Bolstered by a strong June, state’s General Fund receipts rose for fifth straight year

“We are pleased to see that all the major taxes reflect healthy growth for the year, exceeding budgeted levels. This pattern of receipts suggests that the economic recovery was stronger than predicted when the official revenue estimates were made in December 2013. Revenues picked up momentum as FY15 progressed – and we remain confident that FY16 will continue with positive momentum,” Driskell said.

“We have now closed the books on revenues and will close the books on the expenditure side later this month. The determination of the budget surplus will be made at that time. The enacted budget directs that any General Fund surplus can only be used to pay Necessary Government Expenses and to make deposits to the Budget Reserve Trust Fund,” she added.

Revenue collections increased in all four quarters of the fiscal year as the rate of growth surged throughout the year. Growth was strongest in the final quarter and the quarterly rate of increase was the largest since the fourth quarter of FY11. Growth rates for the four quarters were 1.1 percent, 5.8 percent, 5.4 percent and 8.6 percent, respectively.

A summary of General Fund collections for FY15 and FY14 is shown below (click for larger view):

Individual income tax:

Individual income tax receipts posted the largest increase over FY14 levels, increasing $320.2 million, or 8.5 percent, from last year as all four components of the tax (withholding, fiduciary, declaration payments and net payments with returns) increased. Growth of 8.5 percent is largest since this account grew 14.5 percent in FY08.

Sales and use taxes:

Sales and use tax receipts grew $136.2 million, or 4.4 percent in FY15. Growth in this account was the highest since FY12 and showed steady growth throughout the year The sales tax has benefited greatly from growth in Kentucky wages, lower fuel prices, and high consumer sentiment.
 

Tobacco and alcohol taxes:

Cigarette tax receipts continued their long-run decline, falling $7.2 million, or 3.1 percent. Fiscal Year 2015 marks the fifth consecutive annual decline in cigarette tax collections. Taxes on beer, wine and distilled spirits partially offset the decline in tobacco taxes. As a group, alcohol taxes increased $3.4 million, or 2.7 percent, in FY15 with only the taxes on beer declining slightly.

Business taxes:

Corporation income tax collections rose $53.0 million, or 11.2 percent, for the year. However, collections fell in the first quarter of the fiscal year before accelerating sharply over the remaining nine months. Fiscal Year 2015 marks the third time in the past five years in which receipts in this account increased at least 10 percent.

The limited liability entity tax increased 12.3 percent from last year, or $24.4 million. After declining in the first six months of the year, collections exploded over the final two quarters.

Coal severance taxes:

Coal severance taxes fell 8.7 percent, or $17.2 million, in FY15. Total collections for the fiscal year were $180.3 million and are the lowest since FY04 when receipts totaled $147.5 million.

Coal severance taxes:

Coal severance taxes fell 8.7 percent, or $17.2 million, in FY15. Total collections for the fiscal year were $180.3 million and are the lowest since FY04 when receipts totaled $147.5 million. Collections have now fallen in 13 consecutive quarters and dropped almost 40 percent since peaking in FY12—just three years ago.

Property taxes:

Property tax receipts increased 0.2 percent or $1.0 million in FY15. Tax receipts on real property grew only 0.4 percent as the state continues to recover from the national housing recession. The state real property tax rate, which declines when assessment growth exceeds 4 percent, has remained unchanged since 2008. By comparison, in the 28 years between 1980 and 2008, the rate fell 26 of the 28 years. Both of the major accounts, real and tangible property, increased for the year with only minor accounts declining. Together real and tangible property account for over 85 percent of total property tax collections.

Lottery and other revenues:

Receipts from the Kentucky Lottery Corporation grew 0.9 percent, or $2.0 million, to post a dividend to the Commonwealth of $221.5 million. The official estimate for the Lottery was $238.0 million. The “other” category, which includes multiple other taxes and fees such as investment income, bank franchise taxes, and insurance premium taxes decreased 1.0 percent or $7.1 million.

Sales and use tax receipts exceeded the estimate by 3.6 percent. The individual income tax was above the forecasted level by $92.2 million, or 2.3 percent. Corporation income tax receipts exceeded expectations by $65.7 million, or 14.2 percent. Limited liability entity tax receipts were below forecasted level by $9.9 million. Cigarette taxes were below the estimate by $2.6 million. The coal severance tax was $24.3 million below the official estimate while property taxes were 3.1 percent lower than forecasted. Lottery receipts were below the official forecast by 6.9 percent while all other taxes were 4.8 percent below the official estimate.

Road fund

Road Fund revenues for FY15 totaled $1,526.7 million, a decrease of 2.2 percent from the previous fiscal year. Receipts for June fell 9.2 percent. Total receipts were $33.8 million less than FY14 levels as the two largest accounts, motor fuels and motor vehicle usage taxes, declined $46.2 million. The remaining accounts increased $12.4 million over FY14 levels. The decline in collections is the first since FY09 . Total Road Fund collections started the year poorly and declined in each successive quarter. Growth was tepid in the first six months of the fiscal year before plummeting in the fourth quarter. Growth rates for the four quarters were 1.8 percent, 0.5 percent, -2.0 percent and -8.7 percent, respectively.

Motor fuels tax receipts fell by $35.9 million or 4.0 percent in FY15, the first decline since FY01. Declining gas prices during the year led to a decrease in the motor fuels tax rate. The tax rate was slightly higher in the first quarter of the year compared to FY14 but lower, relative to the prior year, in each of the three remaining quarters. Taxable gallons grew in each of the first three quarters but not enough to offset the lower tax rate (fourth quarter data for taxable gallons are not currently available). Quarterly growth rates for motor fuels taxes were 1.6 percent, 0.3 percent, -5.3 percent and -13.3 percent.

Motor vehicle usage taxes fell $10.3 million, or 2.3 percent, in FY15, breaking a string of five consecutive years of growth. Additionally, receipts declined in all four quarters of the fiscal year. Growth rates for the four quarters were -0.5 percent, -0.8 percent, -1.0 percent and -6.6 percent. Collections in this account were hindered by HB440, passed in 2013, which allowed for a trade-in credit on new vehicle purchases. The fiscal impact of that legislation reduced revenue by $45.8 million in FY15.

Motor vehicle license receipts grew $5.7 million while motor vehicle operators’ receipts fell by $200,000. Investment income declined $1.1 million and other income rose $5.8 million. Road Fund collections for FY15 fell short of the official revenue estimate by $20.0 million, or 1.3 percent.

The motor fuels tax was $32.9 million, or 3.7 percent, below the official estimate. Motor vehicle usage tax exceeded the estimate by $7.3 million or 1.7 percent. All other accounts, taken together, were $5.7 million over forecasted levels. As with the General Fund, the Road Fund ending balance for FY15 will be determined later in July.

From Office of State Budget Director