State Facing Drop In Budget Revenue?

The Wisconsin Department of Revenue (DOR) recently released the tax collection figures for the month of February, and the new numbers show a drop of $91 million for the month, compared to February 2015. That was a drop of 14% in General Fund tax revenue, even though February was one day longer this year.

For first 8 months of the current fiscal year, revenue is up 3.8% compared to the 2014-15 fiscal year. That’s a bit worrisome because the last revenue estimates from the Legislative Fiscal Bureau (LFB) projected tax growth of about 4.4% for the fiscal year that ends on June 30 (and that estimate had been revised down from the 4.6% increase anticipated when the budget bill was passed).

Unfortunately, the Wisconsin DOR – in contrast to its counterpart in Minnesota – almost never releases month-by-month tax collection projections in conjunction with the actual tax collection figures. As a result, it is much harder to know how concerned we should be about the recent trends.

A blogger who follows the tax numbers closely is “Jake formerly of the LP,” who often offers interesting and instructive comments about the latest numbers. He had this to say in a blog post last week about the February figures:

“A $91 million decrease month-over-month is awful enough. But even the sales tax figure is bad, because that tepid 2.7% increase [in February] isn’t a sign of economic growth, but is only an increase because of the extra Leap Day! In fact, on a per-day basis, sales tax also went down last month.”

“The drop in income tax also leaves the state’s coffers behind the 8 ball, because the LFB’s already-reduced 2016 revenue figures count on an increase in income tax of more than 6.6%, but we only have a year-over-year increase of 4.25% at this point. A 2.35% miss in income tax would equal a $183.5 million shortfall, and sales tax is also running below the 3.2% increase that the LFB estimated, at a 2.7% year-over-year increase.”

I think Jake makes a strong case that the February numbers may point to budget difficulties ahead – especially since Wisconsin lawmakers have once again set aside only a very small cushion against lower-than-anticipated revenue or higher-than-anticipated costs. On the other hand, revenue collections can be erratic from month to month, and Jake’s blog post notes that February can be “a bit weird” because it’s the month when early income tax filers begin to apply for refunds. Furthermore, prior to the sharp drop in February, the state was running a little ahead of where it needed to be to achieve the 4.4% increase anticipated by the LFB for the full fiscal year.

Whether the sharp revenue decline in February is something to be concerned about would be much clearer if DOR routinely made public its month-by-month projections of tax collections, as the Minnesota Management and Budget agency does. Their budgets are far more transparent because they stick to a regular monthly schedule for releasing tax collection data, they routinely compare the actual collections to the projected amounts, and on a quarterly basis they update their revenue forecasts and make those public. (You can see the Minnesota documents here.)

The Wisconsin DOR has on at least one occasion make its month-by-month projections public. That occurred in mid-October 2014, shortly before the last gubernatorial election, when DOR released a document online showing that revenue collections were ahead of what the department had projected. That document countered the widespread interpretation of the regularly released monthly figures, which seemed to indicate that the state was heading for a budget shortfall. Releasing the projected amounts was a sensible thing to do, but it should be done on a regular basis, rather than at the whim of a DOR secretary or governor.

A few weeks ago the Governor took a positive step in making government a bit more transparent by issuing an executive order that directs state agencies to respond promptly to open records requests and to post performance indicators online. A great way for DOR to fulfill the spirit of that executive order would be to post the projected monthly revenue collections online, so lawmakers and the public have a much better sense of the state’s budget picture – without forcing us to jump through the hoops of making open records requests to get those figures.