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					                         The Revenue Forecast




T
       he Commonwealth's           Growth in general                          sales and use taxes and public
       total revenue consists of                                              service gross receipts taxes al-
       two types of resources:
                                   fund revenues                              so fell short of expectations.
general and nongeneral funds.      exceeds forecast for                       Collectively, the five major
About half of state revenues       eighth straight year                       sources ended the year with a



                                   I
(50.2 percent) are "nongeneral         n fiscal year 2000, total              surplus of $25.1 million.
funds," or funds earmarked by          general fund tax revenues                   Miscellaneous taxes and
law for specific purposes. For         grew 10.5 percent to                   other revenues ended the year
example, motor vehicle and         $10,721.5 million, exceeding by            $19.3 million below the esti-
gasoline taxes must pay for        $5.8 million the official forecast         mate. Most of the shortfall
transportation programs, stu-      of $10,715.7 million (10.4 per-            was due to lower than ex-
dent tuition and fees must         cent growth).                              pected collections in estate and
support higher education, and
                                       A surplus of $84.4 million             gift taxes. Collections of mis-
federal grants are designated
                                   in corporate income tax collec-            cellaneous taxes and penalties
for specific activities.
                                   tions offset a shortfall of $39.5          and other miscellaneous reve-
    General fund revenues are      million in individual income               nues also contributed to the
derived from general taxes         tax receipts. Collections of               shortfall.
paid by citizens and businesses
in Virginia. Because general
fund revenue is not dedicated
to any particular purpose and          General fund tax revenue growth expected to be
can be used for a variety of            3.8 and 7.0 percent for the 2000-02 biennium
government programs, these                           Percent change over previous year
are the funds that the Gover-
nor and the General Assembly
have the most discretion to
spend.
    General fund revenues are
derived primarily from five
major revenue sources: corpo-
rate income taxes, individual
income taxes, sales and use
taxes, public service gross re-
ceipts and consumption taxes,
and insurance premium taxes.
Miscellaneous taxes and other
revenues also contribute to the
                                   Data for 2001 and 2002 are forecasts. Source: Department of Taxation
general fund.


A-22 REVENUE FORECAST
     The general fund revenue
forecast calls for considerably
lower growth in fiscal year                               The general fund forecast
2001 than what has been expe-                             for the 2000-02 biennium
rienced in the past few years.
                                                                                        2000-02 biennium
Although the economic fore-
                                                                          Actual         Forecast         Forecast
cast is expected to remain solid                                          2000             2001            2002
over the forecast horizon, the         Major tax sources
outlook for revenue growth is          Corporate income                      565.9           476.5            514.8
less optimistic because recent         Individual income                   6,828.9         7,258.4          7,793.3
data reveal that the fiscal year       Insurance premiums                    251.1           259.5            273.3
2000 base was artificially in-         Public utility                        104.2            87.4             95.5
flated due to several substan-         State sales & use                   2,201.5         2,297.5          2,448.1
tial anomalous revenue events.
                                       Miscellaneous                          769.9          750.6            778.8
     Furthermore, the decline in
the equity markets, after five         Total tax revenues                 10,721.5        11,129.9         11,903.8
years of double-digit growth,          Tobacco Settlement                      66.9          271.4            295.1
is expected to slow revenue
growth. Tax revenues are ex-           Total revenues                     10,788.4        11,401.3         12,198.9
pected to grow by 3.8 percent
                                       Transfers
in fiscal year 2001 and by 7.0                                                 30.2           27.4             27.8
                                       ABC profits
percent in fiscal year 2002.                                                  324.3          314.0            314.1
                                       Lottery profits
                                       Transfers from the
                                       Appropriation Act                       83.1            13.6             21.1
Five major sources
account for most                       Total general fund               $11,226.0       $11,756.3        $12,561.9
general fund revenue                 Dollars in millions. Excludes balances available for appropriation. Figures may not




