general funds for FY 2019 finished $817 million higher than last year. Sales tax receipts finished the fiscal year just over the May forecast by $97 million, or approximately 1.1%. Overall personal income taxes finished just under the May revision by $105 million or less than one-half of a percent.
- Indiana ended fiscal 2019 with a $410.5 million surplus after taking in $16.7 billion in taxes and fees while spending $16.3 billion. The governor is hoping to direct $300 million of the surplus to one-time capital projects. In addition, the state now has a reserve balance of nearly $2.3 billion, or 14 percent of annual spending.
- Iowa state tax collections were up approximately $521 million over the prior year and $99 million above forecast. Net state tax receipts grew by about 6.6 percent in fiscal 2019. A tax analyst from the Legislative Services Agency noted that the state had strong gains in both individual and corporate income tax collections, with likely factors including economic growth and the state allowing residents to deduct federal income tax liabilities from their state income taxes; as federal tax rates fell under federal tax reform, many residents were unable to deduct as much from their state tax bill.
- Kansas’ tax collections in fiscal 2019 were nearly 6.3 percent higher than fiscal 2018 and 2.6 percent above forecast. The state revenue secretary said that unanticipated personal income tax collections account for the bulk of the surplus revenues, and that federal tax changes were a factor in the increased tax collections. As federal rates dropped, the state benefited from changes that discouraged many filers from claiming itemized deductions and other provisions on their state tax returns.
- Kentucky general fund revenues grew by 5.1 percent in fiscal 2019, above the projected growth rate of 3.3 percent. That reflects a revenue surplus of $194.5 million for the just completed fiscal 2019. $70 million of the surplus will be directed to the Teachers’ Retirement System medical insurance fund. The state budget director attributed the growth to state tax changes made last year and the overall strength of the economy.
- Maine ended fiscal 2019 with revenues above projections and a surplus of approximately $168 million. $18.1 million of the surplus will be directed to the budget stabilization fund, while $4.5 million will be deposited into the property tax relief fund.
- Massachusetts' fiscal 2019 tax collections rose nearly 7 percent over fiscal 2018 and were approximately $1.1 billion above budgeted benchmarks. The revenue growth was bolstered by increases in capital gains, corporate income, and estate taxes. Much of the higher than anticipated capital gains taxes will be deposited into the state's rainy day fund by law.
- Minnesota’s fiscal 2019 revenues were approximately $636 million, or 2.8 percent, above projections. All major revenue sources were above projections, with approximately 70 percent of the surplus attributed to stronger than expected individual income tax collections.
- Mississippi’s fiscal 2019 revenue grew by about $278 million, or nearly 5 percent, compared to fiscal 2018. The Legislative Budget Office noted that the strongest gain was in the use tax, which grew 27 percent; the use tax includes taxes on online sales.
- Missouri’s fiscal 2019 net revenue grew by slightly less than $100 million, or under 1 percent. The revenue growth is not expected to be enough to trigger a phased-in tax cut approved by the legislature and governor last year.
- Nebraska’s net tax receipts totaled $4.896 billion in fiscal 2019, 3.7 percent above the forecast of $4.72 billion. The state Department of Revenue said that sales and use taxes, individual income, and corporate income taxes were all higher than expected. By law in Nebraska, excess tax receipts automatically transfer from the General Fund to the Cash Reserve Fund.
- New Hampshire’s general and education fund revenues totaled $2,669.7 million, which was above plan by $198.0 million, or 8.0 percent, and above the prior year by $97.9 million, or 3.8 percent. The state’s business taxes, the business profits and business enterprise taxes, finished at $841.3 million or 28.6 percent above estimates.
- North Carolina’s fiscal year 2019 tax collections were 5.2 percent higher than last year and exceeded the original May 2018 budgeted estimates by $896 million. Over half of the overage came from personal income taxes. A May 2019 report from the legislative Fiscal Research Division stated that April’s final personal income tax payments were $395 million above the estimate and were the result of increased non-withholding income.
- Ohio’s tax collections exceeded expectations by approximately 2.9 percent, or $651 million. Overall collections were $34 billion, about $1 billion above fiscal 2018. Both income taxes and sales tax collections were strong in fiscal 2019.
- Oklahoma’s general revenue fund collections for fiscal 2019 were 17.2 percent above prior year collections and $354.6 million, or 5.5 percent, above the 2019 fiscal year estimate. All major tax categories exceeded the estimate, with gross production tax collections on oil and gas double the amount from last year. Corporate income tax and personal income tax collections grew at 8.9 and 25.5 percent, respectively, over the prior year.
- Pennsylvania’s fiscal 2019 revenues totaled $34.9 billion, which was approximately $883 million, or 3 percent, above projections. After accounting for cost overruns, about $317 million will be deposited into the budgetary reserve account. Much of the increased growth was due to increased sales tax collections, partly due to online transactions, and growth in corporate taxes, likely due to changes in taxpayer behavior related to federal tax reform.
- South Dakota ended fiscal 2019 with a $19.4 million surplus. Revenues ended $4.4 million lower than the adopted estimates with sales and use tax $9.9 million lower. Spending was $23 million lower than budgeted. By law, the fiscal year 2019 surplus of $19.4 million was transferred to the budget reserve fund. The state’s budget reserve fund now has a balance of $145.1 million and the general revenue replacement fund has a balance of $44.0 million, for a total reserve of $189.1 million.
Tennessee’s general fund revenues for fiscal year 2019 of $12.7 billion exceeded budgeted estimates by $580.4 million, or 4.8 percent. Revenues grew 5.8 percent over fiscal year 2018, led by a 5.6 percent growth in sales tax collections and a 7.6 percent growth in corporate franchise and excise tax collections.
Utah's fiscal 2019 revenues to the General and Education Funds combined totaled $7.5 billion, a growth rate of 7.2 percent compared to fiscal 2018 and above the consensus revenue target of 5.7 percent. Both individual and corporate income taxes saw healthy performances, while sales tax growth was below projections. The state is anticipating a possible combined General and Education Fund revenue surplus of approximately $100 million for fiscal 2019.
- Vermont's general fund revenue collections exceeded expectations by $58 million, or 4.55 percent. The growth was led by increases in personal and corporate income taxes, which more than offset weaknesses in other areas including the estate tax. The state is expecting a surplus after it closes out the books on fiscal 2019. The legislature previously directed any surplus to various uses including the General Fund Balance Reserve (rainy day fund) and the State Employees Retiree Health Benefit Trust Fund.
- Virginia’s fiscal 2019 total collections rose by 7.2 percent in fiscal 2019, ahead of the revenue forecast of 3.3 percent growth. Based on preliminary figures, the state is projecting a surplus of approximately $778 million for fiscal 2019. The main drivers of the revenue increase include non-withholding income tax collections and lower individual income tax refunds. The state Secretary of Finance said that the increased revenue was expected, and that current Virginia law specifies how most of the additional resources must be assigned, including a one-time taxpayer relief fund approved in the 2019 legislative session.
- West Virginia’s fiscal 2019 tax collections were $4.756 billion, approximately 12 percent more than fiscal 2018. The state saw strong growth in both personal income tax collections and severance taxes on coal and natural gas in fiscal 2019.