State Budget Update: November 2008

Transcription

1 State Budget Update: November 2008 Fiscal Affairs Program William T. Pound, Executive Director 7700 East First Place Denver, CO (303) North Capitol Street, N.W., Suite 515 Washington, D.C (202) Web: December 2008

2 The is the bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. NCSL provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system. NCSL has three objectives: To improve the quality and effectiveness of state legislatures. To promote policy innovation and communication among state legislatures. To ensure state legislatures a strong, cohesive voice in the federal system. The Conference operates from offices in Denver, Colorado, and Washington, D.C. Printed on recycled paper 2008 by the. All rights reserved. Item # PDF Price: $40.00

3 Contents State Budget Update: November FY 2009 Budget Gaps... 6 FY 2009 Revenue Performance... 6 Personal Income Taxes...7 General Sales Taxes...8 Corporate Income Taxes...8 Other Taxes... 8 Actions to Close FY 2009 Budget Gaps... 9 Projected FY 2010 Budget Gaps LIST OF TABLES Table 1. FY 2009 Budget Gaps...12 Table 2. Performance of Major Tax Categories: Personal Income Tax...16 Table 3. Performance of Major Tax Categories: General Sales Tax...20 Table 4. Performance of Major Tax Categories: Corporate Income Tax...25 Table 5. Performance of Major Tax Categories: Other...29 Table 6. Comments on Taxes Failing to Meet Forecast...34 Table 7. Revenue Outlook for the Remainder of FY Table 8. Actions to Balance the FY 2009 Budget: Spending Actions...39 Table 9. Actions to Balance the FY 2009 Budget: Employee Actions...43 Table 10. Actions to Balance the FY 2009 Budget: Tapped Rainy Day Funds or Other Funds...45 Table 11. Actions to Balance the FY 2009 Budget: Other...47 Table 12. FY 2010 Projected Budget Gaps...50 Table 13. Summary of the State Fiscal Situation...54 iii

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5 STATE BUDGET UPDATE: NOVEMBER 2008 What a difference a year makes. State lawmakers knew that revenue growth was slowing, but no one could have foreseen just how dramatically the situation would change in a few short months. Nor could they have projected the disastrous effects on their budgets. State finances were taking a turn for the worse long before the National Bureau of Economic Research (NBER) officially announced a recession, which NBER says began in December As early as fiscal year (FY) 2008, nearly half the states faced budget gaps. That number rose to two-thirds by the time states were crafting their FY 2009 budgets. But despite closing a cumulative gap of nearly $40 billion during budget development, the states were not done addressing FY 2009 budget problems. Another sizable gap has opened and an even bigger one looms for FY The state budget situation is grim and getting worse with each new revenue revision. Faltering revenues have been the biggest culprit of current state fiscal problems. Revenue growth rates began slowing last year, but they have fallen precipitously in recent months as the national economy has contracted. Plunging consumer confidence, rising unemployment and increasing business failures help explain shrinking state revenues. In fact, many states report that every major revenue source is below projections, which in some cases already had been lowered to reflect underperformance. Even states that previously reported exceptionally strong revenue collections have moderated their expectations as oil and commodity prices fall. As officials look forward, the revenue outlook is indeed dim. Already, more than half the states are pessimistic about revenue performance for the rest of FY Despite the extensive attention to revenue shortfalls, they are, however, only part of the problem. Many states also face growing expenses for health care, especially Medicaid, public education and a variety of other programs. The combination of lower revenues and rising costs has trapped many states in a budget vise. The easiest and most palatable options to close budget gaps have been tapped. And lawmakers are far from being done making tough choices as they face new multi-billion-dollar shortfalls in FY As bad as the current state fiscal situation is, it may pale in comparison to what looms ahead. As a rule, state finances lag the national economy both going into a downturn and recovering from one. This means that the toughest years lie ahead. Although it is early in the

6 6 State Budget Update: November 2008 process, half the states already foresee a budget gap in FY 2010 and the total amount is huge: $64.7 billion. This is a conservative estimate that will undoubtedly rise as more states assemble revenue and expenditure forecasts for the coming fiscal period. This report provides information on all 50 states and Puerto Rico. It is based on data collected from legislative fiscal directors in November It includes information on budget gaps in FY 2009, actions states are taking or considering to close the gaps, revenue performance (through October 2008 for most states), the outlook for revenue performance for the rest of FY 2009, and projections of FY 2010 budget gaps. FY 2009 Budget Gaps The terms "revenue shortfall" and "budget gap" are an unavoidable part of state budget lexicon these days. States cannot seem to escape them. Not only are they persistent, they are growing, in some cases significantly. Many states are now facing their third consecutive budget gap, with another one looming. Here are the numbers. Thirty-one states and Puerto Rico resolved a cumulative $40.3 billion shortfall as they were preparing their FY 2009 budgets. This pre-enactment budget gap, which was closed because of balanced budget requirements, followed the $13 billon gap that 19 states and Puerto Rico plugged in FY Since the beginning of FY 2009, new gaps have opened in 38 states and Puerto Rico. The initial amount of this post-enactment budget gap is $31.8 billion. This sum is expected to grow as states get updated revenue and expenditure reports, many of which are expected in December or January. Twelve states did not indicate a FY 2009 gap at the time of this report. FY 2009 gaps vary considerably, with 20 states indicating gaps less than 5 percent of their FY 2009 budgets. In 12 states and Puerto Rico, the shortfalls range from 5.0 percent to 9.9 percent. Six states reported gaps of 10 percent or more. Twenty-nine states and Puerto Rico reported both pre-enactment and postenactment FY 2009 budget gaps. The two states that reported pre-enactment gaps but no additional ones since the new fiscal year began are Louisiana and Michigan. Table 1 provides more information on FY 2009 budget gaps. FY 2009 Revenue Performance The revenue situation is deteriorating in nearly every state. The problem is particularly acute in states that rely on personal income, sales and corporate income taxes. But even states that previously reported strong revenue performance due to economies that rely on energy and commodity production are rethinking their estimates as prices for these products have fallen in recent months. Because of rapidly changing revenue performance, many states have revised their forecasts, usually downward. In fact, 19 states have lowered their forecasts for all of their major taxes.

