Budget Blog

Strong Growth in Fiscal 2022 Revenues Leads to Record-High Surpluses for Many States

By Brian Sigritz posted 12 days ago

  

As expected following strong growth in April tax collections, most states ended fiscal 2022 with both year-over-year revenue growth and revenues exceeding forecast. Fiscal 2022 marked the second consecutive year in which states experienced rapid growth in tax collections following declines in fiscal 2020. A number of factors contributed to fiscal 2022’s revenue growth including economic gains following the initial effects of the pandemic, the role of federal COVID-19 relief aid, and the impact of inflation on both salaries and the price of goods. Year-over-year gains were seen in most major sources of state tax revenue. Personal income taxes were bolstered by employment growth, salary increases, and the strong stock market performance in calendar year 2021. Corporate income taxes rose as businesses saw higher profits. Sales taxes grew partly due to increased consumer spending, the shift to purchasing goods over services, and the impact of inflation on prices. Finally, severance tax states saw increased revenue due to higher collections from oil and gas production.

The strong growth in tax collections and revenues exceeding forecasts led many states to report their largest surplus in state history. States have begun examining the best use of these substantial surpluses, with governors calling for items such as further increasing the size of rainy day funds, tax relief, paying down long-term debt, additional investments in areas including education and infrastructure, various one-time measures, and rolling over part of the surplus to fiscal 2023. Governors also noted the importance of being fiscally responsible and maintaining balanced budgets as they monitor potential changes in economic conditions.

As states move into fiscal 2023, they are anticipating slower growth in tax collections. Governors’ budgets for fiscal 2023 assume a 1.4 percent growth in revenue compared to fiscal 2022 (this slower growth rate is from a high baseline, as it follows record high growth in fiscal 2021 and strong gains in fiscal 2022). Over the past two years, states have taken steps to prepare for any future slowdown in tax collections through actions including using one-time funds for one-time purposes, paying down debt, making supplemental pension payments, and increasing the size of rainy day funds to record levels.

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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 2022 budget surpluses:

