The General Fund Revenue Surplus Continues to Disappear

refunds2010-feb2012-featured

This year was a first for the Katz household.  Never before have we received a tax refund on our Rhode Island return.

Whether we were among the winners or losers of the recent income tax reform isn’t clear, because (apart from income and expense changes) the state withheld more money from each paycheck this year, as explained here.

Also at that second link, readers will find a couple of charts related to the amount of revenue that Rhode Island had taken in through January, compared with the estimates of what its budget experts expected.  In recent months, members of the media have periodically glanced at these “budget to actual” comparisons and wondered aloud whether it meant the economy has been improving and bringing the government’s habitual deficits to an end.

With the help of Office of Revenue Analysis Chief Paul Dion, the Current determined that the data might mean that, but tax changes suggested that the speculation was premature.

With budget-to-actual numbers now available through February, updating the charts shows that skepticism was justified.  The total excess revenue has dropped from $57.2 million to $40.0 million; the state is now beating estimates by 2.3%, compared with 3.6% the month before.

As can be seen by comparing an updated chart with last month’s (and as the Current predicted), the bulk of that reduction derived from the personal income tax.

Actual Revenue Exceeding Estimates by Category, February 2012

 

The better part of the change in personal income tax came from refunds paid out.  While the comparison is not dramatic, the red line shows that the percentage of the total predicted income tax refunds paid out is a little bit ahead of what it was in 2010 (which was a more typical year than 2011).  Office of Revenue Analysis data confirms that, as of February, $10.3 million more had been paid out than estimated.

Percentage of Total Estimated Income Tax Refunds Paid by Month, 2010, 2011, and February 2012

Although there’s obviously no way to test for this other than to wait, it may be that the difference will accelerate.  Households that are used to owing the state money will tend to file their taxes closer to the April 15 deadline.  And if they are as surprised as the Katz household at receiving a refund, the red line could accelerate its rise, perhaps past 100%.

Although all of its windfalls won’t be reflected in general revenue data, with all of Rhode Island’s lottery winnings, as well as legal settlements and the massive Google forfeiture, it would be surprising if Rhode Island ends the fiscal year in the red.  Still, the state’s problem has long been structural deficits covered up with luck and one-time fixes, so it’s important not to lose track of the fundamentals.



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