7 State Budget Update: November For some, like Arizona, California, Massachusetts, New York and several others, this means the "big three" personal income, sales and corporate income taxes. In others, like Delaware, Florida and Nevada (which do not levy all three of the major taxes), the forecast reductions are being applied to the sources most important to the state, such as gaming levies in Nevada. In 15 states, all major tax categories are failing to meet their forecasted levels. The greatest concern is where collections are failing to meet forecasts that already have been lowered. Based on revenue performance to date and developing trends, 26 states are pessimistic about the revenue outlook for the rest of FY This is in sharp contrast to the situation one year ago when not a single state was pessimistic and nearly half saw the outlook as stable. On top of the 26 pessimistic states, another 19 are concerned about future revenue performance. Only six states report a stable outlook, No state is optimistic. The chart below shows how this year's perspective compares to that in the past six fiscal years. Revenue Outlook for the Remainder of the Fiscal Year, November 2002 November 2008 Nov Nov Nov Nov Nov Nov Nov Outlook (FY 2003) (FY 2004)* (FY 2005) (FY 2006) (FY 2007) (FY 2008) (FY 2009) Optimistic Stable Concerned ** 19** Pessimistic * One state not reporting. ** Includes Puerto Rico. Source: NCSL survey of legislative fiscal offices, various years. The rest of this section reviews state revenue performance relative to the latest estimates. 1 Personal Income Taxes Personal income tax collections account for just over one-third of state own-source revenues. Nine states do not levy a broad-based personal income tax. 2 More information on personal income tax performance is shown in Table 3. Eighteen states reported that personal income tax collections were below target. (This tally does not include Arizona and California where officials did not provide specific information but noted that deep shortfalls plague all major revenue categories.) In eight of these, collections were failing to meet a reduced target. In New Mexico, the forecast had been increased to reflect strength demonstrated last year, but recent collections were below the higher target. In Kansas, collections were below the estimate by 2.5 percent, so the forecast was reduced. 1 2 Thirty-four states and Puerto Rico provided revenue performance data through October; 16 states provided information through September. Tennessee, which taxes dividends and capital gains, is included in this section of the report. New Hampshire has a tax similar to Tennessee s but did not provide information.

8 8 State Budget Update: November 2008 Collections were on target in nine states. They were meeting the original target in four states and were on target with a reduced forecast in five others. Nine states indicated that personal income tax collections were above estimate. In four states, collections were above the original forecast and in three collections were above a lowered forecast. North Dakota had upped its forecast, and collections were coming in above that level. Both Minnesota and Vermont noted that although personal income tax collections for the first months of the fiscal year were above estimates, that was likely a timing issue and would not be sustained in the coming months. General Sales Taxes Like the personal income tax, general sales and use taxes represent about one-third of state collections. Five states do not levy a state-level sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. More information on general sales tax performance is shown in Table 4. Sales tax collections fell below forecast in 26 states. (This tally does not include Arizona and California where officials did not provide specific information but noted that deep shortfalls plague all major revenue categories.) In 11 of these, collections were failing to meet a reduced forecast. In Iowa, the forecast had been raised, but collections were below the higher target. Sales tax collections were on target in eight states. In five of these states, however, the forecast had been lowered. Sales taxes were above forecast in five states. In North Dakota, collections were exceeding a higher forecast. Corporate Income Taxes On average, corporate taxes account for about 7 percent of state tax collections. But a couple of states depend on them for more than 20 percent of their collections. More information on corporate income tax performance is shown in Table 5. Corporate income tax collections were below target in 21 states. (This tally does not include Arizona and California where officials did not provide specific information but noted that deep shortfalls plague all major revenue categories.) In seven of these states, collections were below a reduced target. Twelve states reported that collections were on target. In five of these they were on target with a lowered forecast. North Dakota was on target with a higher forecast. In eight states, corporate income tax collections were above expectations. In three of these, they were above a reduced forecast. Other Taxes States rely on a variety of miscellaneous tax sources for income. These include taxes on oil and gas, real estate transfers, cigarettes, meals and rooms, insurance premiums, motor fuel, estates, production and various others. Table 6 contains more information on these taxes.