  • Arkansas’s June revenue collections were more than $150 million above forecast and the state ended the year with a net surplus above $1.6 billion, the largest surplus in Arkansas’s history. Tax collections from individual income, corporate income, and sales all came in above forecast for the year. The governor announced a special session for August to discuss possible tax relief.
  • Connecticut is estimating that it ended fiscal 2022 with a surplus of $4.3 billion, the highest on record. The surplus is $430 million above the state’s most recent revenue forecast, largely due to higher than anticipated collections from capital gains, as well as strong growth in corporate taxes. The state anticipates transferring $4.1 billion of the surplus to the State Employees and Teachers’ Retirement System since the Budgetary Reserve Fund balance will exceed the state’s statutory cap of 15 percent.
  • Florida announced a revenue surplus of $21.8 billion for fiscal 2022, the highest in state history. Revenue collections in May were $742 million above estimates, while June collections are estimated to be $950 million above estimates. $2.7 billion of the surplus will be transferred to the state’s rainy day fund, while $499 million will go towards the newly created Emergency Preparedness and Response Fund; the rest of the surplus will remain unallocated.
  • Georgia’s net tax collections increased 23 percent, or $6.19 billion, in fiscal 2022 compared to fiscal 2021. Personal income taxes, corporate taxes, and sales taxes all sharply rose in fiscal 2022, while motor fuel taxes declined.
  • Idaho ended fiscal 2022 with a surplus of approximately $1.38 billion, a record for the state. Fiscal 2022 revenues grew 23.7 percent compared to fiscal 2021, with personal income, corporate income, and sales taxes all experiencing growth. The governor’s office is examining additional tax cuts as well as further investments in education and infrastructure, while continuing to monitor changes in the national economy.
  • Illinois’ general fund receipts grew 12.2 percent in fiscal 2022 compared to fiscal 2021, reaching over $50 billion for the first time. Personal income, corporate income, and sales taxes all experienced strong gains in fiscal 2022. General fund receipts were nearly $8 billion above original projections and were also $2.7 billion above a revised April forecast.
  • Indiana collected $21.2 billion in revenue in fiscal 2022, 6.2 percent more than a December forecast. The state is projected to have ended the year with $6.1 billion in reserves, its highest level ever and $1.24 billion more than expected. The governor is calling a special session in hopes of returning $1 billion to taxpayers to help them deal with the rising costs of inflation.
  • Iowa’s gross general fund receipts totaled $11.3 billion in fiscal 2022, $695.7 million or 6.5 percent more than fiscal 2022; the estimate for fiscal 2022 was 2.5 percent. Revenues from personal income taxes, corporate income taxes, and sales taxes all were above forecast in fiscal 2022.
  • Kansas’s total tax collections in fiscal 2022 were $9.8 billion compared to $8.9 billion in fiscal 2021. The state ended the fiscal year with $438 million, or 4.7 percent, more than the revised revenue forecast.
  • Kentucky’s fiscal 2022 general fund receipts grew by 14.6 percent over fiscal 2021, the highest growth rate in 31 years. General fund receipts also exceeded the budgeted estimate by $945.4 million. Kentucky ended the fiscal year with its second largest surplus ever, exceeded only by fiscal 2021’s surplus.
  • Massachusetts has yet to release final revenue numbers for fiscal 2022 but expects to end the year with a surplus of at least $2.5 billion. Based on a prior state law, the size of revenue growth could trigger tax relief for Massachusetts' tax payers. 
  • Mississippi’s fiscal 2022 revenue collections were 24.6 percent, or $1.46 billion, above original estimates. Revenues also grew 9.5 percent, or $643 million, compared to fiscal 2021. Individual income taxes grew by more than 12 percent, while sales taxes increased nearly 14 percent compared to fiscal 2021.
  • Missouri’s fiscal 2022 revenues increased 14.6 percent compared to fiscal 2021, well above projections. The state also ended the year with a balance of $4.9 billion, or 38 percent of total general fund revenue, the highest ratio in state history. The governor recently called for a special session in order to pass permanent tax relief.
  • Nebraska’s fiscal 2022 general fund receipts were $6.35 billion, 10.9 percent above February’s forecast of $5.73 billion. Individual and corporate income were both above February’s forecast, while sales taxes were slightly below. The outgoing governor called for additional tax relief when the legislature returns to session in 2023.
  • New Hampshire’s state revenues totaled $3.23 billion in fiscal 2022, $262.5 million more than fiscal 2021 and $430.1 million more than forecasted. For the year, business taxes were up both compared to fiscal 2021 and compared to forecast, while the room and meals tax was down compared to fiscal 2021 but above forecast.
  • Ohio’s fiscal 2022 revenues were $2.7 billion, or 10.8 percent, above forecast, the highest on record. Much of the surplus was due to personal income taxes which exceeded estimates by $1.9 billion, or 20.8 percent. The state will direct part of its surplus to economic development incentives, road improvements, and paying cash instead of borrowing for infrastructure projects. The remainder of the surplus will be rolled over into fiscal 2023.
  • Oklahoma’s fiscal 2022 gross receipts were $16.46 billion, a 15 percent increase from fiscal 2021. The increase was aided by record collections from oil and gas Other sources of revenue including personal income, corporate income, and sales taxes also saw gains.
  • South Dakota ended fiscal 2022 with a $115.5 million surplus as total general fund revenues were $72.3 million (or 3.3 percent) higher than projections and expenses were $43.2 million less than budgeted. Sales taxes, the state’s largest revenue source, grew 12 percent over last year and finished fiscal 2022 $36.6 million above estimates. By law, the fiscal 2022 surplus was transferred to the state’s budget reserves. The state’s reserves now total $422.6 million or 20.5 percent of the fiscal year 2023 general fund budget.
  • Virginia’s general fund revenues rose 16.3 percent in fiscal 2022, exceeding the forecast of 8.5 percent growth. Payroll withholding, nonwithholding income tax, and sales tax collections all grew compared to fiscal 2021 and exceeded forecasts, while corporate income taxes experienced gains for the year but were slightly below forecast. Virginia ended the year with a $1.94 billion general fund revenue surplus, the state’s second highest surplus amount behind fiscal 2021.
  • West Virginia ended fiscal 2022 with a $1.3 billion surplus, its highest surplus on record. Personal income taxes were 22.6 percent more than projected, sales taxes exceeded forecast by 12.3 percent, and severance taxes were 121.5 percent more than estimated. Following the strong revenue growth, the governor called for a 10 percent personal income tax reduction.