H
                                     add due to rounding. Source: Department of Taxation.
         ere's a look at the
         forecast for each of the
         major categories of
                                    the business cycle than per-                   Individual income taxes
general fund revenue:
                                    sonal income taxes.                                 Net individual income tax
Corporate income taxes                   Corporate income tax col-                 receipts of $6,828.9 million
                                    lections have been notoriously                 trailed the official estimate by
    Corporate income taxes
                                    difficult to forecast due to: (1)              $39.5 million in fiscal year
increased by 34.6 percent in
                                    the tenuous link between prof-                 2000. Actual growth over the
fiscal year 2000, attributable
                                    its and tax liability; (2) Virgin-             previous year was 12.2 per-
not only to strong growth but
                                    ia’s profit/loss carry-forward,                cent. For 2001, these receipts
also to several large anoma-
                                    carry-back provisions; and (3)                 are forecast to be $7,258.4 mil-
lous payments. Growth in
                                    the varying time lag between                   lion, a moderate 6.3 percent
corporate collections should
                                    the booking of profits and the                 increase over 2000. The decel-
return to a more normal rate in
                                    payment of taxes. In addition,                 eration of growth in this
fiscal year 2001, falling by 15.8
                                    large fluctuations are often                   source is attributable, either
percent due mainly to large
                                    caused by payments of, or re-                  directly or indirectly, to the
one-time payments received in
                                    funds to, a few large corpora-                 recent slump in the stock mar-
fiscal year 2000.
                                    tions.                                         ket. Solid growth of 7.4 per-
     The corporate income tax                                                      cent is expected in fiscal year
is the most volatile of Virgin-                                                    2002.
ia’s revenue sources and tends
to be even more sensitive to

                                                                                           REVENUE FORECAST A-23
Sales and use taxes                 ceeded the forecast by $1.5         Nearly half of
     Sales and use tax collec-      million in 2000. Over the bi-
                                    ennium, collections of insur-
                                                                        state revenue is
tions grew by 6.6 percent in                                            nongeneral fund rev-
fiscal year 2000, $4.1 million      ance premiums taxes are antic-
behind the official forecast. In    ipated to continue a path of        enue
fiscal year 2001, despite solid     slow, steady growth. Fiscal         Although most public atten-
consumer fundamentals, sales        years 2001 and 2002 collections     tion is focused on general fund
tax collections are expected to     are expected to grow at 3.4 and     revenue, about one-half of all
increase only modestly by 4.4       5.3 percent, respectively.          revenue in the state budget is
percent due to higher energy                                            nongeneral funds that are
                                    Miscellaneous taxes and other
prices, reduced wealth effects,     revenue                             earmarked by law for specific
higher interest rates, and a full                                       purposes.
year’s impact of the reduced             Miscellaneous taxes and
                                    other revenues fell short of           Nongeneral fund revenue is
sales tax on food. Collections
                                    projections by $19.3 million in     expected to increase by 10.4
in fiscal year 2002 are expected
                                    2000. Most of the shortfall was     percent in 2001 and by 8.1 per-
to grow by 6.6 percent.
                                    caused by lower-than-expected       cent in 2002. Nongeneral
Public service gross receipts /     collections of estate taxes. Col-   funds will comprise about 50.2
consumption taxes                   lections of miscellaneous taxes     percent of total state revenue
                                    and other revenues are ex-          during the 2000-02 biennium.
    Revenues from public utili-
ty companies fell short of the      pected to decline by 2.5 per-
                                                                        Federal grants
2000 forecast, finishing the        cent in 2001 and increase by
year $17.2 million below the        3.8 percent in 2002.                   Federal grants are the larg-
estimate. Legislation signed                                            est source of nongeneral fund
into law in 2000 will begin the
                                    Tobacco settlement funds            revenue (more than one-third
process of deregulation of the           The Governor proposes to       of the total).
electric utilities on January 1,    sell Virginia’s Master Settle-         Frequently these grants do
2001. Therefore, collections        ment Agreement allocation for       not come to the state as simple
from this source will decline       future years. This initiative       cash transfers. The federal
beginning in fiscal year 2001 as    will add another $460 million       government mandates many
corporate income tax pay-           to general fund revenue dur-        program requirements as con-
ments from the electric com-        ing the 2000-02 biennium            ditions of the grants and often
panies will begin in that same      ($223.0 million for 2001 and        states must provide matching
year.                               $237.0 million for 2002).           funds. The Medicaid program
    As part of the deregulation          When these amounts are         for indigent health care is an
legislation, a per kilowatt hour    taken into account, total gen-      example of a federal entitle-
consumption tax on consumers        eral fund revenue collections,      ment program which requires
of electricity was enacted.         excluding transfers, are ex-        a state contribution.
Revenues from this tax are in-      pected to grow by 5.7 percent           In 2000, federal grants and
cluded here. Collections in         in 2001 and 7.0 percent for         contracts totaled $3.9 billion.
this source are expected to de-     2002. (See detailed discussion of   This source is projected to in-
cline by 16.1 percent in fiscal     “Tobacco Master Settlement          crease by 19.0 percent to $4.7
year 2001 and then grow by 9.3      Agreement funds” at the end of      billion in 2001, and then level
percent in fiscal year 2002.        this chapter.)                      off for 2002.