9 State Budget Update: November Thirteen states reported that miscellaneous taxes were below forecasts. Examples were real estate taxes (Delaware and Florida), severance taxes (Louisiana and New Mexico) and motor fuels taxes (Georgia, Maine and Utah). Eight states reported that miscellaneous taxes were on target with the estimate, including energy-related taxes (Alaska, North Dakota and Wyoming), gaming revenue (Mississippi) and estate taxes (New York). Miscellaneous taxes were above forecast in seven states. Examples were coal severance or other energy taxes (Kentucky, Oklahoma and West Virginia) and cigarette taxes (Ohio). Actions to Close FY 2009 Budget Gaps Most states have part-time legislatures, so lawmakers were not in regular session when budget gaps started emerging soon after the new fiscal year began (on July 1, for 46 states). That meant that governors typically took the first actions to address budget problems. A few states also met in special session to resolve shortfalls. Here is a summary of state actions or proposals to close FY 2009 budget gaps. At least 10 states have imposed and another 10 are considering across-the-board budget cuts. Some of the largest cuts occurred in Nevada (7.4 percent, with additional cuts possible), New York (6 percent) and Ohio (4.8 percent). In North Carolina, the cuts ranged from 1.5 percent to 5 percent, depending on the program. Additional states are considering across-the-board cuts. These include Delaware (7 percent), Georgia (10 percent), Maine (5 percent) and New Mexico (5 percent). Across-the-board cuts are expected to save at least $4 billion (excluding the amount in California, which was not provided). Almost without exception, certain programs are exempted or partially protected from cuts. For instance, California, Idaho, Ohio and Virginia exempted corrections from already imposed budget cuts. Other states, including Kansas, New Mexico, New York and Virginia, have or plan to protect public school funding. States often look for targeted reductions within certain programs to save money, and that is occurring again. Five states have identified K-12 education budgets for targeted reductions (e.g., cutting or postponing technology upgrades), although year-over-year spending is still likely to increase. Three other states are considering reductions within K-12 budgets. Other areas that will see targeted reductions include higher education (eight states, two considering), Medicaid (six states, four considering), corrections (six states, four considering) and other programs like Temporary Assistance to Needy Families or state aid to local governments. Eight states have taken actions affecting the state workforce. Maryland abolished 841 positions, although 801 of them were vacant. Massachusetts reduced state employment by 1,000. Virginia has reduced its number of employees by 567.

10 10 State Budget Update: November 2008 Other cost-saving actions affecting state employees include a hiring freeze (19 states, four considering), travel bans (14 states, two considering), a salary freeze (four states, one considering) and early retirement programs (two states). In addition to cost-saving measures, states have looked to reserve funds to help close budget gaps. Five states already have tapped their rainy day funds and six others are considering it. Rainy day funds will be tapped for at least $3.7 billion. Officials in nine states have tapped other state funds and five others are considering them. Maryland plans to use $75 million in one-time fund balance transfers to help the FY 2009 budget. Virginia plans to use about $51 million from the literary fund to help support public education. Other budget-balancing actions include delaying capital projects (five states, five considering) and shifting pay-as-you-go projects to debt (three states, one considering). Other actions include delaying Other Post Employment Benefit (OPEB) payments, freezing equipment or state motor fleet acquisitions and tax amnesty programs. Most states will begin their 2009 legislative sessions in January. In addition to starting work on their FY 2010 budgets, lawmakers will address the budget problems in the current fiscal year. Many more gap-closing actions will occur by the end of the fiscal year. Projected FY 2010 Budget Gaps Budget gaps just keep getting bigger, according to projections by legislative fiscal offices. With only half the states able to comment on FY 2010 budgets at this early stage of the process, the expected state-by-state gaps are huge. So is the cumulative amount. Here are the numbers. The cumulative FY 2010 shortfall already is projected to be at least $64.7 billion. This information is based on 26 states providing estimates. Several others noted that new projections expected in December or January would provide information on whether a gap was forecast and its amount. More FY 2010 gaps are expected. Of the 26 states projecting FY 2010 gaps, all except for North Carolina expect them to exceed 5 percent of their general fund budgets. In 10 states the gaps are expected to range between 5 percent and 9.9 percent. Fifteen states already expect budget gaps greater than 10 percent, compared to six states reporting double-digit imbalances in their post-enactment FY 2009 budgets. Of the 15 states forecasting double-digit gaps in FY 2010, the largest are in Arizona (24.2 percent), New York (20 percent), California (18 percent), Wisconsin (17.2 percent), Minnesota (14.7%) and Kansas (14.5 percent). If the FY 2010 gaps materialize as projected, at least 13 states will have faced budget gaps in FY 2008, FY 2009 and FY These states are: Arizona, California, Connecticut, Delaware, Florida, Georgia, Kansas, Maine, Nevada, Rhode Island,

11 State Budget Update: November South Carolina, Virginia and Wisconsin. In California, the cumulative gap in FY 2009 and FY 2010 is $27.9 billion.

