Revenue Forecasts Improve, though Uncertainty Lingers

February 23, 2021

On February 19th, the Governor’s Office of Management and Budget (GOMB), Utah Tax Commission, and the Legislative Fiscal Analyst (LFA) released their updated Consensus Revenue Estimates for available one-time and ongoing state fund revenues. These updated estimates from the December 2020 forecasts paint somewhat optimistic expectations for the next 16 months; with FY 2021 revenues finishing stronger than previously anticipated, followed by more moderate revenues in FY 2022 under the expectation of exhausted federal stimulus and uncertainty about broad economic recovery. For the Legislature’s budgeting process, this forecast translates to a total of $1.4 billion in available new one-time funding ($315 million above the December forecast), and $205 million in available new ongoing state funds ($112 million above the December forecast). By comparison, the requests to date from appropriations subcommittee priorities, fiscal note bills, and other requests total nearly $2 billion one-time and $400 million ongoing.  

The Tax Commission’s TC-23 Reports, detailing cumulative revenue collections through January and February, are sufficient to support a strong finish to FY 2021 revenues, though collections for February are somewhat short of the new targets. January’s report, including roughly half of the fiscal year, shows sales tax collections up 10.2% over FY 2020. In February, this trend continued, with sales tax posting a 10.0% increase over the same period in the previous fiscal year. These strong sales tax revenues are primarily driving the General Fund figures, which posted an actual year-over-year (YoY) growth rate of 5.9% in January, and 5.7% in February. Sales and use tax set asides, which include things like Medicaid Expansion and Water Infrastructure, grew 7% over the previous fiscal year. Sales and use tax set asides have a different growth rate than the General Fund because of the specific categories of sales which are taxed, and also because some the set asides have statutory collection caps.

Education Fund sources continue to remain inflated over previous years’ collections, due partially to the income tax deadline extension shifting approximately $770 million from FY 2020 to FY 2021. Corporate tax growth increased from January to February, which could be an indication of seasonal hiring patterns as well as corporate confidence in the economy, as Utah has recovered the number of jobs which were lost during the pandemic. Income tax growth rates have continued to temper (as expected) over the course of the fiscal year, slowly approaching the consensus target of 23.6%.

It is worthwhile to remind readers of the lag between collections and reporting, with January’s report detailing collections made in December, for sales and wages that took place in November. This means that May will be the first time that economists can compare impacts of the pandemic (pre-federal stimulus) to the current fiscal year for the General Fund. Education Fund comparisons may be more appropriate in a fiscal year with typical timing for income tax collections.

While legislative economists are cautiously optimistic, they offer some important caveats to the positive outlook through the fiscal year, including that forthcoming federal stimulus will likely be the final installment of pandemic related funding for states. They note there may also be slower recovery for the hardest-hit sectors of the economy, in contrast to the state’s revenues in aggregate. As a final caution, legislative economists observe that current conditions show potential for increased inflation, which could reduce consumer spending, and any increase in interest rates may cause certain sectors (such as housing) to slow.

The reports referenced in this post are available at the links below:
January Revenue Snapshot FY 2021
TC-23 Revenue Summary (Period 6, FY 2021)
February Revenue Snapshot FY 2021
TC-23 Revenue Summary (Period 7, 2021)
Consensus Revenue Estimates