March revenues bounce back, but not by enough

I had mentioned before that March’s revenue figures would start to let us know if the higher employment figures reported last week by the Walker Administration were legitimate, or if it became more likely that the already-sketchy job reports would be revised down.

Well, the revenue numbers were slipped out Thursday afternoon, and it was a mixed bag. On the positive end, income taxes bounced back a bit from the huge drops we saw in February, and sales taxes also had a nice bump for the month of March. But on the flip side, corporate revenues suffered a notable decline, and overall revenues still indicate that the state budget will still require large cuts in the next 15 months to stay in balance.

Individual income taxes were the first item I wanted to look at, and not just because March was the middle of tax season and because it is by far the largest component of the overall revenue picture in Wisconsin. The other reason was that February’s income taxes dropped by $88.6 million (over 39%) compared to February 2015, and it had put the state a bit behind the 8 ball for March, requiring a good increase last month to get the revenues back on track.

And from that standpoint, there was some success, as March 2016’s revenues were up more than $63 million than March 2015 (+23.3%). The down side of that is that it still means Wisconsin income taxes are behind where we were in the first two months of tax season in 2015.

Income tax collections, Wisconsin
Feb-March 2015 $498.692 million
Feb-March 2016 $473.315 million
DIFFERENCE -$25.377 MILLION (-5.1%)

This also means that the year-over-year increase in income taxes is at 5.31%, which sounds good until you realize that the Legislative Fiscal Bureau estimated an increase of 6.61% for this fiscal year when they redid revenue estimates this January. It makes April’s income tax numbers crucial, not just because it’s the month where so many income tax payments come in, and there needs to be a good number for the state’s already-tight budget to avoid slipping below even further. Even if the income tax increase stays at the decent 5.3% we are at so far in FY2016, that would still mean a shortfall of about $95 million.

Sales taxes stayed strong, with a 7.0% increase for March year-over-year, bumping the year-long increase to 3.16%. This also counteracts a soft February, and largely puts the state on track to reach the 3.25% increase that the LFB estimated (we’d need a 3.4% increase over the last 3 months of FY2016). I’ll give the state’s consumers the benefit of the doubt for now and say that they achieve that.

Corporate taxes didn’t do so well. This measure had previously been greatly outpacing the LFB expectations, and through February 2016, the state had collected 8.2% more corporate taxes in FY2016 vs FY2015. But this turned around in March, a key month for corporate collections as it not only combines tax season filings, but quarterly payments made directly to the Wisconsin DOR, leading to large numbers in those quarter-end numbers.

Corporate taxes, Wisconsin
March 2015 $241.004 million
March 2016 $204.650 million
DIFFERENCE -$36.354 million (-15.1%)

It also leaves Wisconsin corporate tax collections down 10.8% for the first quarter of Calendar Year 2016, and Fiscal Year corporate collections are basically now the same as 2015’s (only up 0.4%). An increase would still be a good thing, as the LFB forecast a small decline in corporate tax revenues for FY2016. But the recent trend is troubling, and we will have to see where it goes these final 3 months.

As for the other taxes, the only noteworthy departure is that Excise taxes were way up in March (+9.6%), which leaves the “sin taxes” up nearly 2% for this fiscal year- double what they were supposed to be up. If that holds, then that could give a boost of a little over $6 million to the state’s bottom line. The modicum of all the other taxes paid in is pretty much in line, so no big deal there either.

Bottom line- March’s revenue figures indicate Wisconsin isn’t going to be facing an immediate budget emergency like fellow ALEC-owned states Kansas or Louisiana. But it also makes it less likely that revenues will end up beating LFB expectations, making the $726 million in unspecified lapses slated for the 2016-17 Fiscal Year one step closer to reality. And those lapses are on top of the already ominous list of budget cuts, increased property taxes and unmet needs that have been a common theme across many areas of Wisconsin during this biennium.

So while we dodged a bullet in March and the hole we're in didn't get deeper, next month will be the major tell-tale sign to see if Wisconsin government is going to stay afloat without much disruption in then near future, or if the emergency hits sooner than later.