12 12 State Budget Update: November 2008 State Estimate (in millions) Percent of General Fund Budget Table 1. FY 2009 Budget Gaps Comment Alabama $ % This figure is $117 million more than the $6.5 million appropriations shortfall reported in the last survey. The shortfall is now larger because during October the Alabama Trust Fund (the Oil & Gas Trust Fund) board did not transfer $117 million in capital gains to the general fund that were included in FY 2009 revenue estimates on which the FY 2009 budget was based. The transfer was not made because there were no capital gains on Sept. 30 (the date designated by the state constitution when the amount of capital gains or losses from investments of the Alabama Trust Fund are to be calculated for purposes of determining the amount, if any, of capital gains available to be transferred to the general fund during the new fiscal year that begins Oct. 1). The FY 2009 general fund shortfall is expected to be significantly greater when FY 2009 revenue estimates are revised in January Also, this shortfall does not reflect a funding shortfall in Medicaid, currently estimated at $18 million, that will need to be addressed if Medicaid is not able to implement cost-savings of that amount. Alaska (N/A) Arizona $1, % Arkansas (N/A) California $8, % The Legislative Analyst Office estimates a budget gap of $8.4 billion for FY Colorado $ % Connecticut $ % Expenditures are $54.2 million less than budgeted and revenues are $446.0 million less. Delaware $ % Florida $2, % Florida's revenues continue to fall below the August 2008 estimate. The Revenue Estimating Conference met on Nov. 21, 2008, and adjusted the estimates downward by $1.9 billion. Recent caseload conferences also have increased the likely expenditures for programs such as Medicaid. Georgia $2, % The deficit was estimated to be $1.6 billion in August, but will likely grow to $2.1 billion before the close of FY Hawaii $ % On Oct. 29, 2008, the general fund revenue projection for FY 2009 was revised from 1% to -0.5% by the state's Council on Revenues. Idaho $ % Revenues are underperforming by $10.3 million, plus the state needs an additional $11 million for fires and other deficiency warrants and $5.7 million for Medicaid. This is based on the August revenue forecast. Officials are expecting to hear shortly from the Division of Financial Management that the forecast will be revised downward again before the legislative session, and holdbacks will be greater than the current 1%. Illinois $2, % Of this amount, $1,342.0 million is due to a revenue shortfall (spending is the other component). Indiana (N/A)

13 State Budget Update: November State Estimate (in millions) Percent of General Fund Budget Table 1. FY 2009 Budget Gaps Comment Iowa $ % Iowa has estimated the FY 2009 budget gap to be between $30 million and $40 million. For the purposes of this table, the midpoint estimate was used. State expenses related to the floods and storms of 2008 and the declining economy have affect the projected ending balance for FY The executive branch continues to project a positive ending balance for FY 2009, but there is an identified supplemental need for Medicaid expenses estimated to be between $30 million and $40 million. The governor's office is asking departments to identify budget reductions in the hopes of avoiding an across-the-board cut. This number could increase as time goes on. The next Revenue Estimating Conference is Dec. 12. Kansas $ % The state has just completed its revised revenue estimate in November for FY 2009 and reduced the revenue estimate $211.4 million or 3.5%. The estimate is projecting a decline in revenue for the second half of the fiscal year mainly in individual income and in retail sales and compensating use taxes. Kentucky $ % In addition to the general fund, the Consensus Forecasting Group revised the road fund down by $104.7 million or 8%. Louisiana (N/A) Maine $ % Maine's estimated FY 2009 budget gap is $140.3 million or 4.5% of budget based on the Dec. 1, revenue revision. The amounts shown here do not reflect expenditure side shortfalls that must be funded within existing appropriations. Maryland $ % This projected amount follows $50 million in general fund spending withdrawn by the governor in June 2008 (applied to the FY 2009 budget) and $297 million in general fund spending withdrawn in October 2008 and is based on the Department of Legislative Services October estimate of revenues. Massachusetts $1, % Massachusetts has estimated the FY 2009 budget gap between $1.0 billion to $1.4 billion (3.5%-5%). For the purposes of this table, the midpoint estimate was used. Michigan (N/A) Minnesota $ % Mississippi $ % Reduction in the FY 2009 revenue estimate by $78.6 million and a shortage in the beginning cash balance for FY 2009 of $6.9 million accounts for the $85.5 million gap. Missouri (N/A) Montana (N/A) At the end of FY 2009, Missouri had an ending budget balance of $545 million, which will help the state get through FY 2009 even though collections are currently below forecast. Presently it looks like the fund balance will get the state through FY 2009 without any corrective action. The state will not have an official estimate of the FY 2009 revenue shortfall until after the revenue estimate revision in December. Nebraska $ % The gap is calculated relative to a statutorily prescribed ending balance as of June 30, A structural imbalance is also present in the current fiscal year.

14 14 State Budget Update: November 2008 Table 1. FY 2009 Budget Gaps State Estimate (in millions) Percent of General Fund Budget Comment Nevada $ % The latest projections indicate an additional $337 million general fund shortfall in FY The governor and legislative leadership are negotiating the next round of budget reductions, which current estimates indicate would need to be in the $337 million range for the remainder of FY At this time, it appears that there will be a special session in early December to address the current FY 2009 budget shortfall. Previously, the Legislature met in special session in June 2008 to implement actions to address the budget shortfall. It should be noted that since the 2007 Legislature approved the budgets for FY 2008 and FY 2009, a total general fund shortfall of $1.174 billion has been identified. Actions have been taken to address the projected shortfall for FY 2008 and FY New Hampshire $ % New Jersey $ % The governor has projected a revenue shortfall as high as $1.2 billion. The gap is expected to be addressed with carry-forward funds and mid-year spending reductions. New Mexico $ % Falling oil and gas expenditures combined with special session appropriations and tax rebates contributed to the gap. New York $1, % The $1.475 billion budget gap shown is based upon general fund spending (including net transfers) as reflected in the SFY 2009 through SFY 2012 Mid-Year Financial Plan Update. The gap also reflects savings measures taken in August when the Legislature met in special session and enacted general fund cost savings measures of $427 million for SFY North Carolina $1, % The budget gap was created by a revenue shortfall and does not include any additional (new) spending demands. North Dakota (N/A) Ohio $1, % Cuts and other measures have been proposed to address $540.7 million of the gap. The outstanding gap to be resolved is $640.0 million. Oklahoma (N/A) Oregon $ % Pennsylvania $2, % This is the amount estimated by the House Republican Finance Committee. Puerto Rico $ % The FY 2009 budget has faced this gap since July 1, 2008, due to the P.R. Health Insurance Administration understated budget. Rhode Island $ % Only revenues, human service caseloads and Medicaid have been revised officially. South Carolina $ % $621.1 million of the shortfall has been addressed. A shortfall of $103.3 million remains and will need to be addressed. South Dakota $ % The fiscal year trend is not clear at this time. Tennessee $ % Based on the first three months of collections, the administration is projecting that the shortfall could be $800 million. This represents almost 7% of the general fund budget. Texas (N/A) FY 2009 supplemental needs could be as high as $1.5 billion (before the impact of Hurricane Ike), but available revenue is sufficient to cover those needs. Utah $ % This is the amount as of Sept. 25, special session (when the state officially adopted new revenue estimates).

