Initial Revenue Reports Less Spooky than Expected

October 27, 2023

On Tuesday, October 24th, the Tax Commission released the first revenue summary report for FY 2024, which details collections for the first quarter of the fiscal year. Along with that summary, the Legislative Fiscal Analyst and the Governor’s Office of Planning and Budget published the October Revenue Snapshot, comparing revenues to the consensus forecast. Through three months, performance to the General, Income, and Transportation Funds has outpaced expectations from revenue estimates forecasted in February, to differing degrees. (Economists are currently in the process of updating FY 2024 year-end revenue targets, which will be released in December.)

Unrestricted General Fund revenues totaled nearly $1.1 billion through October 7th. While Sales Tax contracted slightly (lagging the forecasted annual growth rate of 4.3%), investment income remains hot and has bolstered overall fund performance. Strategic budgeting has allowed previous years’ surpluses to increasingly insulate the state budget from economic slowing through investment of rainy day fund balances by the state treasurer. While rainy day funds are intended for major recessions, income from their investments provides the state increased flexibility during minor economic slowing. In total, collections to the General Fund outpaced the forecast by 0.7 percentage points, posting a year-over-year (YoY) growth rate of 3.1%.

Income Tax also came in ahead of expectations, posting (1.2%) YoY growth in contrast to the annual forecast of (4.8%). While final payments have decreased from this time last year, withholding remains strong, with collections still up 3.1% YoY despite the lower income tax rate (4.65%) passed during the 2023 General Session. While it’s typically too early in the fiscal year to see exactly how things will play out, through Q1, corporate income tax is almost 17 percentage points above the annual forecast.

The golden child for this month’s report is the Transportation Fund, posting 15.1% YoY growth compared to the forecast of 1.4%. All sources to the Transportation Fund posted double digit growth over FY 2023. Likely, this is due to a combination of the higher tax rate instituted in January of this year, 2023’s impact from the war in Ukraine, and finally shaking the pandemic’s influences on car and air travel.

As with all fiscal years, the first quarter growth rates will appear volatile, as relatively small nominal changes can result in large percentage swings, either up or down. As we draw nearer to key temporal points in the fiscal year (holiday shopping season, pass-through entity payment deadlines in December, etc.), Legislative economists will have better information with which to hone economic forecasts prior to important budgetary decisions.

The reports referenced in this post are available at the links below:
October Revenue Snapshot (FY 24)
Tax Commission Revenue Summary (Period 3, FY 2024)
Revenue Publications Archive