Insurance company                                                       Institutional revenue
premiums taxes
                                                                           The second largest class of
   Tax collections on insur-                                            nongeneral fund revenue is
ance company premiums ex-                                               institutional revenue. The

A-24 REVENUE FORECAST
principle sources of this reve-      increased travel, growth in                   Projected collections are ex-
nue are patient fees at teaching     motor fuel sales, and higher                  pected to be lower each year of
hospitals and mental health          interest earnings. For 2001 and               the biennium, reflecting higher
institutions as well as tuition      2002, total fund revenues from                wage and employment growth
and fees paid by students at         state sources are expected to                 and the increase in the fund
institutions of higher educa-        grow to $1.90 billion and $1.97               balance factor (solvency level)
tion. In 2000, institutional rev-    billion, respectively. These                  which governs the tax sched-
enue collections were $2.5 bil-      amounts are equal to annual                   ules or formula used to make
lion, nearly one-fourth of all       growth of 0.9 percent and 3.5                 collections for the Unemploy-
nongeneral fund revenue. In-         percent, respectively.                        ment Insurance Trust Fund.
stitutional revenues are pro-                                                      For 2000, actual unemploy-
jected to grow modestly by 2.4       Unemployment                                  ment tax collections were
percent to $2.6 billion in 2001      insurance fund                                $149.1 million. For 2001 and
and by 1.0 percent in 2002.              Unemployment insurance                    2002, revenues are anticipated
These growth rates are affected      tax collections rise and fall                 to decrease to $132.6 million
by two offsetting trends: the        with trends in the economy.                   and $141.1 million, respective-
continuation of the freeze on
tuition increases at institutions
of higher education, and the
collection of additional reve-                           The nongeneral fund forecast
nues at correctional institu-
                                                           for the 2000-02 biennium
tions for out-of-state prisoners.
                                                                         1998-00 biennium            2000-02 biennium
Transportation Fund
   State transportation reve-                                                     Actual         Forecast        Forecast
nue comes from several                                                             2000            2001            2002
sources including the motor           Motor vehicle fuel tax                     $822.3          $872.8           $883.1
vehicle fuels tax, the motor          Unemployment                                149.1           132.6            141.1
vehicle sales and use tax, road       compensation payroll tax
taxes, vehicle license fees, state    Special highway tax from sales              372.5           390.2             415.6
sales tax, interest earnings, and     tax
other miscellaneous taxes and         Motor vehicle sales                         491.6           479.4             501.7
fees. Money in this fund is           and use tax
                                      Other taxes                                 105.0           103.5             111.6
used to support highway con-
struction and maintenance and         Rights and privileges                       539.5           564.3             577.1
operating costs. Federal, local,      Sales of property and                       321.0           334.3             349.5
                                      commodities
and toll revenues are also used
                                      Institutional revenue                     2,516.2         2,577.0          2,602.6
to finance transportation pro-
                                      Interest dividends and rents                123.9           109.4            132.8
grams.
                                      Federal grants and                        3,912.0         4,656.4          4,689.2
    Commonwealth transporta-          contracts
tion revenues from state taxes        Tobacco Master Settlement                   100.41            72.6            788.2
and fees amounted to $1.88            Agreement Funds
billion in 2000, an increase of       Other Revenue                               912.9         1,154.7          1,185.6
$111.5 million over the prior         Total2                                  $10,366.4       $11,447.2       $12,378.1
year. Total collections ended
at $67.0 million, or 3.7 percent     Dollars in millions. Figures may not add due to rounding.
                                     1
                                      Not in Appropriation Act for fiscal year 2000. Appropriated by stand-alone legislation
above the forecast. This vari-       (Chapter 880, 1999 Acts of Assembly).
ance was primarily due to a
                                     2
                                      Total excludes balances and bond proceeds available for appropriation, as well as
                                     Lottery, Literary, and internal service funds.
strong economy, greater-than-
expected vehicle purchases,          Source: Department of Planning and Budget, based on data submitted by agencies.