15 State Budget Update: November State Estimate (in millions) Percent of General Fund Budget Table 1. FY 2009 Budget Gaps Comment Vermont $ % $88 million is general fund amount only. The state did a forecast revision on July 29 that reduced general fund revenues by $24 million. The state went through a rescission process in August that addressed this shortfall with appropriation reductions of roughly $12 million and applications of other funds of $12 million. On Nov. 18, a new forecast was made which downgraded the general fund another $37 million, and $27 million of program cost pressures were identified so a $64 million (6%) gap needs to be addressed. There is also a gap in the transportation fund. On July 29, the transportation fund revenue was downgraded by $8 million (3.5%) and on Nov. 29, the transportation fund was downgraded another $5 million. In August, $4 million of transportation fund expenses and programs were cut, so a $9 million (4%) transportation fund gap remains to be addressed. Virginia $ % It is likely that this figure may increase. The governor has begun the reforecasting process in preparation for submitting his budget on Dec. 17. Since the release in early October of a new forecast for FY 2009, the national economic outlook has declined significantly. Washington $ % This is the amount of the FY 2009 budget problem. The overall budget problem is expected to dramatically increase for the next two years. West Virginia (N/A) No budget gap as of Oct. 31, Wisconsin $ % Wyoming (N/A) United States $31,819.7 Key: (N/A) = Not applicable no FY 2009 gap. Source: NCSL survey of state legislative fiscal offices, November 2008.

16 16 State Budget Update: November 2008 Table 2. Performance of Major Tax Categories: Personal Income Tax Revised State/Jurisdiction Through No Up Down Performance Above On Estimate Target Below Estimate Comment Alabama Sept. Individual income tax gross receipts were $52 million (1.5%) less than estimates for the year but $95 million (2.7%) more than the prior year. Alaska (N/A) Arizona Oct. Based on preliminary October numbers, tax collections were running approximately $430 million below the original budget forecast. Shortfalls are across the board in all major revenue categories. Arkansas Oct. California Oct. Colorado Sept. Connecticut Oct. Officials have decreased the estimates for the personal income tax based on recent collection trends through October. Delaware Oct. The personal income tax is down $51 million (5%). Florida (N/A) Georgia Sept. The governor's revenue estimate has not been revised but will be revised in January as part of the FY 2009 amended budget recommendations. Hawaii Sept. The Council on Revenues forecasts in aggregate for all tax categories. Idaho Oct. The personal income tax is down $6.7 million for the year. Illinois Oct. Both the governor's office as well as the legislative forecasters have voiced concerns over where revenues are heading. Current rates of growth are close to budgeted amounts; however, it's believed that those growth rates will soon decline over the remainder of the year.

17 State Budget Update: November Table 2. Performance of Major Tax Categories: Personal Income Tax Revised State/Jurisdiction Through No Up Down Performance Above On Estimate Target Below Estimate Comment Indiana Oct. Individual income taxes were relatively flat and slightly underforecast. Total revenue collections as of Oct. 31, 2008, were under by $15.8 million from the December 2007 revised forecast, but $87.2 million from the original budget forecast made in April Iowa Oct. Kansas Oct. The personal income was $29.9 million or 2.5% below the October estimate and has since been reduced downwards. Kentucky Oct. The Consensus Forecasting Group also believes performance will deteriorate as the state moves through the fiscal year. Louisiana Oct. Maine Oct. The individual income tax was on target through October largely due to final payments from prior tax years. Withholding has dropped below last year's collections and April's final payments are expected to decline as a result of a drop in capital gains due to financial market turmoil. Maryland Oct. Although income taxes are currently on target, officials expect them to deteriorate over the coming months. Massachusetts Oct. Michigan Sept. Minnesota Oct. Personal income taxes had been above forecast through August. September was essentially flat. In October, the personal income tax was 6% below the forecasted amount. Mississippi Oct. Missouri Oct. Officials will revise the FY 2009 forecast in December. At the end of October net general revenue collections had declined by 1.1% compared to a forecast of 3.1% growth. All major taxes are below forecast.

