With just one month left in the fiscal year, the state is facing a $154 million tax revenue shortfall.
If June tax revenue and other general fund revenue collections do not exceed projections by that amount in June, Gov. Phil Bryant may have to authorize additional transfers from reserve funds to balance the state budget.
Tax collections plummeted in the month of May, ending a two-month streak of higher-than-projected amounts that are used to fund agencies and the public services they provide.
Mississippi collected $157 million less than projected, or -28.9 percent, in tax revenue in May. Going into the month, the state’s revenue was basically even with projections for the year thanks to the improved revenue collections in March and April.
About $21 million of May non-tax collections are expected to flow into the general fund, said Laura Jackson, executive director of the Department of Finance and Administration.
The largest tax revenue shortfall in May came from individual income tax collections, which typically peak in April and May. Those collections were $149 million less than projected during the month. The total collection for individual income tax in May – $143.7 million – marks the second lowest collection for that month since the recession in 2012 and the fifth-lowest in ten years.
April and May collections for individual income tax typically yield the highest amounts as most Mississippians file their taxes to meet the April 15 deadline.
To accommodate all those returns, the Department of Revenue had employees work longer hours and hired temporary workers to process the returns promptly during the month of April. Department spokeswoman Kathy Waterbury said all the individual income and corporate tax returns were processed after the first week of May.
Combining individual income collections for both months, the state still fell $43.4 million below its projected revenue benchmark for the income tax category.
Tax collections feed the state’s general fund, which pays for services provided by most state agencies. When tax revenues fall below projections, leaders must offset those shortfalls by cutting agency budgets mid-year or transferring money from the state’s reserve funds to the general fund.
Revenue from tax collections makes up the vast majority of the state’s general fund. Other revenue collections, like certain fees and assessments, some agency funds from the 2016 sweeps law, and settlements obtained by the attorney general’s office, also contribute to general fund revenue each month.
Last June, the final month of fiscal year 2016, about $121 million of non-tax revenue flowed into the general fund to help offset revenue shortfalls. This fiscal year alone, court settlements have accounted for $69 million of the general fund revenue, Jackson said.
Even after last month’s low tax collections, the state faces a lighter shortfall than at this time last fiscal year, when Gov. Bryant twice had to cut budgets mid-year and pull about $110 million from the state’s Rainy Day Fund to offset the revenue shortfalls.
However, with just one month left in the current fiscal year, the $154 million shortfall may still need attention from the state’s top officials, including Bryant. The governor has already made four mid-year budget cuts this fiscal year and has already authorized the Department of Finance and Administration to pull the statutory maximum $50 million from the Rainy Day Fund.
A law passed during the regular session gave the governor the ability to pull $50 million more from the Rainy Day Fund if needed this fiscal year.
In addition to low individual income tax collections in May, sales tax and corporate tax collections fell below projections, contributing to a shortfall of more than $5 million. Just two of the 18 tax sources – the insurance premium tax and gaming taxes – exceeded projections during the month.
The corporate tax source, which includes corporate income and corporate franchise taxes, fell nearly $4 million below projections in May.
Editor’s note: This story was clarified to reflect additional general fund revenue sources.