                                                                                             REVENUE FORECAST A-25
                                                                         F
ly.                                 cation in two separate trust               inally, the Governor
                                    funds. The Tobacco Indemni-                proposes that the MSA
Tobacco Master Settlement           fication and Community Revi-               allocation for future
Agreement Funds                     talization Fund receives 50          years be sold to a special-
    The Master Settlement           percent of the MSA allocation.       purpose legislatively created
Agreement (MSA) was signed          This share is used to compen-        entity that will sell bonds to
between the major participat-       sate tobacco growers and to-         investors to finance the pur-
ing cigarette manufacturers         bacco quota holders for the          chase of the allocation. The
and 46 states, the District of      economic loss resulting from         sale will be made in a series of
Columbia, and five United           quota loss or elimination and        transactions in 2001 and 2002
States’ territories on November     to promote economic growth           and will involve the MSA allo-
23, 1998. The settlement            and development in tobacco-          cation for 2003 and beyond.
agreement releases participat-      dependent communities in the         The Commonwealth will re-
ing manufacturers from past,        Southside and Southwest re-          ceive a lump sum payment,
present, and future smoking-        gions of the state.                  rather than continuing to re-
related claims of the states in                                          ceive multi-year payments
                                        The Virginia Tobacco Set-
return for an annual cash                                                during the period for which
                                    tlement Fund receives the next
payment to the states in perpe-                                          the allocation is sold.
                                    10 percent of the MSA alloca-
tuity. These payments are to        tion for the purposes of dis-            This financing option pro-
be adjusted over time for sev-      couraging, eliminating, or pre-      vides an up-front payment to
eral factors, including inflation   venting the use of tobacco           the Commonwealth with
and changes in volume of do-        products by minors and for           smaller residual payments
mestic cigarette shipments.         health care. Programs targeted       over the life of the bonds. The
                                    at minors include but are not        financing is secured solely by
     The participating manufac-     limited to educational and           the asset of the cash flows gen-
turers are currently making         awareness programs on the            erated by the annual income
these payments to the MSA           health effects of tobacco and        stream of the MSA allocation.
Escrow Agent. Disbursement          on laws restricting the distri-
of the funds to individual set-                                              The Governor recom-
                                    bution of tobacco products to
tling states started in Decem-                                           mends that the lump sum
                                    minors.
ber 1999 when: (1) each state                                            payments, anticipated to total


                                    F
settled its pending or potential          or fiscal years 2001, and      approximately $1.2 billion
litigation with a consent decree          2002, it is anticipated that   when all payments are com-
and the time for all appeals              the Tobacco Indemnifica-       plete, be deposited as follows:
against the consent decree had      tion and Community Revitali-         to the Tobacco Indemnification
expired (i.e. State-Specific Fi-    zation Fund will receive $60.5       and Community Revitalization
nality), and (2) at least 80 per-   million and $72.6 million, re-       Endowment (50 percent of the
cent of the settling states, in     spectively, while the Virginia       allocation), the Virginia Tobac-
terms of number and dollar          Tobacco Settlement Fund will         co Settlement Endowment (10
volume of entitlement to MSA        take in $12.1 million, and $14.5     percent) and the Higher Edu-
payments, reached State-            million over the same period.        cation and Economic Devel-
Specific Finality (i.e., Final                                           opment Trust Fund (40 per-
                                        The remaining 40 percent
Approval).                                                               cent).
                                    of the MSA allocation will be
     The Commonwealth’s plan        deposited to the general fund            The earnings and a portion
for the use of MSA funds has        through fiscal year 2002. In         of the corpus of each of the
four elements. First, legisla-      fiscal year 2001, the general        endowments and the trust
tion passed by the 1999 Gen-        fund deposit is estimated to be      fund shall be applied as fol-
eral Assembly (Chapter 880,         $48.4 million, and in fiscal year    lows: (1) in the case of the To-
1990 Acts of Assembly) ear-         2002 it is projected to be $58.1     bacco Indemnification and
marked 60 percent of the allo-      million.                             Community Revitalization

A-26 REVENUE FORECAST
Endowment, to the Tobacco
Indemnification and Commu-
nity Revitalization Commis-
sion, for the purposes set forth
in current statutes; (2) in the
case of the Virginia Tobacco
Settlement Endowment to the
Virginia Tobacco Settlement
Foundation, for the purpose of
discouraging, eliminating, or
preventing the use of tobacco
products by minors as set forth
in current statutes and for
health care; (3) in the case of
the Higher Education and
Economic Development Trust
Fund, to support the debt ser-
vice on obligations to be issued
by the Virginia Public Building
Authority and the Virginia
College Building Authority for
higher education and econom-
ic development projects.




                                   REVENUE FORECAST A-27

				
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