18 18 State Budget Update: November 2008 Table 2. Performance of Major Tax Categories: Personal Income Tax Revised State/Jurisdiction Through No Up Down Performance Above On Estimate Target Below Estimate Comment Montana Oct. The first significant decline was observed during October. Officials are in the process of developing revised recommendations. Nebraska Oct. Nevada (N/A) New Hampshire (N/A) New Jersey Oct. The income tax is down 1% year to date. The governor has publicly warned that revenues will be $1.2 billion lower than original estimates but has not itemized this by tax/revenue source, so officials cannot indicate that a specific revenue source has been revised downward. New Mexico Oct. The personal income tax was revised upward due to strength in FY 2008 but is not expected to grow from that level. New York Oct. North Carolina Sept. All economy-based taxes are coming in below forecast targets. North Dakota Sept. Ohio Oct. The personal income tax was $38.8 million (1.4%) below the revised estimate through October. Oklahoma Sept. Oregon Sept. Pennsylvania Oct. Year to date through October, the personal income tax is $72.4 million or 1.9% below estimate. Puerto Rico Oct. Revenues are $53 million below budget for the four-month period of July-October. Except for personal income taxes and non-tax revenues, all other categories are below estimate including excise taxes, taxes from external sources, sales and use taxes and the non-resident withholding tax.

19 State Budget Update: November Table 2. Performance of Major Tax Categories: Personal Income Tax Revised State/Jurisdiction Through No Up Down Performance Above On Estimate Target Below Estimate Comment Rhode Island Sept. Revenue estimates were revised on Nov. 10, South Carolina Oct. Economic forecasts were revised downward on Nov. 7, so officials do not know performance relative to the latest estimate. South Dakota (N/A) Tennessee Oct. No official revision has been made at this time. Current revenue collections indicate the state general fund is under-collected by $200 million through October. Texas (N/A) Utah Sept. This is information as of the first quarter revenue report from the Tax Commission. Vermont Oct. Timing is a little tricky. In the Nov. 18, forecast update all categories were downgraded to reflect the large shifts in the economy for September through November. Actual revenue collections through October were running in aggregate just above the target levels established in the July forecast update. Most of this is in the personal income tax. Officials expect refunds later in the year to negate this. The forecast will be updated again in mid-january. Virginia Oct. Washington (N/A) West Virginia Oct. The personal income tax is $60 million over the estimate. The entire general revenue fund is $99 million over the estimate as of Oct. 31. Wisconsin Oct. Wyoming (N/A) Total Key: (N/A) = Not applicable Source: NCSL survey of legislative fiscal offices, November 2008.

20 20 State Budget Update: November 2008 Table 3. Performance of Major Tax Categories: General Sales Tax Revised Performance Above On Below State/Jurisdiction Through No Up Down Estimate Target Estimate Comment Alabama Sept. Sales tax gross receipts were $36 million (1.8%) less than estimates but $4.4 million more than the prior year. However, sales tax gross receipts would have been $11.6 million less than prior year receipts if not for the $16 million payment acceleration. Net sales tax receipts were actually $16.5 million less than prior year net receipts because of a new $23 million debt service payment made from sales tax gross receipts for a record $1.1 billion Alabama Public School & College Authority bond issue for capital outlay and deferred maintenance. Alaska (N/A) Arizona Oct. Based on preliminary October numbers, tax collections were running approximately $430 million below the original budget forecast. Shortfalls are across the board in all major revenue categories. Arkansas Oct. California Oct. Colorado Sept. Connecticut Oct. Officials have decreased the estimates of the sales tax based on recent collection trends through October. Delaware (N/A) Florida Oct. All tax sources were re-evaluated at the Nov. 21, 2008, Revenue Estimating Conference meeting. As of October 2008, the sales tax was 1.2% under estimate. Georgia Sept. The governor's revenue estimate has not been revised but will be revised in January as part of the FY 2009 amended budget recommendations. Hawaii Sept. The Council on Revenues forecasts in aggregate for all tax categories. Idaho Oct. The sales tax was forecast to decline 4.1% on a year-to-date basis but is actually down by 6.4%, leading to a belief that the sales tax will continue to decline significantly.

21 State Budget Update: November Table 3. Performance of Major Tax Categories: General Sales Tax Revised Performance Above On Below State/Jurisdiction Through No Up Down Estimate Target Estimate Comment Illinois Oct. Both the governor's office as well as the legislative forecasters have voiced concerns over where revenues are heading. Current rates of growth are close to budgeted amounts; however, it's believed that those growth rates will soon decline over the remainder of the year. Indiana Oct. Sales taxes were relatively flat and slightly underforecast. Total revenue collections as of Oct. 31, 2008, were under by $15.8 million from the Dec revised forecast, but $87.2 million from the original budget forecast made in April Iowa Oct. Like many states, Iowa is experiencing a slowing of the economy and consumer reluctance to spend due to fear/concern for the future, which is affecting sales tax collections. It is too soon to tell regarding other taxes. The latest estimate was made on Oct. 9. Kansas Oct. Kentucky Oct. Sales taxes are performing below initial expectations. The Consensus Forecasting Group also believes performance will deteriorate as the state moves through the fiscal year. Louisiana Oct. Maine Oct. The sales tax dropped below budget for the fiscal year by $3.6 million or 1.2% in October (representing September taxable sales). This negative variance is expected to worsen over the course of the fiscal year. Maryland Oct. Although sales taxes are currently on target, officials expect them to deteriorate over the coming months. Massachusetts Oct. Michigan Sept. Minnesota Oct. Sales tax revenue is $33 million or about 2% below the forecasted amount. All comparisons are to the February 2008 revenue forecast adjusted for changes enacted in the 2008 legislative session. Mississippi Oct.

