(C) Arizona Mirror
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State revenues beat revised projections, but the large deficit remains • Arizona Mirror [1]
['Jim Small', 'More From Author', '- February']
Date: 2024-02
State revenues slightly beat forecasts in January, though that has more to do with an annual revision of economic projections than it does with sagging state tax collections turning around suddenly.
And it doesn’t do much, if anything, to get lawmakers any closer to solving the estimated $1.7 billion deficit that must be closed before the legislative session ends in the coming months.
The latest monthly report showed that January’s tax collections came in $5.9 million above that new forecast, driven by better-than-expected sales and corporate income tax collections. The rundown of how state tax collections and spending fared in January was the first since Joint Legislative Budget Committee economists revised their forecast for the rest of the year.
Every January, JLBC adjusts its predictions for state revenue based on the first six months of the fiscal year, which begins each July. This year’s revisions were particularly large, given the steep and unexpected drop in state revenues — largely individual income taxes, due to the full implementation of the state’s new flat income tax — that left the budget awash in red ink.
While sales taxes were up $8.8 million over projections in January, retail sales — which make up more than half of all sales taxes — were the weakest they’d been in a decade. JLBC analysts noted that retail tax collections grew by only 1% over January 2023, the worst year-over-year growth in a January since 2015.
But that poor growth was buoyed by taxes for contracting activity, which grew by nearly 14% over the prior year.
Individual income taxes exceeded the revised estimate by 0.6%, about $1.6 million, but corporate income taxes beat the forecast by $9.9 million, even though they were down from a year prior for the second consecutive month.
Republican legislators and Gov. Katie Hobbs remain at odds over both how to tackle the deficit and the actual size of the budget shortfall. While JLBC has pegged the problem at $1.7 billion in both the current fiscal year and the upcoming year, Hobbs has estimated the problem is only about half that size.
And in January, she proposed addressing the deficit largely through a combination of clawing back money that has been appropriated for one-time ventures — many of them road and highway projects — drastically reforming the state’s private school vouchers to remove about 50,000 students from the program and eliminating a private school scholarship tax credit. Those ideas have already been declared dead on arrival by Republican lawmakers.
The baseline budget from which legislators will start crafting a spending plan scraps $2.3 billion of the $2.9 billion in one-time spending in the current year’s budget, much of which was for highway projects that don’t require multiple years of funding. But with increased formula spending on education and health care, the baseline spending is only $1.5 billion less than the current year.
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