Total General Fund revenue for the state fiscal year ending in June 2014 was $3,113,496,933, which was $39 million (1.3%) more than expected, according to the revenue report released Thursday by the State Controller’s Office.
The General Fund is the primary pool of money that the state uses to pay its share of everything ranging from health care and K-12 education to courts and conservation. It is important to remember that federal funds pay for more than a third of the state’s total budget.
Individual income tax revenue was $1,406,117,705, which was $25 million (1.8%) more than expected. The positive variance was mostly because the Property Tax Fairness Credit—a new income tax credit for low-income Mainers with high property tax bills—ended up costing $14 million less than Maine Revenue Services expected it to.
Corporate income tax revenue was approximately $183 million, which was $13 million (7.8%) more than expected. In this case, the revenue surplus was less surprising, since forecasters have explicitly warned that their latest official predictions for this revenue stream might very well fall short. Corporate income tax revenue is an historically volatile and hard-to-predict source of revenue. Forecasters in March 2012 predicted that corporate income tax revenue would be more than $250 million in the fiscal year that ended in June 2014, but recession- and recovery-era policy changes at the state and federal level have made this revenue stream especially difficult to predict, leading state revenue forecasters to take a “conservative approach” and make significant downward revisions to its forecast over the past two years. Forecasters made clear as recently as 2013 that their prediction for FY 2014 may end up being on the low side: “It’s certainly possible that corporate income tax receipts will perform better than this conservative approach the committee has taken for its corporate income tax forecast for the 2014-2015 biennium.”
The fact that overall revenue came in higher than forecast is good news: it adds to the state’s rainy day fund (although not as much as it would if nearly $20 million didn’t have to be set aside to cover the cost of the federal decertification of the Riverview Psychiatric Center in Augusta), improves the state’s financial health, and gives lawmakers a clean slate to begin drafting a new budget next year. It also shows that Maine’s revenue forecasting process works. The forecast was accurate: just 1.3% shy of the actual amount of revenue collected. And erring on the conservative side is more prudent: it’s better to underestimate the amount of revenue that will ultimately come in to the state’s coffers than to overestimate it.
But the more important takeaway from the final report on fiscal year 2014 revenue is that actual revenue was just 0.6% higher than it was in fiscal year 2013. After adjusting for inflation, state revenue remains hundreds of millions of dollars below pre-recession levels due to a slow economic recovery and large income and estate tax cuts enacted by Governor LePage and the 125th Legislature. These tax cuts have made it harder to adequately fund important priorities like K-12 education and health care for Maine’s most vulnerable citizens.
The biggest reason for slow overall revenue growth in fiscal year 2014 was individual income tax revenue, which fell $116 million, or 7.6%, from fiscal year 2013. That decline is ultimately the result of those 2011 tax cuts.
Estate tax revenue fell by a whopping $55 million (70%) in fiscal year 2014, thanks to a combination of factors. Governor LePage’s estate tax cut, which only benefits a few hundred of Maine’s wealthiest residents, is responsible for about $27 million of that decline. The remainder is the result of more generic year-to-year volatility.