22 22 State Budget Update: November 2008 Table 3. Performance of Major Tax Categories: General Sales Tax Revised Performance Above On Below State/Jurisdiction Through No Up Down Estimate Target Estimate Comment Missouri Oct. Officials will revise the FY 2009 forecast in December. At the end of October net general revenue collections had declined by 1.1% compared to a forecast of 3.1% growth. All major taxes are below forecast. Montana (N/A) Nebraska Oct. Nevada The last estimate of major revenue sources was made on Nov. 3, The official revenue forecast for FY 2010, and FY 2011 was made on Dec. 1, Sales tax collections for the first three months of FY 2009 decreased 3.2% compared to the same period one year ago. Gaming percentage fee collections for the first four months of FY 2009 decreased 11.9% compared to the same period one year ago. New Hampshire (N/A) New Jersey Oct. The sales tax is down 3% year to date. The governor has publicly warned that revenues will be $1.2 billion lower than original estimates but has not itemized this by tax/revenue source, so officials cannot indicate that a specific revenue source has been revised downward. New Mexico Oct. Sales taxes are performing well but data are only available through September. There is an expectation that October and November will be weaker than normal and not meet estimates. New York Oct. North Carolina Sept. All economy-based taxes are coming in below forecast targets. The sales tax is the weakest performer. North Dakota Sept. Ohio Oct. The sales and use tax was $41.7 million (1.6%) below estimate. Oklahoma Sept. Oregon (N/A) Pennsylvania Oct. Year to date through October, the sales and use tax is $91.1 million or 3.9% below estimate.

23 State Budget Update: November Table 3. Performance of Major Tax Categories: General Sales Tax Revised Performance Above On Below State/Jurisdiction Through No Up Down Estimate Target Estimate Comment Puerto Rico Oct. Revenues are $53 million below budget for the four-month period of July-October. There is a possible future downward revision of sales and use taxes, which are $38 million below budget. Rhode Island Sept. Revenue estimates were revised on Nov. 10, South Carolina Oct. Economic forecasts were revised downward on Nov. 7, so officials do not know performance relative to the latest estimate. South Dakota Sept. Sales tax collections are lagging. It is too early to determine true trends. Tennessee Oct. No official revision has been made at this time. Current revenue collections indicate the state general fund is under-collected by $200 million through October. Texas Oct. Texas has not revised revenue estimates. However, the sales tax is higher than estimated. Utah Sept. This is information as of the first quarter revenue report from the Tax Commission. Vermont Oct. Timing is a little tricky. In the Nov. 18, forecast update all categories were downgraded to reflect the large shifts in the economy for September through November. Actual revenue collections through October were running in aggregate just above the target levels established in the July forecast update. Most of this is in the personal income tax. Officials expect refunds later in the year to negate this. The forecast will be updated again in mid- January. Virginia Oct. Despite a downward revision in the early October reforecast, sales taxes continue to fall. Year to date they are at -2.6%, trailing the estimate of 0.0% growth. Washington Oct. For the first time in at least the last 15 years, general fund revenues are now expected to decline from FY 2008 to FY West Virginia Oct. The general sales tax is $21 million below the estimate. The entire general revenue fund is $99 million over the estimate as of Oct. 31, Wisconsin Oct.

24 24 State Budget Update: November 2008 Table 3. Performance of Major Tax Categories: General Sales Tax Revised Performance Above On Below State/Jurisdiction Through No Up Down Estimate Target Estimate Comment Wyoming Oct. Total Key: (N/A) = Not applicable (Alaska, Delaware, Montana, New Hampshire, and Oregon) Source: NCSL survey of legislative fiscal offices, November 2008.

25 State Budget Update: November Table 4. Performance of Major Tax Categories: Corporate Income Tax Revised Performance State/Jurisdiction Through No Up Above Down Estimate On Target Below Estimate Comment Alabama Sept. Corporate income tax gross receipts were $25 million (4.5%) less than estimates (even with an $8 million acceleration) but $44.5 million (8.7%) more than the prior year. Alaska Sept. Arizona Oct. Based on preliminary October numbers, tax collections are running approximately $430 million below the original budget forecast. Shortfalls are across the board in all major revenue categories. Arkansas Oct. California Oct. Colorado Sept. Connecticut Oct. Delaware Oct. The corporate income tax is down $9.6 million (10.5%) from the June estimate, but $96 million (54%) from FY 2008 actual collections. The corporate franchise tax is down $25.2 million even with a tax increase of $52.5 million in the current year. Florida Oct. Even though corporate income tax collections have run above estimates, recent refunds have been much higher than anticipated. All tax sources were reevaluated at the Nov. 21, 2008, Revenue Estimating Conference meeting. Georgia Sept. The governor's revenue estimate has not been revised but will be revised in January as part of the FY 2009 amended budget recommendations. Hawaii Sept. The Council on Revenues forecasts in aggregate for all tax categories. Idaho Oct. The corporate income tax is up by $7.2 million. Illinois Oct. Both the governor's office as well as the legislative forecasters have voiced concerns over where revenues are heading. Current rates of growth are close to budgeted amounts; however, it's believed that those growth rates will soon decline over the remainder of the year.

