What Do November Estimates of State Revenue Mean?

For the twelve months ending November 2009, New Hampshire revenues destined for the General Fund and Education Trust Fund are 3.6% less than for the twelve months ending a year earlier.   What does that mean for the future?  Given the difficulty of predicting anything about the economy right now, no one is really sure.  However, we do know that 2010 revenues will fall short of estimates unless the next 7 month period shows a 3% increase above the same period last year.  In other words, revenue estimates produced as part of last year’s budget process could be accurate, but only if the economic situation is clearly on the mend and the free-fall in state revenues has stopped.   Has it?

 

The evidence suggests that year-to-year declines in business revenues and general fund dollars more broadly continues, although revenues are declining at a slower rate.  In December 2007, when the latest national recession started, state revenues were growing by 7% annually, but the rate of growth in state revenues started to slow.  By October 2008, total state revenues were decreasing compared to the previous 12 months. 

 

The chart shows the year over year change in total revenue, and for selected sources – business taxes (the combination of the Business Profits Tax and Business Enterprise Tax), Meals and Rooms, and Sweepstakes (Lottery) revenue.

 

 

Business taxes were increasing at close to 15% percent annually, before slowing considerably in March 2008.  Business taxes declined by 14% in the twelve months ending November 2009, compared to a year earlier.   The decline in business taxes would have been worse in November, but unprocessed refunds in November were delayed until the December revenue report, so expect a renewed decrease in business taxes in December when these refunds are posted.

 

Meals and Rooms tax revenue grows more slowly, but is also more stable, than most other revenue sources.  And, state sweepstakes revenue, which consists of lottery and scratch ticket sales, showed weakness in March 2007 and have been declining almost consistently since May 2007, although the rate of decline has slowed in recent months.

 

Posted by:  Steve Norton