The new memo from the non-partisan Legislative Fiscal Bureau (LFB) shows the decline in state tax collections continuing in May, but not by as much as the April decline. From the memo:
“As anticipated, due to the coronavirus pandemic and its impact on employment and the economy, the May report indicates a continued reduction in collections. May, 2020, preliminary tax collections were $1,261 million, which is $66 million below collections of May, 2019. And, for the 11 months of the current fiscal year, collections are $380 million below those over the same 11 months of 2018-19.
“Although collections for May reflect a continued decline, the decline is significantly less than that shown in the April collection report. April, 2020, collections were $870 million below April, 2019, collections. In contrast, the May, 2020, collections are $66 million below those for the same month in 2019.”
“The decline in May collections is primarily attributable to lower state sales and use taxes, which reflects that the coronavirus pandemic has severely impacted economic activity in the state and tax collections. Reduced collections for the 11 months of the current fiscal year have been affected by the extension of income and franchise tax filing deadlines from April to July 15 in 2020. It is important to note, however, that income and franchise tax returns and estimated payments filed by July 15 will accrue to state fiscal year 2019-20 under the state’s budgetary cash and modified accrual method of accounting.“
The memo suggests there may be some slight reasons for cautious optimism as it indicates that income tax withholding collections have remained fairly strong and it also seems to suggest that unemployment due to the pandemic may have peaked. The memo states:
“Preliminary withholding tax collections for May were 2.1% higher than the same month in the previous year. Adjusting for the $36.5 million withholding deposit that occurred last May relating to the individual who won the lottery, withholding collections would be higher by 8.4% for the current month. Year-to-date, withholding collections are higher by 3.5% compared to the same 11-month period in 2018-19. According to media reports, certain large retailers have increased hiring and have raised hourly pay for current employees, which could be mitigating, to some extent, the decline in withholding collections that would otherwise be expected from the current high levels of unemployment. As discussed later in this memorandum, continuing claims for unemployment benefits have declined weekly since April 18, which suggests that some individuals are returning to work.
As noted above, historically high levels of unemployment following the coronavirus outbreak were expected to reduce taxable wages and salaries. Though this trend has yet to materialize in the form of lower withholding tax collections, such lower collections are expected to occur in subsequent months.
The memo also breaks down the status of the state’s general fund going into the end of the current 2019-20 fiscal year and the factors that will help the state likely be able to meet its commitments. Those are largely unchanged from what we described in a previous blog post. Not addressed in the memo, and the big unknown for schools, is the status of funding commitments for the 2020-21 fiscal year.