26 26 State Budget Update: November 2008 Table 4. Performance of Major Tax Categories: Corporate Income Tax Revised Performance State/Jurisdiction Through No Up Above Down Estimate On Target Below Estimate Comment Indiana Oct. Total revenue collections as of Oct. 31, 2008, were under by $15.8 million from the December 2007 revised forecast, but $87.2 million from the original budget forecast made in April Gaming revenue is also below forecast. Iowa Oct. Kansas Oct. Kentucky Oct. Corporate income taxes are performing below initial expectations. The Consensus Forecasting Group also believes performance will deteriorate as the state moves through the fiscal year. Louisiana Oct. Corporate income taxes have fallen more than expected. Maine Oct. The corporate income tax dropped below budget by $8.7 million or 16.5% (primarily the results from September estimated payments) and declined by 14.4% compared with the same period last year. Maryland Oct. For the corporate income tax, both gross receipts and refunds are below expectations. Net receipts through October are about 5.8% below the estimate. Massachusetts Oct. Michigan Minnesota Oct. Corporate income taxes had been above forecasted amounts through August. September revenue was essentially flat. In October the corporate income tax was 18% below the forecasted amount. Mississippi Oct. Missouri Oct. Officials will revise the FY 2009 forecast in December. At the end of October net general revenue collections had declined by 1.1% compared to a forecast of 3.1% growth. All major taxes are below forecast. Montana Oct. Nebraska Oct. Nevada (N/A) New Hampshire Oct. The business tax is down $47.6 million.

27 State Budget Update: November Table 4. Performance of Major Tax Categories: Corporate Income Tax Revised Performance State/Jurisdiction Through No Up Above Down Estimate On Target Below Estimate Comment New Jersey Oct. New Mexico Oct. New York Oct. North Carolina Sept. All economy-based taxes are coming in below forecast targets. North Dakota Sept. Ohio Oct. The corporate franchise tax was $10.6 million above estimate. Oklahoma Sept. Oregon Sept. Pennsylvania Oct. Year to date through October, corporation taxes were $120.8 million or 31.6% below estimate. Puerto Rico Oct. Revenues are $53 million below budget for the four-month period of July-October. Except for personal income taxes and nontax revenues, all other categories are below estimate including excise taxes, taxes from external sources, sales and use taxes and the non-resident withholding tax. There is a possible future downward revision of sales and use taxes that is $38 million below budget. Rhode Island Sept. Revenue estimates were revised on Nov. 10, South Carolina Oct. Economic forecasts were revised downward on Nov. 7, so officials do not know performance relative to the latest estimate. South Dakota (N/A) Tennessee Oct. No official revision has been made at this time. Current revenue collections indicate the state general fund is under-collected by $200 million through October. Texas (N/A) Utah Sept. This is information as of the first quarter revenue report from the Tax Commission.

28 28 State Budget Update: November 2008 Table 4. Performance of Major Tax Categories: Corporate Income Tax Revised Performance State/Jurisdiction Through No Up Above Down Estimate On Target Below Estimate Comment Vermont Oct. Timing is a little tricky. In the Nov. 18, forecast update all categories were downgraded to reflect the large shifts in the economy for September through November. Actual revenue collections through October were running in aggregate just above the target levels established in the July forecast update. Most of this is in the personal income tax. Officials expect refunds later in the year to negate this. The forecast will be updated again in mid- January. Virginia Oct. Washington Oct. For the first time in at least the last 15 years, general fund revenues are now expected to decline from FY 2008 to FY West Virginia The corporate income tax is $2.5 million under the estimate. The entire general revenue fund is $99 million over the estimate as of Oct. 31, Wisconsin Oct. Wyoming (N/A) Oct. Total Key: (N/A) = Not applicable (Nevada, South Dakota, Texas and Wyoming). Source: NCSL survey of legislative fiscal offices, November 2008.

29 State Budget Update: November State/ Jurisdiction Identify Through No Up Down Table 5. Performance of Major Tax Categories: Other Revised Performance Above On Estimate Target Below Estimate Comment Alabama Sept. Officials expect to decrease the estimates for interest on state deposits and several other general fund revenue sources directly affected by the current financial situation (e.g., the finance institution excise tax, the mortgage record tax and the deed record tax). Alaska Petroleum production tax Arizona Not specified Oct. Based on preliminary October numbers, tax collections are running approximately $430 million below the original budget forecast. Shortfalls are across the board in all major revenue categories. Arkansas (N/R) California Oct. Colorado (N/R) Connecticut Delaware Florida Interest income Lottery, realty transfer tax Documentary stamp tax, intangibles tax, insurance premium tax Oct. Officials have decreased the estimates for the oil companies tax due to declines in oil and motor fuels prices and have decreased the estimate for interest income given current interest rates. Oct. Lottery receipts are down $32 million (including a revenue increase package of $14.1 in the current year). The realty transfer tax is down $17.2 million (24%) since June. Oct. The documentary stamp tax was 7.8% under estimate, the intangibles tax was 15.2% under estimate and the insurance premium tax was 5.9% under estimate. Georgia Motor fuel Sept. The governor's revenue estimate has not been revised but will be revised in January as part of the FY 2009 amended budget recommendations. Hawaii Not specified Sept. The Council on Revenues forecasts in aggregate for all tax categories